Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.
Speaker 3: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 2: Tracy, I feel like a few years ago there was
Speaker 2: a lot of talk about, Okay, this evy battery boom
Speaker 2: is coming, and we don't have yet the raw materials,
Speaker 2: the basic commodities necessary to supply all the demand for that.
Speaker 3: Yes, I would say even before a few years Yeah,
Speaker 3: do you remember there was a time I guess it
Speaker 3: must have been like early twenty tens or maybe even
Speaker 3: before then, when rare earths were all the rage and
Speaker 3: everyone was talking about like, oh, put your money in
Speaker 3: rare earth.
Speaker 1: The clue is in the name.
Speaker 3: There aren't that many of them. There won't be enough
Speaker 3: to go around. And then that kind of came and went.
Speaker 3: But then you're right, it resurfaced in recent years because,
Speaker 3: of course, we do have this pressure or desire depending
Speaker 3: on your viewpoint, of shifting to electric vehicles, which require batteries,
Speaker 3: which require a whole bunch of materials to actually make them,
Speaker 3: and there was a lot of hand ringing over whether
Speaker 3: or not there would be enough of these materials to
Speaker 3: go around where the materials actually come from. That was
Speaker 3: a big point of contention and concern. If you're dependent
Speaker 3: on one source i e. China to get all the
Speaker 3: stuff you need for battery making, then what happens when
Speaker 3: China starts to restrict those materials, which is fast forward
Speaker 3: to twenty twenty three exactly what we saw happen.
Speaker 2: Yeah, I think that was a great summary. There's a
Speaker 2: lot here for us. This story touches on a lot
Speaker 2: of our themes because you know, one of the things
Speaker 2: we talk about is that, as you mentioned, there's a
Speaker 2: sort of the replacement of one set of kamades and
Speaker 2: oil and gas, et cetera, a brand new set of
Speaker 2: commodities that are also potentially going to be quite scarce.
Speaker 2: There's also just a question of what catalyzes investment because
Speaker 2: as we know, when it comes to raw materials, there
Speaker 2: is a lot of upfront cost and there's also the
Speaker 2: future is wildly uncertain in terms of like how much
Speaker 2: we'll need and how much demand there will be. So
Speaker 2: you know, we've talked with A Jiggershaw, for example, of
Speaker 2: the Department of Energy's Loan Programs Office multiple times on
Speaker 2: the podcast about why for example, when it comes to
Speaker 2: sort of new energy investment, traditional private sector financing vehicles
Speaker 2: maybe aren't up to the task completely. Why there are
Speaker 2: other market mechanisms or non market mechanisms that might be necessary.
Speaker 2: Uncertainty about demand supply, What is even the future of
Speaker 2: battery technology right? Because there are competing visions of what
Speaker 2: the batteries that will power evs will look like and
Speaker 2: whether it's solid state or lithium ion or something totally different.
Speaker 2: So how do you catalyze investment with so much upfront costs,
Speaker 2: so much uncertain return at a time of a highly
Speaker 2: uncertain future?
Speaker 3: I find that an absolutely fascinating question because again, these
Speaker 3: are things that a lot of people would argue we
Speaker 3: actually need. But are they being naturally incentivized by the
Speaker 3: market to actually have more of them? Or do they
Speaker 3: come through government initiatives such as the Department of Energy
Speaker 3: and the Loan Program's office, or do they maybe come
Speaker 3: from the companies themselves. You know, we've seen Tesla move
Speaker 3: to build up its own supply of the things it
Speaker 3: needs for batteries, So there are all these interesting questions
Speaker 3: of how this stuff actually gets financed. And also, just
Speaker 3: to take a step back, I have a bunch of
Speaker 3: questions about what the stuff actually is because I see,
Speaker 3: you know, I see words like graphite and manganese and
Speaker 3: things like that thrown around Germanium, and like, okay, I
Speaker 3: get that they're used for making batteries, but I don't
Speaker 3: really know the specifics. So I would love to know
Speaker 3: more about that.
Speaker 2: One of my worst moments when I was at TV
Speaker 2: host several years ago is I was interviewing one of
Speaker 2: our reporters here at Bloomberg and I just like blurted
Speaker 2: out like she was talking about cobalt prices, and I
Speaker 2: was like, what is cobalt? And I like felt so
Speaker 2: bad because like I'm making your reporter anitary, like what
Speaker 2: is this basic? You know? But she nailed it, but
Speaker 2: there was like this, yeah, she nailed it, But I
Speaker 2: felt like so bad because that's it.
Speaker 4: I didn't mean it.
Speaker 2: As like a gogic question. I was like, no, what
Speaker 2: is oil? What is cobalt?
Speaker 4: Anyway? You know?
Speaker 2: The other thing to you know, mention, how okay? There
Speaker 2: was all this talk about do we have enough right now?
Speaker 2: There's a double whammy. I feel like in this space
Speaker 2: because a actually a lot of spot prices for some
Speaker 2: of these alternative commodities have actually plunged the last here. Also,
Speaker 2: there's a big theme and maybe it's sort of fun,
Speaker 2: but maybe it's real of like EV sales maybe aren't
Speaker 2: taking off quite as fast as expected, or at least
Speaker 2: for the legacy automakers still figuring out their groove. Maybe
Speaker 2: hybrids are going to be the thing for the moment.
Speaker 2: And then finally, higher interest rates and the effect that
Speaker 2: that has on supply, And that's a big theme we
Speaker 2: talk about, which is okay in theory, we want more
Speaker 2: supply of all the things to make goods cheap, but
Speaker 2: of higher interest rates impair investment in capex heavy things.
Speaker 2: What does that do to supply? So I think, like
Speaker 2: we said, there is just a lot of meat here
Speaker 2: for us to chew on, so to speak.
Speaker 3: Lots of questions, not least among them what is graphied
Speaker 3: and rare earth minerals?
Speaker 2: Anyway, All right, well, let's dive right into it. Someone
Speaker 2: who is a perfect guest right involved in this space
Speaker 2: and can hopefully answer every one of our questions due
Speaker 2: to firsthand experience. We're gonna be speaking with doctor Chris Burns.
Speaker 2: He is the founder and CEO of Novonics, a battery
Speaker 2: materials and technology company. Previously, he spent two years at
Speaker 2: Tesla's so someone right in the thick of it. Chris,
Speaker 2: thank you so much for coming on odd Lots.
Speaker 5: Yeah, great, thanks for having me. I'm really excited to
Speaker 5: dive into these topics.
Speaker 4: Well, what did we start?
Speaker 2: What is a Novonics?
Speaker 5: So NOWVONICX is a battery materials and technology company and
Speaker 5: we've been focused for ten years on longer life battery
Speaker 5: technologies and now on this movie meant to localize the
Speaker 5: supply chain, and we're going to talk about graphite and
Speaker 5: why that was one of these critical materials and minerals
Speaker 5: that we need to electrify vehicles, energy storage systems, and
Speaker 5: why we needed to develop the right types of technology
Speaker 5: to do it here in the US.
Speaker 3: So I'm going to start with a really basic question, then,
Speaker 3: which is where does graphite come from? I feel like
Speaker 3: we're in a high school science class or something. Where
Speaker 3: does graphite come from? And you also make synthetic graphite,
Speaker 3: so I understand where that comes from, but what is
Speaker 3: the process for actually making synthetic graphite and what is
Speaker 3: the role in the battery supply chain.
