NOVONIX Ltd. (OTCPK:NVNXF) Q4 2023 Earnings Conference Call January 29, 2024 7:00 PM ET
Company Participants
Chris Burns – Chief Executive Officer
Conference Call Participants
Chris Burns
Hi. I’m Chris Burns, and welcome to our Fourth Quarter Activities Report Update. Please read the notice and disclaimers after the presentation is posted.
NOVONIX is a uniquely positioned company to support building out the North American battery material supply chain. We’re a leading US-based battery materials and technology company, focused on process technology with lower carbon intensity. We’re focused on the large and growing market for the battery material supply chain, supported by localization efforts in the electric vehicle and energy storage sectors.
Since inception, we’ve been focused on the development of intellectual property around the process technologies to make high-performance synthetic graphite, as well as an all-dry, zero-waste NMC cathode synthesis technology, both of which we’ll speak about today.
At the core of the business is our Battery Technology Solutions group. It sets us apart from being a standard materials company and provides us a competitive advantage to accelerate our work in developing new products and new technologies in our materials teams. And we’re living in a time now where customers and government financing are supporting and paving the way to profitability as we scale our first production sites here in North America.
The image you see on the right here is our Riverside facility in Chattanooga, Tennessee. It’s a 400,000 square foot mass production site that we purchased about two years ago. And it will begin production later this year and be the first site dedicated in the US to the production of battery-grade synthetic graphite.
We operate our business through three primary units. The first is our battery technology solutions business. We founded this about 10 years ago to focus on accelerating the pace of innovation through research and development services, precision testing equipment, and now we’re working on data solutions to leverage the data that we generate there through artificial intelligence and machine learning models, all to look to accelerate the pace through which we can bring new process technologies and new materials to market where we see growth in our anode and cathode technologies.
In 2017, we founded our anode materials division. We’re focused on solving the impending gap in the supply chain for synthetic graphite, as we saw localization coming to North America. And now we are leading the charge to develop a sustainable supply chain of high-performance synthetic graphite here in the United States.
In more recent years, we started our cathode materials team. We developed intellectual property around an all-dry, zero-waste NMC cathode synthesis, again with a focus on sustainability. And this year — this past year, we’ve reached a 10-tonnes pilot line scale within our facilities and demonstrated both the materials’ performance and the benefits of this process technology.
Graphite has finally become a critical material of interest and attention in the battery sector. There have for years been focus on other materials such as lithium and nickel while graphite represents almost half of the battery by weight. And now we see with our reliance on China trade policies both from the United States and from China highlighting the criticality of graphite.
Some major updates in the fourth quarter of last year alone from the United States were clarification on language around the 45x tax credits for critical minerals to very clearly show both synthetic and natural graphite are eligible critical minerals within these policies. They also updated guidance on the foreign entities of concern and the control in which Chinese companies can have in processing critical minerals and still be eligible for rebates and incentives under the Inflation Reduction Act.
And of course, the Section 301 tariffs have had a tariff in place on Chinese-made graphite for the battery sector that has a waiver extension now through May 31st of this year. And we expect these to be critical elements as we look at decoupling our reliance from China and continuing to make investments in building a sustainable supply chain here in the United States.
Perhaps most notably in the last quarter were the announcements from China as battery-grade graphite became subject of export controls that were announced in October of last year. Those export controls came into effect on December 1. And for the first time just in the last few weeks, we’ve seen reports out of Japan that have actually showed trade statistics that show month-over-month decreases of imports of graphite into Japan from China, decreasing by as much as about 40% and into the United States, decreasing by about as much as 20%. This presents an enormous risk to the supply chain in the United States as some manufacturers invest heavily to build cell manufacturing capacity to the electric vehicle and energy storage sector and highlights the need to work with key partners to develop process technology and scalability such as NOVONIX, who can supply synthetic graphite in the local market.
This is really where our Riverside facility sets NOVONIX apart from anyone else. We purchased this facility in 2021 and held an opening with the US Secretary of Energy, Jennifer Granholm. We signed our first supply agreement with KORE Power and tend to deliver them product from this facility.
