Novonix shares: Phillips 66 invested in this start-up, should you? (NASDAQ:NVX) | Jobs Recent


Olema

Nowonix (NASDAQ:NVX) is a speculative growth company that specializes in the production of synthetic graphite for use in the production of anodes in lithium-ion batteries for the electric vehicle market. I say “speculative growth” because the company is not yet profitable and is facing capital expenditure on the development of infrastructure and supply chains. So far, that has not worked out for investors: since going public in February, the stock has fallen more than 75% (see below). However, this could be an opportunity for investors, given that Novonix is ​​backed by the US Department of Energy Phillips 66 (PSX), which holds 16% of shares in the company.

Chart
Data according to YCharts

Investment thesis

We all know that the global electric vehicle market is growing at a dizzying pace. We also know that the Biden Administration’s Infrastructure Act and the IRA Act (which I prefer to call what it really is: the “Clean Tech Act”) support building clean tech and electric vehicle supply chains here in America as opposed to rolling and letting the Chinese to dominance in the sector (and related well-paid jobs in industry).

Indeed, the anode and cathode materials for building lithium-ion batteries are a U.S.-critical technology that can be sourced right here at home. Although lithium is widely commented on and is the best-known component of lithium-ion batteries, there is much more graphite in the battery than lithium. In addition, battery anodes require a special coated spherical graphite with a purity of more than 99.9%.

Enter Novonix, which received a $160 million grant from the U.S. Department of Energy in October to expand domestic production of high-performance synthetic graphite anode materials. NVX plans to increase production of synthetic graphite to 40,000 tonnes per year by 2025. In January, one of the leading US refiners, Phillips 66, acquired a 16% stake in the company and will supply needle coke from its Lake Charles refinery to the NVX plant in Chattanooga, Tennessee. This is the only domestic EV battery anode supply chain in the US:

Novonix supply chain

Nowonix

The chart above was taken from Novonix’s presentation at the OTC Markets Conference in November.

Phillips 66 participates

Phillips 66 acquired 77,962,578 common shares of Novonix for a total purchase price of USD 150 million, or an average of USD 1.92 per share. This was enough for a 16% stake in the company.

During last year’s Q4 conference call, current PSX CEO Mark Lashier said:

Our emerging energy group is developing opportunities in renewable fuels, batteries, carbon capture and hydrogen. We recently signed a technical development agreement with NOVONIX to accelerate the development of next-generation materials for the US battery supply chain. We hold a 16% stake in the company, expanding our presence in the battery value chain.

In January, during a presentation at the Goldman Sachs Clean Energy Conference, then-PSX CEO Greg Garland said:

You have seen our investments in batteries around Novonix… We have been participating in this value chain for many years. We produce, especially the material that is used to make synthetic graphite, and we have a great demand. We also have many opportunities to work with manufacturers who want to produce synthetic graphite, both in Europe and North America, as these value chains want to localize. So they are not dependent on a supply chain all the way to China to produce lithium-ion batteries in Europe and North America. That’s why we’re working with NOVONIX to develop a very low-carbon pathway to synthetic graphite in sports lithium-ion batteries.

In January, Novonix also received a $5.57 million DOE award for developing advanced, production-scale graphitization furnace technology, the first of its kind in the world:

Development of the Novonix furnace

Nowonix

Novonix also has a key strategic investment and supply agreement with KORE Power, a leading domestic manufacturer of battery cell technology. Part of this deal was a $25 million investment from Novonix for approximately 5% of KORE:

Novonix, KORE power union

Nowonix

Keep in mind that the KOREPlex plant is scheduled to start production in 2024 and that’s it NVX will be the sole supplier of graphite anode material – expected to be close to 12,000 tonnes per year.

risks

Through PSX, Novonix has blocked the supply of special coke for the production of its synthetic graphite material, which it expects to supply in large quantities to KOREPlex starting in 2024.

However, that’s still over a year away. Meanwhile, NVX is losing cash: In the last quarter ending September, the company had only $2.8 million in quarterly and year-to-date revenue while using $19.2 million in cash. The good news is that at the end of the quarter, the company had $181.8 million in cash and only $36 million in long-term debt. In this situation, and with the combined support of DOE and Phillips 66, it appears that Novonix has more than enough cash to invest in the business and run it until it scales its facilities and revenues start to grow. because it supplies its partners with synthetic graphite.

According to Research & Markets, the top five producers of synthetic graphite have more than 75% market share: Shanshan Technology, Shenzhen Sinuo Industrial Development Co. Ltd, BTR New Energy Materials Inc., Jiangxi Zichen Technology Co. Ltd and Hitachi Chemical Ltd. These are large and major competitors. However, none of them make synthetic graphite in the USA and this is what makes NVX unique.

For investors, the opportunity is huge. This is because the Clean-Tech Act is already in place and domestic and North American supply chain activities for domestic EV battery production are booming:

North American battery supply chain

Nowonix

As mentioned earlier, having a completely domestic supply chain reduces the shipping distance from China. More importantly, it’s also safer sourcing, and the components will qualify for government incentives for “Made in the USA” battery components.

Summary and Conclusions

Novonix is ​​a speculative growth investment and is not for the faint of heart. That’s because the company continues to burn cash, is not profitable, and has little current revenue. However, it appears that NVX’s proprietary technology is both unique and will be in high demand in the future. I say this because not only is DOE investing in the company, but so is Phillips 66, a private company that will supply key material in NVX’s manufacturing process. The company has already concluded an exclusive supply agreement with KORE Power. In that case, I would not bet on NVX in the future and would rate the company as a “SPECULATIVE BUY” for those investors who like to invest part of their portfolio in high-risk, high-yield companies. Such an investor will have to be patient, as the investment in NVX may not pay off for the next 12-18 months.

Editor’s Note: This article discusses one or more securities that are not traded on major US stock exchanges. Be aware of the risks associated with these stocks.



Source link