Speaker 5: Sure, so let's back up and say where is graphite used? Right,
Speaker 5: So in the lithium battery of a positive electrode and
Speaker 5: a negative electrode, and the positive electrode are these materials
Speaker 5: like nickel, manganese, cobalt, and MC lithium iron phosphate LFP,
Speaker 5: these types of terms you may hear, and the negative
Speaker 5: side of the battery is almost always graphite, so it
Speaker 5: represents about forty percent of the volume of any battery
Speaker 5: is actually graphite, and it's where the lithium ions actually
Speaker 5: go and get stored to store the energy and then
Speaker 5: get released during discharge. And so it has been a
Speaker 5: foundational part of lithium ion batteries since the early nineties
Speaker 5: when they started. And you can use graphite in two
Speaker 5: forms in lithium batteries, natural graphite and synthetic graphite. And
Speaker 5: so natural graphite, to answer your question, comes from the Earth.
Speaker 5: It is carbon that is formed into perfectly layered graphite
Speaker 5: that has been entered that state because of being under
Speaker 5: time and pressure in the Earth's crust.
Speaker 3: It's the same as the stuff that you would get
Speaker 3: in a pencil, almost like coal. In fact, I think
Speaker 3: some of it comes from coal, right, or you can
Speaker 3: harvest it from coal.
Speaker 5: So on the synthetic side, you can make graphite. Oh,
Speaker 5: I see different carbon rich precursor materials. So on the
Speaker 5: natural graphite side, you dig it out of the ground,
Speaker 5: you change its size, its shape, it's pure, and then
Speaker 5: you purify it, typically through heavy acids, and you can
Speaker 5: put a surface coating on it and then it's ready
Speaker 5: to go into a battery. And on the synthetic graphite side,
Speaker 5: it's a very similar process, but instead of starting with graphite,
Speaker 5: we actually start with other carbon rich precursor materials, and
Speaker 5: one of the most common is petroleum coke. Another is
Speaker 5: coal coke that's used in China. And so you take
Speaker 5: these materials, you change their size, their shape, and instead
Speaker 5: of purifying them, we actually heat them to really high
Speaker 5: temperatures about three thousand degrees celsius, and it changes the
Speaker 5: atomic structure into graphite and then it's ready to go
Speaker 5: into a battery. So we develop technology really focused on
Speaker 5: that high temperature process.
Speaker 2: For natural graphite. How is it distributed around the Earth,
Speaker 2: And I imagine there's a difference between how it's sort
Speaker 2: of geologically distributed versus in practice where it's actually extracted,
Speaker 2: because I seem to recall from the old days in
Speaker 2: rare earths. There's other people like, well, they're not actually rare,
Speaker 2: they are just only some places where they allow it
Speaker 2: because or they have much mining due to pollution, et cetera.
Speaker 2: So where where is the graphite and where do we
Speaker 2: get our graphite?
Speaker 5: Sure, So for the battery industry, you know, specifically, a
Speaker 5: lot of the graphite mining opportunities are in Australia, in Africa,
Speaker 5: in China, and of course there's a lot of projects
Speaker 5: looking to be developed in Canada.
Speaker 1: Right.
Speaker 5: Canada is going to be a great partner to North
Speaker 5: American's electrification here because of the resources they have. So
Speaker 5: there's a lot of active mining of graphite today really
Speaker 5: all over the world. But I think something you guys
Speaker 5: talked about in the intro is where are we dependent
Speaker 5: on getting the materials? But it's equally important to talk
Speaker 5: about where are we dependent on processing those materials? Because
Speaker 5: you know, we talked about the word commodity, right, but
Speaker 5: none of these by the time they're ready to sell
Speaker 5: to a battery maker an LGE A, Panasonic are commodities anymore.
Speaker 5: They are specialty materials made to a spec And right now,
Speaker 5: even if let's say natural graphite can be sourced more globally.
Speaker 5: All of the processing is in China, and that's our bottleneck,
Speaker 5: and that's what we need to change, not just where
Speaker 5: we get the raw materials, but where we upgrade those
Speaker 5: raw materials.
Speaker 3: Oh, this is interesting. So this makes a lot of
Speaker 3: sense because you see these headlines, like you know, billions
Speaker 3: of metric tons of rare earths or whatever discovered in
Speaker 3: I think there was one in Turkey recently, and in
Speaker 3: Sweden and in Wyoming, which feeds into my new get
Speaker 3: rich very slowly strategy of buying land out west and
Speaker 3: hoping that it just comes with a bunch of graphite.
Speaker 3: But anyway, so supply is not the issue here. It's
Speaker 3: the processing capacity. Because we are making these new discoveries.
Speaker 3: I don't want to stay on a regular basis, but
Speaker 3: there have been quite a few.
Speaker 5: Yeah, I think that's a critical distinction really where we focus.
Speaker 5: We're going to have an abundance of materials, right, and
Speaker 5: I think two things about that. We will continue to
Speaker 5: discover new resources, right, whether it's lithium, whether it's nickel,
Speaker 5: whether it's graphite. And then we also will have recycling
Speaker 5: start to play a significant role in bringing some of
Speaker 5: these materials back into the supply chain, you know, over
Speaker 5: the coming years. Right, So when you take the long
Speaker 5: term vision, you know the cyclical economy for lithium ion batteries.
Speaker 5: When you think about what mining is, you're trying to
Speaker 5: harvest these minerals from very low concentrations.
Speaker 1: Right.
Speaker 5: Graphite might be two to fifteen percent of what you
Speaker 5: dig out of the ground is graphite in a mining project.
Speaker 5: Nickel is very much lower than that. But when you
Speaker 5: harvest them from a battery, you already have the elements
Speaker 5: you want in concentration, right, So it's very efficient. But
Speaker 5: until we start having a lot of those batteries reach
Speaker 5: end of life, it can't feed a huge amount of
Speaker 5: the supply chain.
Speaker 3: Why has China seemingly developed the processing capacity before a
Speaker 3: lot of other countries They seem to have a head
Speaker 3: start in this. Was this just the nature of their
Speaker 3: proximity to the actual supply and the fact that they
Speaker 3: were willing to, at least for a while, dig it
Speaker 3: out of the ground.
Speaker 5: Well, I think it's less about the materials and more
Speaker 5: about the processing because, for example, China on the graphite
Speaker 5: side has started signing off takes to buy all of
Speaker 5: this natural graphite from projects that are outside of China.
Speaker 5: Back to the financing discussion, people need off take, right,
Speaker 5: and so if China is the only place you can
Speaker 5: get your off take, then off take Sorry did that
Speaker 5: just mean say supply agreements?
Speaker 2: Yeah? Okay, so no, but in other words, like a
Speaker 2: committed order book. So we're going to build you know
Speaker 2: that you know that you have an environ.
Speaker 5: Exactly right, And so especially for large capital mining projects,
Speaker 5: you need to have these finance to be financiable.
Speaker 2: Right.
Speaker 5: And if China is the only market that's buying, then
Speaker 5: you go to China and you sell your products. Right.
Speaker 5: But then the question is really not how did they
Speaker 5: develop the resources, but how did they develop the process technology?
Speaker 5: And I think this really goes to, you know, kind
Speaker 5: of unfortunately one of these classic stories of offshoring technology.
Speaker 4: Right.
Speaker 5: The key lithium ion battery materials that I just talked
Speaker 5: about and MC was invented and patented here between you
Speaker 5: know labs at Delhousie where I did my PhDe and
Speaker 5: argon national lab. Lithium phosphate developed here, right, But when
Speaker 5: it came to starting to commercialize and scale batteries, we
Speaker 5: said it's too expensive to make these materials in the US,
Speaker 5: Let's make them in China. And then very quickly China
Speaker 5: started to develop more and more technology, more and more
Speaker 5: processing around all of those materials.
Speaker 3: So I take the point about expenses and offshoring, but
Speaker 3: how much of it, if any, was environmental concerns, Because
Speaker 3: you know, you mentioned giving materials an acid bath to
Speaker 3: purify them. I don't necessarily think of that as a
Speaker 3: particularly environmentally friendly activity, So I just wonder if that
Speaker 3: played into that calculation at all.
