Zacks Small Cap Research – NVX: Multiple Factors Support Optimistic Outlook, Believe Recent DOE Funding Underscores Potential of NVX Strategy – Technologist

By M. Marin

NASDAQ:NVX

READ THE FULL NVX RESEARCH REPORT

Growing interest in Novonix materials support positive outlook…

Novonix (NASDAQ:NVX) has secured financing through the DOE and leading corporate partners and has also secured advanced demand for its product. Among the many agreements NVX has formed to secure demand, an agreement with Kore Power, a leading U.S.-based developer of battery cell technology for the clean energy industries, calls for Novonix to be the exclusive supplier to Kore Power’s U.S. battery cell manufacturing facility and to commence delivery of anode material to Kore Power beginning later in 2024. We believe this could be a potential catalyst for NVX shares. Moreover, NVX has noted that it continues to attract interest from prospective tier-one customers seeking local supply. Plus we believe government measures bode well for the company. NVX expects to scale its anode business, nearing commercial production, while simultaneously advancing its cathode operations and securing additional capital to support growth measures.

The company expects 2024 will be an important year as Novonix begins to scale the anode business nearing commercial production. The company also expects to continue to advance its cathode synthesis operations (see below) and secure additional capital to support growth measures to advance all operating segments, including through the DOE Loan Program Office. Overall, the company’s expected 2024 rests on four key pillars:

• Pursue/maintain industry-leading R&D efforts for battery materials

• Scale operations – NVX believes it is on track for the timeline to deliver commercial production

• Secure new demand – NVX continues providing samples to major Tier 1 prospective customers

• Obtain additional financing – NVX has been awarded funds from DOE, industrial leader partners

Recent events underscore the need for local sourcing of critical battery materials …

The current supply of critical battery materials is sourced primarily from China. NVX has developed an efficient, low-cost process to produce synthetic graphite anode material that is designed to be competitive with China-sourced materials and also produced in more sustainable and efficient ways compared to competitors.

Highlights of 2023 operational progress include that Novonix moved forward and validated its Generation 3 furnace technology at a mass production scale. The company also conducted sampling and testing of its material, with results indicating that the materials are highly competitive compared to materials produced in China and elsewhere. Based on test results, including compared to materials in a Tesla Model S cell, the company believes that its anode material outperforms in direct head-to-head testing.

…Distance, geopolitical issues, including China’s export restrictions, could disrupt supply…

Currently, manufacturers in China produce about 65% of the world’s graphite, according to the U.S. Geological Survey, and Chinese companies control an estimated 80+% of the market for automotive battery anodes. The company believes the location of its plant and competitiveness of samples of its materials will be competitive advantages as North American battery demand climbs.

Moreover, sourcing critical battery materials primarily from China has potential risks. In addition to the distance, which could lead to shipping and distribution challenges as we saw during the pandemic, geopolitical issues also weigh in making having a local source important. Specifically, export controls from China highlight the need for local supply sources. In 4Q23, China imposed export controls for graphite.

China requires government approval for graphite exports, reflecting legislation to strengthen export controls on strategic materials. According to Nikkei Asia, an analysis of China’s General Administration of Customs trade statistics shows that exports of items subject to the licensing requirements that took effect Friday have doubled in the last three years to $8.4 billion in 2022, which is thought to largely reflect growing demand for EVs. At the same time, some Chinese battery material makers have announced plans to open plants overseas. Also in 4Q23, the Office of the United States Trade Representative (USTR) extended section 301 tariff exclusions on a myriad of Chinese products, including graphite, that were set to expire. However, given shifting relations between China and the U.S., these exclusions could be reinstated again. NVX believes China’s measures underscore the need for North American producers to develop a local supply chain for battery materials in the U.S.

…Recent funding from government and corporate sources validates the potential of NVX strategy…

Importantly, NVX also obtained financing from the DOE (Department of Energy) Office of Manufacturing and Energy Supply Chains, with the award of a US$100 million grant in 4Q23. We believe the expected increased need in North America for materials to support sustainable energy sources, combined with NVX’s strategy to develop a local supply chain, are key factors behind the funding the company has obtained recently from DOE and other sources. For example, NVX also received funding from Canada’s NRC IRAP (National Research Council of Canada Industrial Research Assistance Program).

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