Novonix - Q3 2023 TU

Transcript

Chris Burns (CEO)

Hello, and welcome to the NOVONIX Third Quarter Activities Report Update webcast. I'm Dr. Chris Burns, the CEO, and I'm excited to talk today about the progress we've continued to make across the business in the third quarter of this year. This document contains forward-looking statements, and we encourage everyone to review the disclaimers at their leisure. I'll start by introducing NOVONIX. We are a leading U.S. battery materials and technology company focused on materials with lower carbon footprint technology. We're pursuing the large and growing market for battery materials needed to support the localization efforts for the electric vehicle and energy storage sectors, primarily here in North America.

Over the past six years, we've developed a significant intellectual property portfolio around primarily synthetic graphite manufacturing, but also more recently, all dry, zero-waste NMC cathode synthesis, and we'll talk about each of these through the presentation. At the core of the business is our battery technology solutions group. It provides a competitive advantage to the company, with internal capabilities to build and test cells and do leading work to support our materials teams in both the anode and the cathode material space. We're currently in a time where customer and government financing is paving the way towards supporting the sector, growing here in North America to profitability. What we see in the image here is a picture of our Riverside manufacturing facility.

This is in Chattanooga, Tennessee, where we'll begin production of synthetic graphite late next year. The timeliness of production of synthetic graphite is ever more important. Last week, China announced export controls to come in on graphite materials from China, including battery-grade graphites. This poses a huge risk to the country here in the United States, as well as the world that relies heavily on Chinese material in a time where we're looking to localize supply to support new programs under, for example, the Inflation Reduction Act here in North America. To show that reliance on China, we look at the forecasted demand and supply of graphite needed to support the vehicle and energy storage industry.

If we look at 2030 in North America, there'll be over 1 million tons of projected graphite demand to support the sector, with a significant shortcoming of that being planned to be produced by companies like NOVONIX and others. Presumably, the balance of that supply would come from the Asian markets and primarily China, as they control over 90% of the production of battery-grade graphite today. However, export controls from the country propose significant risk to being able to fill this shortage with high-quality material at cost-competitive rates that the industry continues to need to drive adoption in vehicles and energy storage systems. When we look at the third quarter for the company, we've had great success across different areas of the business. We've achieved key milestones and established our pathway to profitability for our anode materials division in Tennessee.

We've continued our work with the Department of Energy around funding support from both the grant programs that we were selected for last year, as well as a Loan Programs Office application under the Advanced Technology Vehicles Manufacturing program, and always continue to make strong progress in discussions with customers, sampling product, customer qualification, or hopefully offtake that will come for our Riverside facility, as well as future facilities the company plans to build. Within our Battery Technology Solutions group this quarter, we commissioned our cathode pilot line and released results of an engineering study around our all-dry, zero-waste cathode synthesis process, which we'll speak about later in the presentation. We secured financial support from the government to continue to make the investments in developing and commercializing that technology.

We also announced a collaboration with SandboxAQ on the use of AI and quantum analysis in linking our work in material science to battery data that we do and collect throughout our services team, and we'll speak about that later as well. Across the group, we announced the appointment of Suresh Vaidyanathan to our board of directors, and we ended this quarter with a cash balance of $86.8 million. When we look primarily at our anode materials business, this is where we'll see significant growth in the coming years. We started this group in 2017, with the focus of domestic supply of high-performance materials with cleaner, more efficient process technology that we needed to scale synthetic graphite manufacturing here in North America.

We knew we would be able to accomplish this through the use of strong strategic relationships that we've developed over that time, including investment from LG Energy Solution earlier this year, the offtake that we signed with KORE Power to supply material to their KOREPlex facility in Arizona, MOUs that we previously signed with Panasonic and Samsung SDI, an investment two years ago from Phillips 66 as they look to become a supplier of premium materials into the synthetic graphite manufacturing supply chain. Also our technology partnership with Harper International to develop first-in-the-world process technology for closed-loop induction-based graphitization, graphitization systems. Of course, earlier this quarter, we announced some huge successes that we've had in terms of our manufacturing using these proprietary systems.

Again, this is a photo of our Riverside facility that we opened about two years ago, done significant modifications to, and started to install production equipment with the plan to begin production late next year to support our agreement with KORE Power and hopefully other customers that we'll bring into this facility. This quarter, we announced that we had successfully demonstrated production through our Generation 3 systems, hitting all of our engineering targets. Earlier in the year, we announced the production of materials, hitting our material performance specification targets, and now have also hit all of our throughput and sustainability and cost targets for the design of systems that you see in the photograph here.

On the back of that, we see the opportunity to expand the capacity target for Riverside from an initial estimate of up to 10,000 tons per year to now up to 20,000 tons per year at full build-out. This is on the back of the successes in our, both our product development program and customer work, as well as the manufacturing and production work that's being done there with the Generation 3 systems. And we're undergoing updated engineering work now that we'll provide an update on in the first quarter of next year for the rest of the Riverside build-out process. I mentioned earlier, meeting our targets for materials and engineering work within the furnace systems.