Speaker 5: So I think, you know, when we started off shoring technology,
Speaker 5: it was to drive the cost down. And then when
Speaker 5: you know, the end market continued to put pressure on costs,
Speaker 5: then you know that allowed for let's say, shortcuts to
Speaker 5: be taken in jurisdictions like China where environmental controls are
Speaker 5: not as rigorous. So there are concerns about how they
Speaker 5: handle acid waste streams in our sector. I talked about
Speaker 5: this very high temperature process, so there are concerns about
Speaker 5: how they build their plants to do this today in
Speaker 5: terms of the emissions that come from those sites, the
Speaker 5: power intensity of those sites, and so this idea of
Speaker 5: a clean car and a dirty battery became very topical,
Speaker 5: you know, kind of five years ago, and this is
Speaker 5: one of our big challenges as well. We want to
Speaker 5: reshore supply chain, which means we need to do it
Speaker 5: with the right technology, but that also comes at a cost,
Speaker 5: and so back to financeability and back to government incentives
Speaker 5: and all of these programs. We're trying to balance a
Speaker 5: lot of pieces of the puzzle here in order to
Speaker 5: develop not just materials independence, but that process technology independence.
Speaker 2: I want to ask one more question about China's dominance
Speaker 2: in the refining or aspect. When you say, like, okay,
Speaker 2: it was cheaper to do it in China, you know,
Speaker 2: and I think of being able to do something cheaper
Speaker 2: in China, like your mind goes first to labor costs,
Speaker 2: et cetera. How much is it labor and how much
Speaker 2: at this point is it about lower cost labor, Like
Speaker 2: when you think about the various cost that goes into refining,
Speaker 2: how much is labor? But how much is also at
Speaker 2: this point just scale and expertise and learning by doing,
Speaker 2: Because it seems like, yes, labor is probably cheaper in
Speaker 2: many aspects in China, but also like once you've been
Speaker 2: doing something for a long time. You just get good
Speaker 2: at it in a way that someone starting from a
Speaker 2: standing start might not expect to be good at it
Speaker 2: for years, even if you could somehow hold labor cost constant.
Speaker 5: I think that's exactly right. You know, I went there
Speaker 5: to have some benefits and costs that you see in labor,
Speaker 5: you see in capital intensity things like this that are
Speaker 5: let's say more obvious. But that was twenty years ago, right,
Speaker 5: And over those past twenty years now they've developed scale
Speaker 5: efficiency and I mean they've had subsidies throughout that way
Speaker 5: to incentivize their industry to become the dominant force here, right.
Speaker 5: And so that's the balance between why it went but
Speaker 5: then also now why it's challenging to compete because they
Speaker 5: didn't just take technology and you know, copy US technology
Speaker 5: or anything like this. They've now advanced that technology to
Speaker 5: get the leaders in the world.
Speaker 2: Okay, let's talk about the efforts to bring more of
Speaker 2: that capacity to the US. So what is happening? How
Speaker 2: much has you know, I know, like when the Inflation
Speaker 2: Reduction Act went through, one of the big things, Senator
Speaker 2: Joe Manchin was like, I'm very concerned about our dependence
Speaker 2: on raw materials from China, so that became an incentive.
Speaker 2: What from your view of the world, what has the
Speaker 2: Inflation Reduction Act if any, What is the effect in
Speaker 2: terms of catalyzing domestic capacity.
Speaker 5: I think it's critical. And you know, we started our
Speaker 5: Annimateials group in twenty seventeen, so okay, you know a
Speaker 5: little before all of this way, because I had just
Speaker 5: left Tesla where this problem statement became pretty obvious, right,
Speaker 5: this idea of localization, this dependence on China and graphite specifically,
Speaker 5: was an area that I was focused in, and so
Speaker 5: we had been saying for a long time the government
Speaker 5: has to play a role here because we have challenges
Speaker 5: competing dollar for dollar with China for all of those
Speaker 5: reasons you just talked about, whether it's their lower cost
Speaker 5: structure or now advancement in technology. And so the government
Speaker 5: has now come in and when you look at and
Speaker 5: we'll take graphite as the specific example, the policies in place.
Speaker 5: We have the Inflation Reduction Act where we can qualify
Speaker 5: for things like forty five acts, Advanced Manufacturing Production tax credit.
Speaker 5: What is its all that out specifically what that means,
Speaker 5: so that is a ten percent of our cost of
Speaker 5: goods back to us in tax credits on an ongoing basis,
Speaker 5: or we can apply and potentially be eligible for forty
Speaker 5: eight C and forty eight C is thirty percent of
Speaker 5: your capital investment on a clean energy project back in
Speaker 5: tax credits. So these are programs that are worth one
Speaker 5: hundred or hundreds of millions of dollars in tax credits.
Speaker 5: We were, of course the recipient of one hundred million
Speaker 5: dollar grant under the Infrastructure Law Package. That's a great thing.
Speaker 5: We have an application with the Loan Program Office. And
Speaker 5: Graphite has been identified as a critical mineral in all
Speaker 5: of the policies, and it also is in the Section
Speaker 5: three oh one tariffs, the twenty five percent tariff from China.
Speaker 5: There's an exemption on that tariff right now. But when
Speaker 5: you say is the government playing their role, look at
Speaker 5: those policies right They're doing what they can. But we
Speaker 5: need to make sure that all those policies are harmonized
Speaker 5: and really going to something you talked about in the
Speaker 5: intro catalyze, not just the development of technology, but the
Speaker 5: investment in scale. That's the big challenge that we face
Speaker 5: right now.
Speaker 3: So speaking of an investment, I have at least two
Speaker 3: questions specifically related to Tesla. So number one, when you
Speaker 3: say you worked at Tesla, how many people ask you
Speaker 3: if you know Elon Musk. Notice that I did not,
Speaker 3: in fact ask that question, but I rephrased it slightly.
Speaker 3: And then secondly, why not just develop this particular business
Speaker 3: within Tesla? I mean, we have seen Tesla start to
Speaker 3: go this well, maybe vertical integration is too strong a word,
Speaker 3: but it is striking deals with specific suppliers for the
Speaker 3: materials it needs for batteries. So clearly this is of
Speaker 3: interest and concern for them. Why not just develop the
Speaker 3: company within the auspices of Tesla? And maybe this gets
Speaker 3: a little bit to the idea of like natural market
Speaker 3: forces and investment versus those that are incentivized by the government.
Speaker 5: Sure, so, no, I don't know Elon, and almost everyone asks.
Speaker 5: But the but I think when you think about Tesla's strategy,
Speaker 5: I think there's two things. You know. The first kind
Speaker 5: of obvious statement is you can't do everything right. And
Speaker 5: I mean, if they need.
Speaker 2: I don't know, Elon seems to like be making it
Speaker 2: pretty good, run spaceships, neulinks, tunnels, satellites. I mean, okay,
Speaker 2: that flamethrower, the flamethrower, like you'd make a good run
Speaker 2: of doing Twitter anyway, keep.
Speaker 5: Going, Well, that's the house of evil, not the house
Speaker 5: of truths, right. But again, you know, there's so much
Speaker 5: investment that needs to happen in every vertical of the
Speaker 5: supply chain, lithium, nickel, graphite, you know, electrolyde development, separator materials,
Speaker 5: every single piece, and so you you kind of can't
Speaker 5: fight every war, right, and so when you do look
Speaker 5: at what Tesla has done, you know they focused and
Speaker 5: the what the industry is focused on. You know, what
Speaker 5: was the first metal that everybody got critically focused on? Lithium,
Speaker 5: Then everybody started talking about nickel. Graphite has forever been
Speaker 5: kind of the forgotten critical mineral, right, And it's because
Speaker 5: actually graphite is what prevents in many ways air quotes
Speaker 5: there the battery from being more energy dense, from holding
Speaker 5: more energy and lasting longer on a single charge. But
Speaker 5: it's also the only material that can hold those lithium
Speaker 5: ions and give them back thousands of times like we
Speaker 5: need for these long life applications like vehicles and energy storage.