And most recently, we announced that we were awarded a $100 million brand from the US Department of Energy, through the manufacturing, energy and supply chains office to invest into Riverside to support reaching its production capacity. And at the beginning of the last — of the fourth quarter, we provided a comprehensive business update, including many milestones that we achieved through the year, one of which was the demonstration of our Generation 3 continuous induction furnace technologies, images that you see here on the right-hand side of the screen.
We’ve reached material product specification targets, as well as equipment throughput and engineering targets for these systems, which are our first-in-the-world accomplishment. And on the back of this, we intend to invest to increase the output of our Riverside facility from 10,000 tonnes as we initially targeted. It’s up to 20,000 tonnes, and the team is working diligently on the engineering to support this maximum and optimize output of the facility.
But equally important is reaching scale for the North American market is being able to demonstrate a pathway to profitability in a competitive market that is currently controlled by China. The key here is that different products have different process technology requirements and thus, different cost structures and different pricing structures. But we’ve demonstrated now with our modeling that we can produce materials that are in demand by the EV sector in the cost targets shown on the screen here and the price targets for these low to high grade products around the US$7 to US$10 per kilogram mark.
When we look at options for incentives such as 45X tax credits, these lead us to unit economics that can generate 23% to 28% margins out of our Riverside facility. And this doesn’t take into account any influence on the local prices of the graphite that might come into effect should the tariffs on to the Section 301 Act go back into effect after the May 31 review.
We see this as a huge advantage in the ability to deliver key products to customers that we work with Tier 1 customers out of our Riverside facility and they continue a path to further scale in future sites.
When we look back at 2023, we had a monumental year in terms of accomplishments toward our four key objectives. The first at the core of the business is to maintain industrial leadership and research and development across the battery materials space. On the back of that, of course, to scale our operations with a focus on our Anode Materials division and through that, securing Tier 1 customers and securing financing.
As we look at maintaining leadership across the sector, this involves our work around our 10 ton pilot line in our cathode synthesis technology and the study that we released from Hatch, showcasing the benefits of that process technology.
On our data analytics team, we signed an agreement with SandboxAQ to look to leverage AI and advanced modeling techniques into our data processing. On our operations side, specifically at NAM, we’ve generated, as I said, data to show that we met performance targets of materials as well as our furnace and equipment targets for first-in-the-world closed-loop induction furnace technologies. These offer environmental benefits, lower energy intensity, sustainable process technology for North America.
And when we look at Tier 1 customers, of course, we signed the joint development agreement with LG Energy Solution about midway through the year. LG Energy Solution is forecasted to be one of the largest producers of cells in North America by the end of this decade and we continue to advance sampling programs and discussions with almost all the Tier 1s that are focused on scale here in North America.
And as we continue to look to finance our growth, as part of the agreements with LG Energy Solution, they invested $30 million through a convertible note structure. And I mentioned, we finalized our award for $100 million into our Riverside facility from manufacturing and energy supply chain team under the Department of Energy.
In the fourth quarter alone, when we look across our corporate activities on our Anode Materials and Technology Solutions Group, who provided the comprehensive business update and we made significant progress through our ESG program.
Daniel Akerson resigned from our Board and at the end of the year, we closed with about $78 million on [indiscernible]. I mentioned on our Anode Materials division, the finalization of our $100 million grant, continued progress on our ATVM loans with the Department of Energy Loan Programs Office, worked with Tier 1 customers, and most importantly, progress our engineering work and production campaigns through our Gen 3 Furnace technology, all to continue our investment this year to reach our product targets that we’ll talk about in the coming slides.
Within our Technology Solutions Group in the fourth quarter, we launched a light version of our data analytics software that will future — in the future, leverage the AI and machine learning models that we’re developing. We released new equipment within our Hardware business, and we continue to progress our Cathode Materials development in terms of products and scale, which we’ll speak about in the coming slides.
