So what are those “smoking guns?
The first one is that the founder of this company was a senior research engineer at Tesla from 2015-2017
And the ad says that back in 2015, Tesla hired the a team of engineers to lead the battery division — “Dr. D.” is what the leader gets called in the ad, and he has been referred to as “Tesla’s secret weapon”… and he also worked with the cofounder of this $2 company.
With a further connection as well — “Dr. D.” works out of a lab in Canada, and this secret company being teased today was apparently spun out of the same lab.
And Blanco says that his company is stacked with experts, including the former CEO of the largest chemical company, a retired admiral, and that Dr. D’s own son is director of engineering at this $2 company.
That Dr. D. is, of course, a reference to Jeff Dahn at Dalhousie University… so that’s all the confirmation we really need, Jeff Dahn’s son Jackson is the Director of Engineering at Novonix, the battery testing and technology company which was acquired by the Australian company GraphiteCorp about three years ago, with the new company taking the Novonix name shortly thereafter as it refocused on building its presence in the battery tech business instead of just producing commodity graphite materials for battery makers.
So yes, Blanco is teasing Novonix here — it’s a smallish Australian company, listed at NVX on the Australian Stock Exchange and trading on the pink sheets in the US at NVNXF (they’ve applied for the slightly higher listing standards of the OTCQX to try to bolster their presence with US investors, but apparently haven’t been approved yet). And the stock has gone bonkers today because of Blanco’s pitch, which has helped to spur several breathless rumor-mongering videos and tweets, so the shares got up over $4 at one point today.
The fair price, set in Australian trading overnight (for us in the US) would have been A$1.70, which would be about $1.22 in the US. The average volume in Australia has been about 3.5 million shares a day, so that’s where you’d think the “real” price would be set, but once a rumor settles in for a thinly traded stock it’s hard to predict what will happen — the pink sheets volume in the US is already over seven million shares as of about Noon, which is probably 20X the average pink sheets trading volume.
And there is no “new” news from the company — they did release their annual report a couple days ago, so that’s probably a good place to learn about the company, but it wasn’t particularly explosive in any way I’m aware of. Their latest investor presentation is here, if you’d like that overview (it also includes most of the clues and screenshots that Blanco uses elsewhere in his pitch).
Tesla’s work with Dahn’s lab in Canada, by the way, is not new, and their work on new battery chemistries has already been discussed as a key part of building that million-mile battery when Elon Musk was hinting at that over a year ago. Of course, at the time Musk was also saying that it would probably be part of Tesla’s robo-taxi service by this year, perhaps even using those single crystal cathodes as part of the way they extend battery life, so it’s important to remember that “overpromising” is an important part of Tesla’s marketing.
Shall we go through the other “smoking guns,” just to be thorough? Very well…
“Smoking gun number two…
“The next clue is the list of customers from the company’s website, along with the small print notification that “for confidentiality reasons there are a number of major global automakers, battery makers, medical device and electronics companies that are customers but cannot be disclosed.”
“That’s a perfect match for the customers page on Novonix’s website.”
And yes, they do deal with most of the big battery companies I could name… though the extent of those relationships is anyone’s guess. Most of their revenue presumably comes from their battery testing business, which is what spun out of Dahn’s lab in Halifax and works with most automakers, but the future dream of large volume would come from selling PUREgraphite anode materials for ultra long life batteries. So far they’re trying to scale up to 2,000 tons per year of production for that anode material by the end of 2021, but they don’t say anything about what the revenue might look like. Their prior core business, before 2017, was the Mount Dromedary graphite project in Australia, and that’s on hold because of oversupply in the graphite market and their desire to move up the “value added” chain to higher margin businesses… and their future dream is to commercialize their DPMG technology to make “high-performance long-life single crystal cathode materials” that could be a big part of that “million mile battery” potential.