Speaker 5: So you talked a little bit about solid state batteries, right,
Speaker 5: and you hear these terms and silicon anodes. So people
Speaker 5: are always hoping, let's say that new materials are going
Speaker 5: to displace our reliance on graphite and open up an
Speaker 5: opportunity to have higher energy density batteries. But that's not
Speaker 5: really the case. And we certainly see now that energy
Speaker 5: density isn't necessarily the problem to solve for for vehicles
Speaker 5: right range. You know, Tesla built foreigner mile cars and
Speaker 5: Lucid as a five hundred plus mile car. But a
Speaker 5: lot of people are going to lower energy density batteries.
Speaker 5: They want the right range and the right cost, and
Speaker 5: that's why graphite is going to be so important. But
Speaker 5: that meant it got overlooked for a lot of years.
Speaker 2: You have a one hundred million dollars grant from the
Speaker 2: Department of Energy. You mentioned that you currently have a
Speaker 2: application for the Loan Program's Office. We mentioned in the
Speaker 2: beginning we've interviewed the head of that office multiple times.
Speaker 2: We've heard from Jigger Shot at the Loan Program's Office
Speaker 2: about why public money is important in this area, why
Speaker 2: it solves a problem or fills a hole that the
Speaker 2: private sector isn't ideal for. How would you describe it
Speaker 2: from your perspective? What is the sort of maybe market
Speaker 2: failure is the term, etc. But what does the public
Speaker 2: money solve that private money can't In this view.
Speaker 5: I don't think it's that private money can't solve, but
Speaker 5: it supports the investment economics. I mean, it's that simple.
Speaker 5: We have a problem statement where we are trying to
Speaker 5: compete with China on costs. There will be premiums relative
Speaker 5: to China costs to localize supply, whether it's because they're
Speaker 5: more environmentally friendly or the incentive programs available on their ira,
Speaker 5: but we do have to be competitive on a cost
Speaker 5: basis because people don't want to see the cost of
Speaker 5: electric vehicles go up. They want to see it come down, right,
Speaker 5: But we also want to on shore the supply chain,
Speaker 5: so there's a natural tension in that dynamic. So the
Speaker 5: injection of government capital to lower our cost of capital,
Speaker 5: whether through grants or loans, helps improve the economics when
Speaker 5: we need to bring private sector investment into these projects.
Speaker 5: So it's a critical role that has to be played,
Speaker 5: but it's not the single solution. Right The government can't
Speaker 5: pay for all the plants to be built for all
Speaker 5: the supply chain projects. They have to and I think
Speaker 5: they're doing a great job, frankly, and balancing how to
Speaker 5: get public capital out the door and into the hands
Speaker 5: of companies while doing it in a diligent manner. Of course,
Speaker 5: we've seen a lot of hype and batteries over many cycles,
Speaker 5: right from the early twenty tens where there was a
Speaker 5: big kind of VC hype cycle to the spack market
Speaker 5: and a lot of companies coming public on these growth aspirations.
Speaker 5: So they have to be responsible taxpayer dollars, but they
Speaker 5: also need to get it done and get it working.
Speaker 5: And that's the thing Jigger really focuses on, is you know,
Speaker 5: he wants to see these projects built, right, So.
Speaker 3: One criticism of this sort of government led investment or
Speaker 3: area of concern might be a politer way of putting it,
Speaker 3: but it is the idea that, Okay, you can lend
Speaker 3: money to finance these things. You can pour billions of
Speaker 3: dollars into the creation of this capacity. But if the
Speaker 3: end of that you don't have a dependable customer for
Speaker 3: what's being produced, you haven't really solved your problem at
Speaker 3: least in the long term. What are you saying in
Speaker 3: terms of the government on I guess the demand side, like,
Speaker 3: is there anything they can do there. Can they put
Speaker 3: in place like permanent off take agreements or is that
Speaker 3: going too far? Or how do you balance like that
Speaker 3: actual side of the equation away from the initial investment
Speaker 3: the ongoing consumption demand.
Speaker 5: Yeah, that's a really good question because you know, you
Speaker 5: do see jurisdictions that have governments play role in off
Speaker 5: take right and insini agreements. Right, and so these say
Speaker 5: you will make this product and I promise it will
Speaker 5: be bought, and therefore you can go get investment.
Speaker 2: Right.
Speaker 5: There's a huge challenge with that, of course, because of
Speaker 5: something we talked about earlier and is in that these
Speaker 5: materials are not actually commodities, right. And so for us,
Speaker 5: for example, right, we're developing materials for a lot of
Speaker 5: the leading cell manufacturers. We just signed the supply agreement
Speaker 5: with Panasonic last week, right, but that.
Speaker 3: Goes to Tesla ultimately, Right.
Speaker 5: That's one of their V partners. Yeah, their biggest DV partner.
Speaker 5: And so you know, but the material that we'll make
Speaker 5: for Panasonic will look different than the material that we
Speaker 5: make for let's say LG or Samsung or core Power
Speaker 5: or any of the other people that we work with.
Speaker 5: And so it's really hard for the government to come
Speaker 5: in and just say, hey, we'll buy it because graphite
Speaker 5: is graphite. Because that sentence doesn't hold up.
Speaker 2: You mentioned that, you know, there's numerous like battery hype
Speaker 2: cycles over the years, and I always think this can't
Speaker 2: be real. But in eighteen eighty three there's like a
Speaker 2: famous Thomas Edison quote, the storage battery is, in my opinion,
Speaker 2: a catchpenny, a sensation, a mechanism for swindling the public
Speaker 2: by stock companies. So literally like one hundred and forty
Speaker 2: or one hundred and forty one years ago, Thomas Edison
Speaker 2: was warning the battery companies were all frauds and of
Speaker 2: his hype and I believe you know, over the years
Speaker 2: many people have lost a lot of money on the
Speaker 2: next amazing battery. Okay, so you mentioned, you know, the
Speaker 2: concerns about the end buyers. But right now, and we
Speaker 2: mentioned in the intro, there's a number of near term
Speaker 2: sources of anxiety right the ev Maybe evs aren't going
Speaker 2: to sell as well in twenty twenty four as people
Speaker 2: thought they would in twenty twenty two. There seem to
Speaker 2: be still some concerns, still, some issues with commercialization, concerns
Speaker 2: about charging network. Maybe they're not going to quite take
Speaker 2: off as fast. There is the recent plunge in spot
Speaker 2: prices for a number of important commodities. Although I don't
Speaker 2: know what's happening in graphite, maybe you'll tell me. And
Speaker 2: then you know, there are other sources of concern. There's
Speaker 2: you mentioned some people believe that we'll be able to
Speaker 2: do it without graph fight, and maybe we don't really
Speaker 2: know what the dominant form of technology is going to be.
Speaker 2: And then there's higher interest rates, and higher interest rates
Speaker 2: affect investment decisions, plunging spot, concerns about demand, higher interest rates,
Speaker 2: talk to us about Yeah, maybe long term is all batteries,
Speaker 2: but what is what do these short term things do
Speaker 2: to the investment impulse?
