NOVONIX (ASX:NVX) – Panasonic Energy (Panasonic) has converted a long-standing MOU into a contract for at least 10kt of high-performance synthetic graphite to be taken over 4 years (i.e. 2.5kt/year). To satisfy demand from EV manufacturers Tesla, Honda, GM, Toyota, and Lucid, Panasonic has plans for 200GWh of cell production across North America by 2031. To achieve this Panasonic will need ~200kt/year of anode material. Their main customer Tesla, has itself an ambitious production target of 20m EV by 2030 and it has been reported Tesla will take whatever Panasonic can produce and NVX has indicated it will use best endeavours to meet any request from Panasonic for more IRA compliant volumes. So far, after announcing a binding offtake agreement with Canada's Nouveau Monde Graphite for 18kt/year, Panasonic have secured 20.5kt or just 10.3% of the ~200kt required to meet their 2031 forecasts. Clearly more volumes are required, and choice is thin. NVX greenfields plant in the mix?

China curbed graphite exports to US – In December, natural graphite and synthetic graphite shipments from China slumped 91% and 28% respectively, as China implemented export restrictions. China's aim is to usurp its dominance and starve foreign battery manufacturers of graphite supply needed to produce battery grade anode. As the US still imports ~99% of its anode needs, the impact is more psychological than dire. However, China's continued dominance in the EV ecosystem combined with the conflict in the Mid-East, pose real risks to technological growth in the US unless a local EV ecosystem is developed. Currently, the average anode is comprised of 90% graphite and 10% copper. There is potential for a sodium-ion cell and lithium metal anode however, neither have met broad commercial acceptance at this time.

Global EV growth slows whilst US surges – 1.2m EVs were sold in the US in 2023, representing an impressive 47% increase yoy. Despite this, growth was lower than forecast as economic & supply chain issues grew. Recent forecasts suggest 1.5m sales in 2024 rising to ~2m in 2026. As US EV adoption is still fairly low at 7.6%, the upside is huge. However, local supply chains are required to underwrite sales growth in a sustainable manner.

Riverside is a focus – As previously announced, NVX plans to expand Riverside from 10kt to 20kt/year. The engineering report to support the expansion is due end 1Q24. Funds required to finance the expansion must match the US$100m DOE grant. Funds could come from cash, customer prepayments and capital markets. End December 2023 cash was US$78.7m.

NVX to match Riverside output with customer offtake agreements – Current contracts assigned to Riverside stand at 14.5kt, with up to 12kt/year contracted to KORE Power in Arizona and an average of 2.5kt/year contracted with Panasonic. Samsung could be next to upgrade an existing MOU. LGES, the world's 3rd largest battery maker has an option to take 50kt over 10-years (i.e., 5kt/year) from 2026. NVX presently assigns the potential offtake to a future greenfields plant and is working with the DOE on a significant loan package.

Valuation – We continue to risk an expanded Riverside plant at 0.8xNPV. We consider a greenfields project to 30kt at 0.6xNPV8 and an expansion volume to 75kt at 0.4xNPV8. We have made no model changes and despite weak market conditions for ASX listed small caps, continue to carry a target price of $3.52/share. Upside continues to be supported by inherent optionality within the Saudi anode JV, the Canadian cathode business and a 5% holding in unlisted KORE Power holding. The later could become quite strategic, especially in the context of battery cell production, due to a clear line of site to a US sourced high-performance anode material.

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