This is data that we released, what we see as first-in-the-world data, producing continuously graphitized material in a powder-in-powder-out system with very high energy efficiency, almost zero emissions. This is a measurement of the degree of graphitization of the material coming out of the graphitization furnace, and continuous runtime data for about 130 hours of product production, all within the target band of specification for the degree of graphitization. So this is a huge milestone, not just for NOVONIX, but the industry, as we look at driving toward better processing technology to enable scale of this key material here in North America. What this also provides for NOVONIX is a clear pathway to profitability here in the United States and through our Riverside facility.

We released these updated unit economic overview guidance for our Riverside facility with a range of operating costs that we estimate from about $6-$8 per kilogram, U.S. dollars per kilogram. This range is based on different products that we could produce for customers out of this facility. Various customers have different product requirements that changes the complexity of the processing programs as well as therefore the cost. These materials, these high-performance, battery-grade graphites, should not be thought of as a commodity, as they really are a specialty chemical that's made to spec for each customer. Therefore, with these different cost structures, we have this different estimated sale prices between about $7-$10 per kilogram.

This allows us to compete on a global scale, and the ability to leverage federal programs here in the U.S., such as the announced 45X tax credits, which offer 10% of our cost of production back to the company. This allows the company to generate strong margins within even our first manufacturing facility, where we see benefits as we continue to scale into future production sites. These estimates also don't include potential upside in the market based on recent announcements from the Chinese export controls, as well as other programs that exist here in the United States, such as the Section 301 tariffs, a 25% tariff on these types of materials coming from China, which currently has a waiver that will be under review in the coming months.

As well as the need for what we consider the 30D vehicle tax credit compliance in terms of locally produced or sourced materials and critical minerals such as graphite. We think about the growth of our anode materials business in three phases over time. The first phase will begin in our Riverside facility at a rate of about 3,000 tons per year at the end of next year. Then, as we look at the second phase of growth, we plan to build a future site with a minimum production capacity of 30,000 tons. When Riverside is operating at full capacity of 20,000 tons, this will have the company at at least 50,000 tons of projected capacity. Our long-term goal is to build 150,000 tons of capacity here in North America.

While our focus right now remains on Riverside, scaling that facility, reaching production, signing additional offtakes, we look at these future sites as key to the growth of the company, and the timing of these sites will be dependent on customer demand, offtake, as well as financing support for the facilities. I mentioned earlier some of the work happening outside of our anode materials division. For example, our work with SandboxAQ on linking material science to battery performance. SandboxAQ is an Alphabet spin-out focused on the use of artificial intelligence and quantum analysis to solve challenging problems, and material science and linking battery material performance data is exactly something that they have identified as an opportunity to deploy their technology in gaining insight into.

NOVONIX is a uniquely positioned partner to be able to be working upstream in the material space, both anode and cathode, and have significant data in making those materials into battery cells and testing their performance through our Battery Technology Solutions group. Therefore, this partnership is looking to help us build the bridges between our material science programs and product development programs, and how those impact our cell performance, all with the goal of accelerating our pace of development of our key battery materials. We'll also look to provide, to build systems that we can provide to the industry on a SaaS-based platform to support the service customers that we work with today in their material science projects. Another big area of focus is our cathode synthesis technology.

We announced that we had commissioned Hatch to provide a process comparison study of our all-dry, zero-waste NMC cathode synthesis technology compared to the current state-of-the-art conventional wet chemistry that's used today. The initial findings of this survey were extremely positive. As expected, with our process technology, that is a simpler way to produce precursor materials, and in the end, the final high nickel grades of cathode material. We see the opportunity to have lower capital intensity by about 30%, lower operating process costs by about 50%, noting that the metals themselves, lithium, nickel, manganese, cobalt, represent about 90% of the total cost of the product. But a 50% reduction in operational processing cost is still significant for materials that represent 30%-35% of the cost of building high-nickel batteries today.

All of this aligned with our goal to have more environmentally friendly process technologies. A plant producing these materials would be estimated to have about 27% lower power consumption and about 65% less water, as we eliminate all of the use of water in the main processing of the material itself. Also eliminating byproducts such as sodium sulfate, which is produced in large quantities today. So we're very excited about the future of this technology and are currently working to commercialize this and leverage partnerships that we have with existing cathode materials producers and downstream cell manufacturers, and have begun sampling product from the pilot line that we have within our Battery Technology Solutions facilities to customers now.

As we look at the future of NOVONIX, we're excited with the position that we've built, being at the forefront of product innovation, being recognized in the industry as a technology leader through our work, not only with our Battery Technology Solutions group, but now with being a scale manufacturer in the battery graphite space and also a technology provider in the cathode space. Our primary focus is on scaling our anode materials production to reach that eventual target of 150,000 tons per year, and also commercializing our all dry, zero-waste cathode technology. All of this while continuing to invest in developing IP in new areas, where we can build into new parts of the business that can generate strong cash flow and margins for the future of the company.

So we look at many great successes we've had over the course of this year and this quarter specifically, to set us up for a very exciting next 3-6 months, where we look at updating the engineering for our Riverside facility, continuing to progress our work with the Department of Energy on funding opportunities for our current and future plants in North America, and continue to progress customer negotiations to hopefully secure offtake for the balance of our production capacity at Riverside, as well as future facilities that the company will build. And so we'll be excited to provide updates on those activities as they come to light in the future. And thank you for coming to the webcast today.