Speaker 5: Sure, I'll try to I'll try to help. I know
Speaker 5: it's all sex of them there, but I know you're
Speaker 5: exactly right, All of those things play off of each other, right,
Speaker 5: And yes, are we potentially going to miss the adoption
Speaker 5: curve numbers for twenty twenty four that were forecasted in
Speaker 5: twenty twenty two, Well, yes, right, we probably are. Does
Speaker 5: it mean that this market isn't growing with double digit
Speaker 5: growth rates for the course of this decade? No, it
Speaker 5: doesn't because it will see that type of growth. And
Speaker 5: so in my mind, all of these come back to
Speaker 5: the customer and the product, right, because in order to
Speaker 5: build the investment strategy, you have to show what we've
Speaker 5: been talking about, these supply agreements, who's going to buy
Speaker 5: these products and on what terms? Right, Because for example,
Speaker 5: we need to rebuild the way some of these materials
Speaker 5: are contracted in North America. So you know you talked
Speaker 5: about lithium and nickel. These spot prices that have come down,
Speaker 5: those only have some impact on the actual long term
Speaker 5: agreements that are in place for these materials because many
Speaker 5: of those have caps and callers that kind of control
Speaker 5: the adjustments. Because these are traded, traded metals, so they
Speaker 5: can have influence from speculation in the market, not actually
Speaker 5: just basic supply demand dynamics.
Speaker 4: Right.
Speaker 5: Graphit's not a traded metal, and therefore it's really contracted
Speaker 5: in China a battery graphight on a quarterly basis or
Speaker 5: an annual basis at longest. So we're having to rethink
Speaker 5: how we do commercial contracts so they're financiable. So as
Speaker 5: an example, and then it's back to customer and longevity
Speaker 5: of technology so LG invested in US last year, OLG
Speaker 5: Energy Solution sign the joint development agreement that essentially marches
Speaker 5: out the qualifycation schedule for their product and then it's
Speaker 5: intended to trigger an off take with a ten year term. Right.
Speaker 5: So you want to talk about is this technology. Here
Speaker 5: are the big companies, the lgs, the panasonics of the world.
Speaker 5: You know, they need these materials for the long haul.
Speaker 5: But if those don't translate to agreements, you know, firm
Speaker 5: off takes for us, then the financing is hard. And
Speaker 5: this is why the government can't just throw money to
Speaker 5: solve building production capacity, because before you can build production capacity,
Speaker 5: you have to develop the tech and the products and
Speaker 5: those Unfortunately, they take a long time to develop and
Speaker 5: qualify in the sector. And you've seen that through these
Speaker 5: these hype cycles. And I love that Edison quote.
Speaker 3: Right, Yeah, how much does price feed into the financing side?
Speaker 3: So the idea that you know, at the moment there
Speaker 3: is a limit on processing capacity, there is some scarcity,
Speaker 3: so we can have prices be relatively high, and that
Speaker 3: might be attractive for private capital. But on the other hand,
Speaker 3: the more you build out processing capacity, the more efficient
Speaker 3: you get at this, you would expect prices to come down,
Speaker 3: although I'm also thinking out loud here, but Joe, do
Speaker 3: you remember the conversation we had with Bob Brackett at
Speaker 3: fur instance.
Speaker 2: Yah, absolutely, one of my favorite.
Speaker 3: Yeah, this conversation is actually reminding me a lot of
Speaker 3: that discussion. But he mentioned this thing called Jevins paradox,
Speaker 3: which is that the more efficient you get at producing
Speaker 3: a commodity, the more you end up using it, so
Speaker 3: the market kind of grows along with your capacity. So
Speaker 3: I'm that's a very long winded way of saying I'm
Speaker 3: curious about how price is actually interacting with investment at
Speaker 3: the moment.
Speaker 5: Well, the price has donenderpin the investment, right. You have
Speaker 5: to be able to demonstrate the returns in these projects.
Speaker 5: And that's why it's taking time to build structures that
Speaker 5: allow us price mechanisms for security over the long term.
Speaker 5: Because when you think about this competing dynamic of Okay,
Speaker 5: there's scarcity and materials, so costs can go up. There's
Speaker 5: efficiency in production and scale so costs can come down.
Speaker 5: And you know you just talked about there is certainly
Speaker 5: the case is you use more of a commodity and
Speaker 5: liftimund batteries as a great example. They used to be
Speaker 5: over one thousand dollars to kill a what hour. Now
Speaker 5: they're one hundred dollars on the order of per kill
Speaker 5: a what hour because we've gotten more and more adoption,
Speaker 5: and now that's opened up new markets like vehicles and
Speaker 5: energy storage systems, which is going to drive more and
Speaker 5: more adoption. Right, But I think it goes back to
Speaker 5: how to balance that paradox with the customers. Because let's take,
Speaker 5: for example, this proposed ten year term with LG. Neither
Speaker 5: of us want to be out of market right in
Speaker 5: twenty thirty five where we're pricing graphite, but what's the
Speaker 5: market price and graphit going to be in twenty thirty five.
Speaker 5: So the way we think about this is when you
Speaker 5: can develop, improve your process, technology and your products. These
Speaker 5: are not simple customer transactions. These are long term partnerships.
Speaker 5: We need to work with these companies. If their goal
Speaker 5: is to have localized supply, they know they need to
Speaker 5: be in partnership with us, not simply look at us
Speaker 5: like an auto supply chain where there's ten companies and
Speaker 5: you can drive eight of them bankrupt as long as
Speaker 5: you keep too alive.
Speaker 2: Right, let me ask you about another source of uncertainty.
Speaker 2: You know, I was listing all these things about near
Speaker 2: term ev takeoff and rates and all this stuff.
Speaker 4: In China, you.
Speaker 2: Could have the government announce a five year plan and
Speaker 2: then five years later it's still Sesson paying in office,
Speaker 2: and he can announce continuation the five year plan, and
Speaker 2: probably five years later he'll still be in office, and
Speaker 2: it can you know, it can continue. This is not
Speaker 2: a political question, but the US obviously political system does
Speaker 2: not work with that sort of consistency, and it is
Speaker 2: not entirely implausible that a year from now we have
Speaker 2: a different president who is a different view at different
Speaker 2: energy goals. The loan program itself has expanded like a
Speaker 2: puffer fish under Biden, who was sort of this backwater
Speaker 2: for many years because of the cylindra problems, and then
Speaker 2: now it's gigantic, but it's certainly conceivable that its own
Speaker 2: lending capacity could be curtailed dramatically. Again, how does some
Speaker 2: policy uncertainty over the medium term affect investment decisions in
Speaker 2: the short term.
Speaker 5: Yeah, uncertainty is the enemy of investment, right, and so
Speaker 5: it does put questions on the table of how reliant
Speaker 5: are you on these potential government programs. Right, So for example,
Speaker 5: we talked a little bit earlier about some of the
Speaker 5: tax credit opportunities like forty five X. If the ability
Speaker 5: to get ten percent of your cost back is the
Speaker 5: difference between you being an investable project and a not
Speaker 5: investable project, then an investor may sit on the sidelines
Speaker 5: and wait to make sure that that program is not
Speaker 5: going to be altered, let's say. But I think, you know,
Speaker 5: when you take a step back from kind of that
Speaker 5: level of detail, I think regardless of you know, the
Speaker 5: upcoming election, the long term goal has much similarity between
Speaker 5: the parties, Right, we want to reduce our reliance on China.
Speaker 5: Maybe there'll be a difference on whether the electric vehicles
Speaker 5: get the incentives that they do now specifically, but when
Speaker 5: you think about the things that have happened in this sector,
Speaker 5: the Section three oh one tariffs were put in to
Speaker 5: price the Chinese products coming to the US differently to
Speaker 5: incentivize US production. Under Biden, you know, we went into
Speaker 5: a capital investment cycle of stimulus spending. So I think
Speaker 5: we you know, unfortunately, we do need to take a
Speaker 5: view on this industry that's outside of the political cycle.
