The innards of a pencil were never actually made from lead. When it was first discovered graphite was called plumbago and was thought to be a form of lead. Solid graphite was discovered in Borrowdale, Cumbria, in 1500. Initially it was used for lining cannonball molds. (It’s softness is unaffected by heat.) During the Napoleonic war when France was unable to get hold of graphite the French Chemist Nicolas-Jacques Conte developed a process whereby the existing supplies of graphite could be eked out by being mixed with clay. Unlike graphite, clay will harden if you put it in an oven so by varying the proportion of clay to graphite various grades and softnesses of pencil are possible.
The first wood encased pencil was developed in 1600. Prior to this people had used lumps of graphite to draw with wrapped in sheepskin or string. Apparently one of it’s uses was for marking sheep. Pencils were made from graphite sawn into thin sheets. A sheet would be wedged into a groove on a piece of timber. The graphite would then be scored along the top edge of the groove and broken off. Another piece of wood is then glued onto the other side and the square pencil is then sanded down.