Novonix (ASX: NVX) shares are up 13% today. This seems like a pretty small rise for the announcement of a big deal with LG to supply their battery operations. On the other hand Novonix is already worth half a billion $ (although in those smaller, petite, AUD dollars) so we'd perhaps not expect the one single deal to move the dial all that much. There's also an associated issuance of convertible notes to go with the potential purchase deal:”NOVONIX and LGES to jointly work toward developing artificial graphite anode material for lithium-ion batteries pursuant to a Joint Research and Development Agreement (“JDA”).NOVONIX to issue US$30 million worth of unsecured convertible notes to LGES under a separate Unsecured Convertible Note Agreement (“Investment Agreement”). The JDA is intended to lead to the option for LGES to purchase up to 50,000 tons of the anode material from NOVONIX's United States-based facility over a 10-year period from the start of mass production.”
Do note the research part, the option part and so on. This is an agreement to work toward being able to make that artificial graphite for battery making which, if that development work is successful, will lead to a substantial purchase order. That's another reason why the NVX share price hasn't roared away on the news - it's all still quite a bit hypothetical.#
Novonix share price from ASX
The background to this is that we all know we need much more graphite to make batteries with - we are trying to electrify the world after all. We all also know that graphite is trivially easy to make. Scrape the crud off the bottom of an oil refinery and cook it. Unfortunately, while that gives us graphite it's not quite, not quite, in the form that we actually want it for batteries. Batteries work much better using natural graphite - the same chemistry but mined from deposits. It's the physical form of the manufactured, cooked - and very cheap - stuff that isn't quite right.
Someone able to produce artificial, manufactured from crude oil crud, battery perfect graphite would have something very valuable. We don't know whether Novonix can really do this at scale. But we do know that LG Energy Systems has $30 million's worth of confidence in their ability to at least try.
This is thus a vote of confidence in the base Novonix offering, that their technology might be able to replace mined graphite in those batteries. The real value creation will come when they prove, at scale, that they can do so. Which is why this deal is full of options and maybes.