Speaker 5: But that's challenging, but I think there's a lot of
Speaker 5: synergy in the mission between the parties. There's just a
Speaker 5: difference in the tools and the toolbox that they choose
Speaker 5: to use to get the work done.
Speaker 3: I want to, I guess, fact check one thing or
Speaker 3: get your view on this. But whenever we talk to
Speaker 3: Jiggershaw over at the DOE, he always talks about how
Speaker 3: when it comes to private investment of you know, new
Speaker 3: and wacky technology, in some respects, there is a reluctance
Speaker 3: on the part of banks, for instance, to gamble on
Speaker 3: this or to take a big risk on technology that
Speaker 3: they're probably not experts in, whereas something like the Loan
Speaker 3: Program's Office they have a bunch of people with a
Speaker 3: lot of scientific background, a lot of experience, who I
Speaker 3: guess have the expertise to be evaluating whether or not
Speaker 3: these things are realistic or promising. Has that been your
Speaker 3: experience or what is the difference between working with something
Speaker 3: like the DOE, the Loan Program's Office versus working with
Speaker 3: private investors, Like do you get different types of questions?
Speaker 3: Do they show different types of concerns or interests when
Speaker 3: they talk to you.
Speaker 5: I think, at the end of the day, the LPO
Speaker 5: is still a commercial financing vehicle, right, and so the
Speaker 5: diligence process looks similar to that of the banks, but
Speaker 5: they do bring in a lot of great experts to
Speaker 5: make sure they are comfortable with the technology, the customers,
Speaker 5: the engineering reports, the site plans, all of those level
Speaker 5: of details. I think the fundamental difference is kind of simplistic.
Speaker 5: They are not in it simply for the return profiles
Speaker 5: right that the banks or private capital are looking for,
Speaker 5: which are much higher. They're in it because they have
Speaker 5: let's say, kind of mandates and strategies around certain sectors
Speaker 5: that they want to see be successful. Doesn't mean that
Speaker 5: they can go put a loan behind any project, because
Speaker 5: they have to go through that commercial diligence, But their
Speaker 5: goal is to bring that let's say first slug of
Speaker 5: capital in at a lower cost of capital and de
Speaker 5: risk it for the other private forms of capital to
Speaker 5: come in alongside of it in the project.
Speaker 2: Out of curiosity, what does the application look like? I
Speaker 2: don't know. In my mind, I imagine like a cology application.
Speaker 3: Get to write a personal essay what GRAPHI means to me?
Speaker 2: Yeah? But what is that like? The actual what is
Speaker 2: in practice? What does it look like applying for all
Speaker 2: these loans.
Speaker 5: It's really just an enormous process. It's an undertaking from
Speaker 5: the pre application phase, working with the team to understand
Speaker 5: the project, the site, the engineering right the pre diligence
Speaker 5: on what the project can bring, and then really where
Speaker 5: things ramp up is in the diligence phase, right before
Speaker 5: you get to this kind of infamous conditional commitment where
Speaker 5: they put terms in front of you. This is when
Speaker 5: they start bringing in all the external advisors and going
Speaker 5: through all of the engineering reports, customer off take and
Speaker 5: so you know, yes, there's the personal essay component of course,
Speaker 5: but it's more commercial. But it's more commercial diligence of
Speaker 5: let's see the data room and let's understand every inch
Speaker 5: and every corner of this project so we know what
Speaker 5: we're getting involved, and then the team does a great
Speaker 5: job to do that.
Speaker 3: So we've been very focused on the US market for
Speaker 3: obvious reasons. I know we talked about China initially, but
Speaker 3: what are we seeing from other countries in terms of response.
Speaker 3: Are other countries trying to build out the capacity or
Speaker 3: similar capacities that the US seems to be doing.
Speaker 5: I think you're seeing this idea of shifting all of
Speaker 5: our let's talk at the cell manufacturing level first, Right,
Speaker 5: you're seeing the idea that we need to move our
Speaker 5: cell manufacturing globally outside of just China, right, and whether
Speaker 5: that's expansion in countries like Korea and Japan or also
Speaker 5: into Europe for example, similar to the US. But I
Speaker 5: think the reality is right now, we're in a time where, again,
Speaker 5: these are all capital heavy investment programs, so people have
Speaker 5: to go where the incentives are strong, right, And so
Speaker 5: for cell manufacturing specifically, the forty five X credits offer
Speaker 5: a huge amount of money per kilowatt hour relative to
Speaker 5: the cost structure of the battery if you're building in
Speaker 5: the United States. So if you had to make a
Speaker 5: decision to build your next multi billion dollar plant in
Speaker 5: the US or in Germany, let's say, or somewhere in Europe,
Speaker 5: that incentive is a big difference between the economics of
Speaker 5: those plants. And so the policies under Biden and the
Speaker 5: investment and the incentive of opportunities are pulling a lot
Speaker 5: of that investment to focus on the US first. But
Speaker 5: I think we need to see this trend continue in
Speaker 5: other jurisdictions because everyone faces the same simple problem statement
Speaker 5: of this energy transition, and the battery manufacturing and supply
Speaker 5: chain still has this huge reliance on China, and that
Speaker 5: has concerns. You know, no matter what jurisdiction you are
Speaker 5: simply because you don't want to be so reliant on
Speaker 5: a single source, and people are so sensitive to it
Speaker 5: after watching what happened with chips.
Speaker 2: Right, So, actually I realized we haven't actually asked this question,
Speaker 2: but what are you building right now specifically? And can
Speaker 2: you sort of give an overview or sort of like
Speaker 2: a simple penciled out version of like what are the
Speaker 2: costs of your investment? What kind of manu refining plants
Speaker 2: do you have or planning to build? And I don't know,
Speaker 2: do this sort of like we're at a bar and
Speaker 2: you're explaining it to me on a napkin? What are
Speaker 2: you building right now? Sure?
Speaker 5: So, we have a four hundred thousand square foot mass
Speaker 5: production site in Chattanooga, Tennessee. We bought it. It was
Speaker 5: a former geit where they were building nuclear turbines. So
Speaker 5: in that facility, we will bring in petroleum coke by
Speaker 5: rail or by barge or by truck, and we'll go
Speaker 5: through what we talked about earlier. We'll change its size,
Speaker 5: its shape, we'll grind it up, we'll change its structure,
Speaker 5: will heat it up in our proprietary high temperature furnace systems,
Speaker 5: and then we'll bag it and ship it off to
Speaker 5: you folks like Panasonic. And so it is. You know,
Speaker 5: a manufacturing plant with heavy equipment inside to process these powders, right,
Speaker 5: and so graphite is a fine powder, like a twenty
Speaker 5: micron particle size, so very small. And at the end
Speaker 5: of the day, we're selling these materials, let's say, in
Speaker 5: the price range of seven to ten thousand dollars per ton.
Speaker 5: So you hear about some of the spot prices in
Speaker 5: lithium and nickel and tens of thousands of dollars per ton.
Speaker 5: So these materials sell on the order of seven to
Speaker 5: ten thousand per ton. We can make them on the
Speaker 5: order of six to eight depending on the cost and
Speaker 5: the specification targets. Like I said, everybody wants a different material.
Speaker 5: But this first plant is going to cost us another
Speaker 5: three or four hundred million dollars to build out, right,
Speaker 5: And that's plant number one for twenty thousand tons. And
Speaker 5: to put things in perspective about a thousand tons of
Speaker 5: graphite produces about a gigawot hour of batteries, So you
Speaker 5: start hearing forty gigawatt hour plants. If those use all graphite,
Speaker 5: they need about forty thousand tons. So LG has announced
Speaker 5: two hundred gig awot hours to build in the US.
