Ocam's RazorTHESIS RISKS
With cash reserves of C$34.403 million as of June 30 (prior to Sumitomo’s C$16.9 million investment), and a quarterly burn rate of ~C$7.25 million, Nano One still has a solid 18 months before it will be forced to raise more capital. However, in order to scale its LFP factory, the company will need to raise more capital. It’s possible this comes with significant dilution, so investors should be aware of this, though the company has also seen significant support from the Canadian government thus far (and potentially Japan) making it eligible for future financing packages.
Receiving grants worth over C$20 million, it’s likely that Nano One will continue to receive support as it ramps its commercial efforts. The company has seen the value of its grants increase in line with its own growth, with the initial grant value doubling from its second SDTC program to its third. As Nano One’s SDTC projects become increasingly commercial-focused, it’s likely that the support it receives will continue growing significantly, perhaps in excess of C$20 million.
The company’s licensing business, on the other hand, should be far easier to scale as it wouldn’t require any initial capital investment from Nano One. Once the MCPH is operational, with financing support from SDTC, Nano One can begin to leverage that to expand partner discussions. Regardless, with no immediate financing concerns, the greatest risk for Nano One remains the commercial viability of its technology.
While I feel comfortable with this risk, due to the company’s partnership progression and LFP development, Nano One does offer little visibility into the validation work being completed due to the commercial sensitivity of the information. This creates inherent risk, especially for a company so reliant upon successful commercialization of its R&D efforts. As such, I view the more pertinent risk to be the timeline risk for Nano One.
It may take several years for Nano One to achieve commercially-relevant scale at its Candiac facility. While the company does still believe it is on track to complete major contract work by mid-2024 (both raw materials and offtake), there’s really no telling what the ramping process may look like. Potentially limited by financing and general ramping troubles, Nano One could still be over three years away from achieving commercially-relevant scale (10,000 tpa) at Candiac even if its R&D remains on track.
On the flip side, Nano One’s partners should help it achieve rapid commercial expansion for its One-Pot and M2CAM processes, assuming they demonstrate commercial viability. Furthermore, with the company able to utilize ~80% of the manufacturing equipment already in place at Candiac, it stands to reason that commercial partners would be able to re-tool their existing facilities relatively easily.
Still, it’s incredibly difficult for R&D projects to remain on track as any number of unforeseen complications may arise. If there is timeline drift due to difficulties with R&D, Nano One may be forced to raise more capital before truly demonstrating the commercial viability of its processes. This may create more dilution, diminishing the returns for investors.
Furthermore, simply because Nano One demonstrates it has a better process doesn’t mean it will be adopted immediately. Partners may be unwilling to shut-down a facility and re-tool, even if 80% of the equipment can be carried over, for a slight improvement in product quality and reduction in production costs.
This could limit adoption to only new facilities, or expansion lines at existing facilities. Still, the rate at which the battery market is growing should provide ample customer interest as partners consistently expand their production footprints.
INVESTOR TAKEAWAY
Despite the positive steps the company has been making recently, investors will need to remain patient as Nano One continues to progress toward commercialization. I don’t expect the Candiac facility to reach commercial scale (10,000 tpa) until the end of 2026 at the earliest. While this could be enough to get the ball rolling in the public markets, the company still has much to prove in terms of partner scalability.
As such, shares likely won’t fully respond until the company achieves significant scale by way of licensing and JVs. For that reason, I expect much of the company’s value to remain unrealized through the remainder of the decade.
This doesn’t mean there won’t be rewards for shareholders that hold on the path to commercialization. I expect shareholders to be rewarded with a CAGR of >30% up until commercialization, at which point growth would become somewhat parabolic.
Assuming the company is able to execute on its commercial vision, a multi billion dollar valuation by 2030 doesn’t seem out of reach for the company. Essentially, I believe that Nano One is a massive winner, so long as it is able to achieve successful commercialization.
This makes its real “fair value” less relevant, especially as this isn’t really something that’s possible to calculate at the company’s current stage. Instead, I think it’s important to focus on the perceived chances of success and timeline to significant scale.
Following its successful 2,000 tpa reactor tests, Nano One has significantly improved its odds of commercial success. Given the level of confidence this creates for Nano One’s commercial success, and its strong partner network, the company’s current value provides an asymmetric opportunity given the ample upside a successful implementation provides.
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