I am constantly asked by investors, “What is the hot sector?” In 2020, clearly, there has been more than one. Because of my background as a sell-side auto analyst, though, the conversation often turns to cars, and in 2020, the market’s focus has been on electric cars. Not only have Tesla (TSLA) shares posted huge gains, but the electric car phenomenon in China has spawned a group of plucky startups — NIO (NIO) , Li Auto (LI), XPeng (XPEV) — that, like Tesla are listed on U.S exchanges and have posted huge share price gains in 2020. There has been no shortage of attention given to the shift from internal combustion engines (ICE) to electrified powertrains, especially in China, and the world is clearly moving to a less carbon-intensive mode of transportation.
This is where the physics and chemistry of the electric-car battery are forced to the front of the discussion. If electrics really are going to replace ICE, the limitations of currently-produced lithium-ion batteries will be exposed. It would seem that many investors believe that the ideal electric car battery was dreamed up by Elon Musk during one of his seemingly frequent late night reveries, but nothing could be further from the truth. I still communicate with auto execs at many different OEMs and they will frequently point out that while consumer demand is increasing and government mandates (especially tax credits) for BEVs will likely increase, not decrease in the future, current battery technology is far from perfect.
Obviously battery-electrics have limitations in terms of slow recharging time and limited range (cars equipped with hydrogen fuel cells, like the Toyota (TM) Mirai, perform better in both metrics while sharing an all-electric, zero-emission architecture) but the real limitation is in the number of charging cycles. Any electric car has sophisticated battery management technology that works to increase the number of charging cycles that that battery can endure. Those management systems also slow the charging rate and reduce charging capacity, though, and it is like an epic game of tug-of-war between hardware that could be charged more rapidly and hold more charge at the expense of its durability and software that protects that durability. In the cathode of any BEV clusters of polycrystalline materials are stressed and eventually broken by repeated charging, exposing the inner ceryatls to harmful reactions and hampering battery performance.
That’s where the opportunity for a better mousetrap comes into play. An interesting play on this is a small company located in British Columbia, Nano One (NNOMF) . Because it is 2020 and their technology has a use in BEVs, Nano One stock is not as small as it was in 2019 (shares are up 193% year-to-date and Nano One currently sports a market cap of US$230 million) but I believe this little company could hold the key to increasing electric-car battery performance and, crucially, durability. Nano One’s patented One-Pot process produces coated crystals in powder form that allow for the lithium-ion battery’s cathode to display increased performance and durability and also obviate the need for sulfates and enable LNMO chemistry, which uses zero cobalt.
To invest in Nano One, you are buying the concept of a better mousetrap. Nano is marketing its process on a licensing/royalty basis, and has announced partnerships with Volkswagen (VLKAF) , European materials giant Saint-Gobain, Chinese cathode-maker Pulead, and others. Nano is a pre-revenue company and its main listing is on Toronto’s TSX-V exchange. The “V” stands for venture, and that is an exchange setup I wish we had here in the States. Obviously that implies risk, but Nano One’s management team has done a terrific job of raising capital to de-risk the company while it perfects its technology. In addition to several private placements, Nano One has benefited greatly from C$14 million of non-dilutive grant funding from Canada’s SDTC and its home province of British Columbia.
I was one of the first cohort of analysts given the opportunity to drive GM’s (GM) EV1 in Central Park in 1996. Of course that vehicle’s nickel-metal-hydride battery chemistry seems primitive today, and unlike the Model 3 and other BEVs I have driven recently, it wasn’t particularly fun to drive. It’s easy to get caught up in the alphabet soup of lithium-ion battery chemistry — LFP, NMC LNMO, etc. — but the simple fact is that there is an opportunity here for improved cathode chemistry. Nano One is a play on improving that chemistry and adding value to current and future customers in the process, and, frankly, I like their chances.
Nano One’s website is here, and, as with any emerging-stage company, you really should do your homework before investing. I believe it is worth the effort.
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