Speaker 5: Panasonic has announced two hundred gig a lot hours to
Speaker 5: build in the US. Tesla has talked about going to
Speaker 5: Taro a lot hours of scale. So these are million
Speaker 5: plus tons of demand and it's taking us this amount
Speaker 5: of time, this amount of capital to get the first
Speaker 5: twenty thousand tons out of the gate. And that's the
Speaker 5: scale challenge. It's one of the reasons you do see
Speaker 5: so many former Tesla people kind of at the helm
Speaker 5: of different companies in the supply chain now because back
Speaker 5: in let's say the twenty twelve to twenty fifteen, sixteen
Speaker 5: seventeen hour, as Reno was coming online, Tesla was one
Speaker 5: of the only places you could be in the US
Speaker 5: that really understood that scale issue, right, and therefore everybody
Speaker 5: got to look at some little problem statement quote unquote
Speaker 5: little problem statement like graphite, and it's a huge business opportunity,
Speaker 5: and so people went out and chased all of these
Speaker 5: different problems because kind of to your question earlier, Tesla
Speaker 5: couldn't play whack a role with that many.
Speaker 3: Just in terms of scale and capacity. I'm kind of
Speaker 3: curious hearing you lay out the description of the plant,
Speaker 3: is labor a constricting factor for you at all or
Speaker 3: for other processors? Because I take the point about this
Speaker 3: isn't necessarily a commodity in the traditional sense. But when
Speaker 3: we're talking about using you know, coke to heat it
Speaker 3: up and process it and do things like that, it
Speaker 3: sounds a lot like a sort of heavy, difficult industry.
Speaker 3: But on the other hand, we are talking about making
Speaker 3: something that is quite sophisticated and is intended to help
Speaker 3: with the clean energy transition and is obviously very closely
Speaker 3: linked to battery technology and things like that. What's the
Speaker 3: recruitment process like for you right now? And what's the
Speaker 3: pitch to people for working in this particular industry.
Speaker 5: So I think there's phases of the recruitment challenge, right.
Speaker 5: The first is in the technology development, and then in
Speaker 5: the scale and then in the ops. Right, Because again,
Speaker 5: when you think about this idea of on shoring not
Speaker 5: just production capacity but technology development. There are not people
Speaker 5: in this country who have run battery graphite plants. Yeah,
Speaker 5: they only really exist in China. So you can't just
Speaker 5: go out and hire people who have done this before, right,
Speaker 5: So you have to home grow a lot of that IP,
Speaker 5: a lot of that knowledge, and that takes time, right,
Speaker 5: And that's why again people chasing the idea that the
Speaker 5: government's going to give me one hundred million dollars and
Speaker 5: I can go build a plant. That's only a solution
Speaker 5: the one tiny little sliver of the problem statement of
Speaker 5: technology development. But then now we're into kind of that
Speaker 5: scale out phase where we need more engineer resources and
Speaker 5: we can tap on a lot of great industries that
Speaker 5: we have built in this country and kind of redeploy
Speaker 5: assets and then in operations, you know, we do see,
Speaker 5: you know, labor restrictions if you look across the market,
Speaker 5: and it all comes back to what these growth curves are.
Speaker 5: But I think there's a lot of opportunity to rescale
Speaker 5: labor from other industries into these because at the end
Speaker 5: of the day, there is you know, a huge operating
Speaker 5: and strong labor based in places like Tennessee where we operate.
Speaker 3: What industries do you draw on in Yeah, we had
Speaker 3: the same question, but in terms of engineering and then
Speaker 3: also like production, where are the overlaps?
Speaker 2: Yeah?
Speaker 5: Sure, so you know, specialty chemicals is a big one,
Speaker 5: right because we are talking about how are we going
Speaker 5: to optimize large scale processing of specialized material with very
Speaker 5: exact parameters. Right, So it's really incredible when you think
Speaker 5: about it. We start with, you know, let's say, chunks
Speaker 5: of petroleum coke that could be on the order of
Speaker 5: sizes of marbles, right, and we have to at the
Speaker 5: end of the day know how to exactly control them
Speaker 5: down to the micron scale and their size and their
Speaker 5: shape and their structure and how they stick together and
Speaker 5: their perfect surface coding and all of these things. Right.
Speaker 5: But these types of material science problems have been solved
Speaker 5: in other industries for other applications, right, So specialty chemicals
Speaker 5: certainly automotive and automotive when we talk about the manufacturing side,
Speaker 5: retooling and reskilling our workforce to these clean energy projects,
Speaker 5: and of course you know we do look at oil
Speaker 5: and gas and the refining industry as well from running
Speaker 5: large scale operations. So Philip sixty six is one of
Speaker 5: our is our largest shareholder, and you know, we look
Speaker 5: at opportunities to say, are there, you know, any displaced
Speaker 5: workers in the future of those industries that we need
Speaker 5: to reskale.
Speaker 2: Yeah, I was actually going to ask about that Phillip
Speaker 2: sixty six relationship. Are there like either internal know how
Speaker 2: from the legacy sort of oil and gas industry that
Speaker 2: can that does get or can sort of with somewhork
Speaker 2: be reapplied to some of these areas.
Speaker 5: Yeah. Absolutely, And I mean their expertise has kind of
Speaker 5: been built to a certain level. They make these very
Speaker 5: premium quality coke products from in the UK and here
Speaker 5: in the US, and they support they supply some of
Speaker 5: those into China for the battery market, right. But then
Speaker 5: again they want to work with specialized partners to help
Speaker 5: take those further.
Speaker 2: One last thing for me, I kind of mentioned it before,
Speaker 2: but I maybe got lost in one of my rambling questions.
Speaker 2: The interest rate environment. Does it affect you? Do you
Speaker 2: feel it? Does it change how things pencil out, et cetera?
Speaker 5: Yeah, it just changes the math, right, and it changes
Speaker 5: the calculus that investors are looking for in the private
Speaker 5: capital and the returns. And so again it comes back
Speaker 5: to we need to be able to have our customers
Speaker 5: and our partners understand that we need off takes that
Speaker 5: are going to generate the return profile that investors need,
Speaker 5: given still the risk, supply chain risk, government incentive risk,
Speaker 5: scale out risk ops risk that these projects still have.
Speaker 5: And so that just means that we need to ensure
Speaker 5: that contracting structures meet the expectations of investor's not in
Speaker 5: a zero percent interest rate, but in our current interest
Speaker 5: rate environment.
Speaker 3: I have just one more question, and I'm thinking how
Speaker 3: to phrase it, because maybe it's not that applicable to
Speaker 3: graphite per se, the forgotten commodity, as you put it earlier,
Speaker 3: But people talk a lot about technology being superseded, especially
Speaker 3: in battery production. So the idea of solid state batteries
Speaker 3: and things like that. Is there a world in which
Speaker 3: we no longer need graphite to the extent that we
Speaker 3: currently need it, And if so, is that something that
Speaker 3: factors into your business plans currently? I guess what I'm
Speaker 3: trying to ask is everyone who's in the battery making
Speaker 3: business in one way or another, are they all trying
Speaker 3: to prep for the next big technological development or is
Speaker 3: everyone trying to develop expertise in what is needed right now?
