Novonix Stock: Synthetic Graphene Supporting The EV Supply Chain (NASDAQ:NVX)

Background

Novonix (NASDAQ:NVX) is at the cutting edge of disruptive battery material technology. Historically, battery anodes have been a mixture of nickel, cobalt, copper, and lithium for lithium-ion batteries. However, Novonix has introduced graphene as a substitute for some metals due to its strength and conductivity. Novonix then utilizes graphene technology in a new battery anode. This technology will enable battery producers to manufacture at scale since graphene can be made in a lab and doesn’t need to be mined. Recently, Novonix has secured a deal with the large Canadian energy giant Emera (OTCPK:EMRAF). This deal makes Novonix directly responsible for the cathode materials in Emera’s batteries.

Unique Geographic Manufacturing Setup

Most cathode and anode materials for lithium-ion batteries are exported from China. This can cause supply chain issues, which can be detrimental to battery shipment and implementation. Novonix seeks to fix this problem through its distribution throughout the US with its production facilities in Tennessee and Louisiana. This will help the large-scale manufacturing needed to build electric vehicles. The demand will only increase as margins compress in harsh economic environments.

Novonix has a significant advantage because they specialize in battery materials rather than the production of batteries, which would require hundreds of millions that Novonix doesn’t need to spend. Being the go-to manufacturer for anode materials for various OEMs is where Novonix truly shines and is what drives its growth.

Green Alternative to Other Battery Materials

There is a high demand from the rare earth industry to supply the battery revolution. Graphene is excellent for making batteries en masse, and OEMs quickly realize that. As graphene technology becomes more advanced, the cost of its production will continue to decrease. This is the inherent difference because graphene is not mined for, hence making graphene more sustainable than other battery solutions. Also, the metrics of graphene hold up to competitors. Graphene can enhance the conductive capacity of the different materials in the anode and cathode, such as nickel, copper, lithium, etc.

Novonix is patenting new ways to create battery materials. With proprietary cathode and anode methods for all types of batteries, the company is entirely agnostic to the nature of what battery chemistry wins. Novonix can be used in lithium-ion battery stacking, lithium metal chemistry, and large cell stacking for energy storage. The various applications that Novonix’s patented materials have will prove to be necessary for keeping costs low for OEMs and for battery companies to have higher returns on capital invested because of their lower raw materials cost.

The partnerships will be necessary for future revenue growth. Novonix has amassed significant OEM support from Ford (F), Nissan (OTCPK:NSANY), Tesla (TSLA), and Volkswagen (OTCPK:VWAGY). These are all top 10 OEMs worldwide. Companies such as QuantumScape (QS) and Solid Power (SLDP) with major battery programs don’t have the same support. Novonix is the leading material distributor for these OEMs and their battery teams. Investors may not realize it, but much of the share price run-up of these OEMs is because of the data they hold. These companies know what works and what doesn’t. Manufacturing is a vital part of the supply line for many OEMs.

Risky Due to the Nature of the Market

Novonix will remain de-risked due to significant macro changes in the market. With continued Federal Reserve uncertainty and tech stocks getting crushed, Novonix is no exception. However, the real growth story remains. The company has found a niche in the battery materials market. They have vertically expanded along their supply chain to have separate anode, cathode, and battery testing business segments.

Novonix has an evident history, given their quarterly reports to Jun 2019. Shares have tripled in the count, and expenses have been consistently lower than revenue. In addition, EPS is slightly biased because the share count increases while costs grow. This signifies that the company has been taking on more and more debt. Share offerings have funded this debt; however, the overall share count has been decelerating since January 2021. This is a crucial risk factor for Novonix as share count can dilute an investor’s principal and be detrimental to a portfolio.

With the recent sell-off in growth stocks, Novonix has plunged more than 50% off its low $20 highs to around $11 a share. Even though the stock’s market value has been crushed, the technology still has benefits. However, Novonix needs to improve its bottom line before they are taken seriously as a growth stock.

Conclusion and Rating

Novonix has found its market niche, and now the company needs to prove to investors that it can make money. I rate Novonix a hold based upon market sentiment and other prevailing factors affecting the market. Synthetic graphene is a promising technology as the applications could help many OEMs with their battery process for electric vehicles. These relationships will be critical to the company’s success in the future.