Novonix’s revenue has been largely unchanged over the past couple years, coming in at around A$5 million, though the change this year is that most of it came from customer contracts, not from “other income” (I assume that “other” is paid R&D work, but don’t really know), though their costs have also ballooned — if you ignore the one-time impairment charge in 2019, which I assume was from the graphite mine but don’t really know, then they went from a loss of about A$10 million in 2019 to A$20 million this past year (their fiscal year ends in June). They do have $40 million or so in cash thanks to their restructuring this summer and an equity offering, so that will sustain them for a few more quarters as they try to ramp up capacity for their contracts for PUREgraphite anodes, but this is not generally a high margin business and the scale of capital projects is crazy. They would like to produce 2,000 tons of their PUREgraphite anode material a year once they scale up, but, just for context, one gigafactory-size project (and there are now many of those around the world) probably uses at least 20X that much anode material in a year. Ramping up as a meaningful player in a huge, tight-margin business like batteries is a tough challenge, even if you have a unique technology that is somehow different or better.
And, also on the website, Blanco says this quote is a “smoking gun”:
“NOVONIX has customers in twelve countries including Apple, Microsoft, TESLA, 3M, GM, Bosch, Dyson, XALT Energy, Panasonic, ATL, CATL and more”
With NOVONIX blacked out, of course, since it’s “secret”
This was, Blanco implies, a “leak” — though that’s silly, it’s on the CEO’s bio page. More likely, the fact that Tesla is one of many customers for the battery test equipment sold by Novonix is not at all secret or particularly surprising… after all, Tesla has been the big funder for Dahn’s lab in Halifax for years, and the Novonix battery testing business was spun out of that lab.
“Smoking gun number three” is that they’ve got a patent, with the patent number 3069168 touted as having been filed with the world intellectual property organization, Blanco says this is the key to the whole process, and the key to what Elon Musk needs for the million-mile battery.
He shows the patent number, along with several images that are just screen grabs from Novonix’s website, showing the single-crystal cathode that they think is key to the durability of the battery. And implies that they’re already about to take over the market:
“They’re already cutting supply deals with Panasonic, Sanyo and Samsung, companies that represent 40% of the lithium ion battery market.”
With Blanco’s “interviewer,” Aaron Gentzler, saying “It’s almost like this $2 company is ‘cornering the market.'” Which his silly, of course, but hope springs eternal.
There isn’t a real way to be sure of what will happen with Tesla’s event this afternoon, and I have no particular insight. Elon Musk is always unpredictable, and I have no idea which technologies might be important that were developed in that Tesla-funded lab, or whether this spinoff from that lab a few years ago might have something even better, but I would be shocked if Tesla’s announcement involves a partnership with a little public company of any kind. Presumably this is a technological or design announcement about their battery work, and if I were to bet on today’s outcome I’d say any named suppliers are likely big companies, not small ones. That’s just a guess.
Blanco also says that…
“… this tiny company predicts they will be making 100,000 tons of battery material a year”
And that is the “back half of the decade” plan from Novonix, according to presentations they’ve made to investors, though their goal right now is still to get to 2,000 tonnes within the next couple years. Those presentations were covered by the Financial Review back in June, which also ends up summarizing some of the hope for the company.
Blanco also said that “insiders own 64% and keep buying more,” but as far as I can tell there’s been as much insider selling as buying… though some of the major shareholders did participate in the fundraising in June. I didn’t spend a ton of time sifting through the announcements on the Australian Stock Exchange, but I can’t find any indication of big individual buying — one big shareholder sold a huge chunk of shares just recently, directors like Robert Natter (that former admiral hinted at, a board member) have exercised options and then sold those shares, though St. Baker Energy holdings, an investment fund, has built up a big position at prices well below where it trades now.
What do I think? This was my immediate reaction when going through the story this morning:
If it were possible for me to sell Novonix short during the first wave of mania this morning, I would have been extremely tempted to do so (it wasn’t, there have not been any shares available to short from my brokers for a long time on this one). The ideal strategy, I suppose, would have been to buy the stock in Australia before it hit the eyes of speculation-addled US investors this morning, then short the shares in the US on this crazy rumor-fueled surge, but, well, that’s just a day dream.