Speaker 5: Well, the kind of cheating, answer is both, right. You know,
Speaker 5: they need to make the materials that we need today
Speaker 5: and they also need to have a roadmap so that
Speaker 5: over ten twenty years that the leaders in this industry
Speaker 5: is the panasonics, the LG's of the world, you know,
Speaker 5: are still the leaders in this industry, right, and they
Speaker 5: don't get passed by new technology. But to go back
Speaker 5: to the question of you know, will we never need
Speaker 5: graph fight, No, right, we will always need graphite because
Speaker 5: it is the only anode chemistry that can last thousands
Speaker 5: of cycles. And I think a key concept that we
Speaker 5: started focusing on, and it's relevant for vehicles, but it
Speaker 5: becomes even more relevant for grid energy storage is the
Speaker 5: idea of not just dollars per kill awat hour, right,
Speaker 5: how expensive is my battery to buy, but dollars per
Speaker 5: kill wat hour per life for per cycle, right? Because
Speaker 5: why would I pay ten percent less for a battery
Speaker 5: that only lasts half as long if I need it
Speaker 5: to last longer?
Speaker 2: Right?
Speaker 5: And so that differentiation in anode chemistry to be to
Speaker 5: have the long cycle life is why there will always
Speaker 5: be applications that require graphite. And I think what we're
Speaker 5: going to see is new technologies are going to open
Speaker 5: new doors, right, So you're going to see things like
Speaker 5: solid state batteries go into military, go into aviation, go
Speaker 5: into fields that because graphite is a little bulky relative
Speaker 5: to these other materials and these other chemistries, they are
Speaker 5: not as well suited for. So you're going to see
Speaker 5: new doors opened by new technology more than you're going
Speaker 5: to see it replace old technology. And I think again,
Speaker 5: when you look at the first sony cell commercialized in
Speaker 5: ninety one, it was a lithium cobalt oxide cathode and
Speaker 5: a carbon based graph anode, right, and today most of
Speaker 5: the batteries are a nickel, manganese cobalt, so just a
Speaker 5: little variant on that and graphite. So it's been thirty
Speaker 5: years and we haven't seen really a substantial change. We've
Speaker 5: just made all of those materials that much better, so
Speaker 5: they're cheaper, they last longer, they store a little more,
Speaker 5: and we've gotten it to now support these new industries.
Speaker 2: Doctor Chris Burns, CEO of Novonix, thank you so much
Speaker 2: for coming on odlocks.
Speaker 5: Great, No, thank you so much for having me.
Speaker 2: Yeah, that was great. That was a lot of fun.
Speaker 4: That was great.
Speaker 3: You made graphite interesting but on a serious note, actually,
Speaker 3: I think I understand how batteries work now, so that's
Speaker 3: a plus. Yeah, that was great end of minus boom.
Speaker 4: Sorry, Tracy.
Speaker 2: I thought that was very helpful. And you know, we
Speaker 2: talk a lot about these topics and sort of the abstract,
Speaker 2: and to hear someone in the space literally having to
Speaker 2: you know, build this big facility of you know, hundreds
Speaker 2: of millions of dollars in Tennessee and look for off
Speaker 2: take agreements, look for sales, and think about how they're
Speaker 2: gonna get the core commodities in was extremely helpful for
Speaker 2: I think, certainly Mine, I guess suspect both of our
Speaker 2: understanding of the space.
Speaker 3: Absolutely, it's sort of solidified a lot of stuff that
Speaker 3: I guess we've spoken about kind of theoretically, Yeah, in
Speaker 3: conversations with people like Chick or Shaw, and I don't
Speaker 3: mean to suggest he only speaks theoretically, like he gives
Speaker 3: some really great examples, but it's interesting to hear it
Speaker 3: from the other perspective from a company that is, in fact,
Speaker 3: you know, on the receiving end of some of this
Speaker 3: public support and what it actually does for them and
Speaker 3: how it gets deployed, deployed being you know very much
Speaker 3: the trademark of the DOEA.
Speaker 2: Yeah, no, totally exactly. And you know, there are many
Speaker 2: interesting things in there too.
Speaker 5: You know.
Speaker 2: It's interesting as you noted that, you know, ten years
Speaker 2: ago or seven or eight years ago, it probably was
Speaker 2: only people at Tesla and a few other places. Yeah,
Speaker 2: it sort of appreciated the sort of raw math that
Speaker 2: we're all talking about these days of like, okay, like
Speaker 2: if we want to have a domestic battery industry, how
Speaker 2: much scale are we going to need, et cetera. Probably
Speaker 2: a lot of people haven't been thinking about it that long.
Speaker 2: Sin's interesting that or just the idea that like, look,
Speaker 2: at some point people are going to start getting anxious
Speaker 2: about how much we rely on China for some of
Speaker 2: this stuff. And so that wasn't codified into law until
Speaker 2: twenty twenty two, but obviously people were talking about it
Speaker 2: and betting that there would be sort of you know,
Speaker 2: near shoring or in a domestic reshoring of batteries for
Speaker 2: several years before that.
Speaker 3: Well, this is the other thing I was thinking about,
Speaker 3: which is that we're very used to talking about the
Speaker 3: US cutting off strategically important technology for China. But of
Speaker 3: course part of the China response to that happening has
Speaker 3: been to cut off exports of rare earth, and in
Speaker 3: the context of China, we're always talking about like the
Speaker 3: potential for that to backfire, you know, like, Okay, China
Speaker 3: doesn't have access to advanced semiconductor technology anymore, or it
Speaker 3: has less of it than it used to, but maybe
Speaker 3: they'll just develop their own capacity faster. And I kind
Speaker 3: of think this is almost the opposite side of it,
Speaker 3: where Okay, China has cut off the US more or
Speaker 3: less or diminished their exports from these vital materials that
Speaker 3: are needed for the clean energy transition for batteries and evs,
Speaker 3: does it end up speeding up the US project to
Speaker 3: build out It feels like that's kind of the direction
Speaker 3: that it's heading. And especially if supply isn't actually the
Speaker 3: limiting factory, as Chris was pointing out, but if it's
Speaker 3: actually the processing capacity.
Speaker 2: Yeah, no, it raises a lot of interesting There was
Speaker 2: also a lot of interesting questions. Also, your question about
Speaker 2: you know, hiring talent was very interesting because again, you know,
Speaker 2: if you don't have the industry, you don't have the
Speaker 2: people that know how to build these places. And it's
Speaker 2: a good reminder that manufacturing. Maybe the initial impulse to
Speaker 2: offshore manufacturing was sort of cheap manpower, Right, how much
Speaker 2: does this person get paid per hour?
Speaker 3: But it regulatory shortcuts.
Speaker 2: And regulatory shortcuts, environmental probably a big one, but then another.
Speaker 2: You know, over time that just turns into a larger
Speaker 2: stock of people who know how to build something well,
Speaker 2: which is really hard to overcome.
Speaker 3: I suddenly had a vision of what was that conversation
Speaker 3: with like monkeys jumping from tree to tree?
Speaker 2: Right, the complexity Ricardo Houseman, Yeah, exactly, adjacency, the adjacent industries.
Speaker 2: That's all your question, so good, Like what are the
Speaker 2: adjacent industries that can now where these skills can now
Speaker 2: be transferred to something more higher value, add et CETERA.
Speaker 2: Great conversation.
Speaker 3: Yeah, that was surprisingly fun. I'm I'm graphite pilled. Now,
Speaker 3: all right, shall we leave it there?
Speaker 2: Let's leave it there.
Speaker 3: This has been another episode of the Odd Lots podcast.
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy.
Speaker 2: Alloway and I'm Joe Wisenthal. You can follow me at
Speaker 2: the Stalwart. Follow our producers Carmen Rodriguez at Carman Arman,
Speaker 2: Dashel Bennett at dashbot and Kelbrooks at Kelbrooks. Thank you
Speaker 2: to our producer Moses Ondam. For more odd Lots content,
Speaker 2: go to Bloomberg dot com slash odd Lots, where we
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Speaker 4: In fact, it was.
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