To remind people the benefits of our cathode synthesis technology, we’ve developed an all-dry zero-waste synthesis technology that through engineering scoping study from Hatch showed a capital intensity decrease of about 30% and an operating cost decrease, excluding the raw materials of about 50%. This means on a net operating basis, a lower operating cost by about 5% to 6%, which is significant considering the expense of high nickel cathode materials within the battery cell cost.
All of this is, of course, predicated with more environmentally-friendly process technology. We’ve shown to have about 27% lower power consumption and about 65% less water, all while eliminating the production of sodium sulfate as a byproduct and working toward a more sustainable process technology that can be scaled here in the Western world.
And through the use of our pilot line, we’ve been able to demonstrate the synthesis of various grades of NMC, but with a strong focus early in the 60% nickel or NMC622 material. And what we show here is that we’re able to demonstrate in full cells built within our battery technology solutions team that the performance of the cathode materials that we can make through our all-dry zero-waste cathode synthesis technology on our pilot line are competitive or better than leading materials from Asia of the same class.
So, this is significantly important as we look to be able to demonstrate and bring to market and bring to customers a process technology that can make key materials, high-performance materials in a more sustainable fashion.
As we look ahead to 2024, those four pillars continue to be our focus, industrial leadership in research and development, scaling operations, securing customers, and securing financing.
And when we look at leadership across the space, we’ll continue to grow our Battery Technology Solutions group in revenue and service offerings. We’ll continue to test, sample, and work to commercialize with partners, our all-dry zero-waste cathode synthesis technology, and look to deploy our artificial intelligence and machine learning models in our data solutions software.
As we look at scaling operations, our focus will be on our Riverside facility, completing the engineering work to look at the optimized capacity and flow sheets for the site, as well as installation of equipment to reach our target of a 3,000 tonne per year run rate by the end of the year to support the customer time lines and qualification time lines that we are working towards. We’ll leverage that engineering package from Riverside to continue to progress our greenfield facility plans for our next site.
All of this, of course, requires customer uptake. We’ve been successful in working with key customers such as KORE and LG Energy Solution. And in the past with Panasonic and Samsung, and we continue to work with all of those entities to support their programs. And this year, we’ll look to continue to sign supply agreements with Tier 1 cell manufacturers to allocate the Riverside capacity and growth plan through those offtake agreements. And we’ll continue to allocate greenfield facility capacity as we look toward the future of our next site.
And as we look at financing these operations, we’ll be investing into Riverside with the receipt of our mass grant funding. We’ll continue to progress our LPO application for our greenfield facility, and we’ll look to attract strategic investment to align with our capacity brand as we’ve successfully done in the past with strategic investors such as Phillips 66 and LG Energy Solution.
As we look at our full growth plans with a focus on our anode materials team, our target is 150,000 tonnes of annualized production within North America, and we view this in three phases. First is the completion of our Riverside site to 20,000 tonnes to support KORE Power and other customers and then bringing online the first phase of a greenfield facility of an incremental 30,000 tonnes to reach a 50,000 tonne throughput. And eventually, future sites take us fully to 150,000 tonnes of capacity.
And as you can see from a market share basis, these are still modest North American market shares continuing to highlight the supply and demand gap that will exist in North America for this decade and beyond. And NOVONIX strategic position to be a leader in closing that gap and working with key customers to be a supplier of synthetic graphite here in North America.
We continue to be focused on staying at the forefront of product innovation and have become a recognized leader in the industry for our work. As we’ve talked about, scaling our anode materials technology and commercializing our oil-driven zero waste cathode technology are our primary goals while continuing to invest in development of new IP to build new divisions of the company for the future.
We’re very excited about 2024 and the year ahead, and it will be a monumental year for the company. As we look at the investments and the progress that we’ve made, the efforts from the team, all coming to fruition as Riverside becomes the first dedicated site to be producing battery grade synthetic graphite by the end of this calendar year.
Thank you.
Question-and-Answer Session
End of Q&A