It will be interesting to see how the shares react in Australia when trading opens this evening, after the Tesla presentation has taken place and the company, as I assume is most likely, is not mentioned or implicated in Tesla’s plans in any specific way… will Australian traders just act like nothing happened and chug along, ignoring the spike in pink sheet trading in the US today? Or will it rise or fall? Should be interesting to watch, for those of you Down Under.
The ad says this presentation was sent to as much as ten million people, which is, of course, why the stock has already soared — there’s no great secret here, and the stock was not hard to ID for anyone who was willing to sit through the “presentation” (which was, I admit, hard even for me to do), and several Gumshoe readers wrote in with answers to this tease, they all saw those same clues in the presentation and quite quickly found the right answer. Maybe that means I’m out of a job someday, but I’m sure the teasermeisters will keep pushing the envelope and finding new ways to pull the wool over our eyes.
The freely mentioned “other way” to play the electric vehicle boom that Blanco gives away in the end of the presentation, if you’re curious, is Spartan Energy Acquisition Corp (SPAQ), which has a deal to merge with brand-name car designer Fisker in an attempt to build yet another Tesla competitor. Henrik Fisker’s baby was a bankrupt disaster seven years ago, but now the SPAC money is just sloshing around in the market and they’ve got plans to build a vegan electric car called the Fisker Ocean, so hope springs eternal in the car business. I have no idea whether or not Fisker 2.0 will work out, but I’d probably go in with some healthy skepticism.
Blanco, by the way, does also present us with a “guarantee” ….
“If the $2 Company is NOT named at the Tesla event tomorrow evening, I will upgrade your subscription to a lifetime membership.”
Which is a nice piece of marketing, right? Would you have signed up for a $2,000 lifetime membership to this new service before hearing about it today? Probably not, and yet positioning it as a discount, and as a guarantee, makes us feel like Ray Blanco has some “skin in the game” in making his guarantee because the “potential cost is in the millions” to him.
Which is, of course, not true at all — if you send him $1,999, then he’s got that money and the risk is all on you. Whether you love it and let it renew at $5,000 in a year, or just sit back and accept that you made a mistake and cancel, without, I assume, any possibility of a refund, he’s got your money and you don’t get it back. Even if you love it, and end up appreciating the lifetime subscription that will come after Novonix is (I assume) not mentioned by Elon Musk this evening, that’s still $1,999 that you’ve sent, probably irrevocably, to Ray Blanco’s publisher (I don’t know if they charge a “annual maintenance fee” for the lifetime membership like some folks do, the actual order page has now been taken down so I couldn’t check). The price is a construct fully invented by the publisher, they can sell as many or as few subscriptions as they like, and at whatever price they like, to most efficiently extract revenue from the largest number of readers possible.
I don’t know how many other ways I can say this in response to these kinds of deals, but the primary goal of the marketing “funnel” used by newsletter publishers is to get you to buy premium-priced (usually $1,000+) research, preferably with no refund guarantees… yes, most legitimate publishers would prefer to have happy repeat customers, and some people love these publications, but the only thing the publishers “risk” in these cases is the possibility that they’ll have to give you a credit, or a future discount, or extend your subscription for free — the money at risk all comes from you, and thanks to the internet the cost of delivering a newsletter to each incremental subscriber approaches zero.
But anyway, that’s my quick take on this Tesla story from Ray Blanco — sure, consider Novonix as a possible idea if you want to research their battery anode technology, or their plans to commercialize longer-lived cathodes… and yes, Novonix has been rumored for its possible connections to Tesla’s battery day since at least June (“Battery Day” has been postponed a couple times, mostly because of the pandemic), but I personally wouldn’t bet on any real boost to their plans coming from Elon Musk in a couple hours, that seems wildly speculative and not at all rooted in reality, despite Blanco’s “smoking guns,” so if I were interested in Novonix, personally, I’d hold off and see how things settle down in a few weeks before looking at them with some fresh eyes.
Your mileage, of course, might vary. I’d be delighted to hear what you think will happen, either tonight or in the next couple years, with Tesla or Novonix or whoever else might lead us to our next leaps forward in the battery tech world.