マイクロバスト社は、アメリカ合衆国テキサス州の法律に基づき2006年10月12日に設立され、2015年12月31日にデラウェア州に再登記されました。2021年7月23日（「締結日」）、マイクロバスト社とタスカンホールディングスcorp（「タスカン」）は、タスカン、マイクロバスト社およびデラウェア法人のTSCN Merger Sub Inc.（「合併子会社」）との間で、2021年2月1日に締結された合併契約書（「合併契約」）に基づき、以前に発表された合併（「合併」または「ビジネスの統合」）を完了しました。
2018年12月29日、当社の子会社であるMicrovast Power Systems Co.、Ltd.（MPS）は、地元政府によって設立された法人である湖州セイユアンとの契約を締結し、合計$の転換社債の発行を湖州セイユアンに対して行いました。87,776 （RMB600 百万ドル）を引き受けました。当社は、MPSに対する%の株式保有権を湖州セイユアンに担保として提示し、これらの転換社債の発行を容易にしました。 12.39％の株式保有権を湖州セイユアンに供与しました。これにより、これらの転換社債の発行が容易になりました。
2024年4月10日に、 former employee と会社の間で終了及び移行アドバイザリーサービス契約が締結されました。この契約により、2024年4月10日現在で従業員が保有しているすべての未確定の制限付き株式ユニット、パフォーマンスベースの制限付き株式ユニットおよびストックオプションは、2025年4月10日直後にすべて権利確定されます。会社は、受賞が修正時の元の権利確定条件の下で権利確定されることがないと予想される修正を表すタイプIII（発生確率が低いから高い）の修正として考慮しました。会社は、元従業員が会社のコンサルタントとして活動している期間において、修正された賞の公正価値に相当する補償コストを認識しました。
The Company has received additional demands from purported Company stockholders, requesting that the Company’s Board of Directors investigate whether current and former directors and officers of the Company and its predecessors, Tuscan and Microvast Inc., breached their fiduciary duties by allegedly making material misrepresentations about inter alia (1) Microvast Inc.’s performance and financial health in connection with the merger between Tuscan and Microvast, Inc., and (2) the Company’s loss of a conditional grant from the United States Department of Energy. The Company has responded to certain of the demands and is evaluating responses to others.The Company has also received and responded to a stockholder demand for books and records made pursuant to Section 220 of the Delaware General Corporation Law that purportedly seeks to investigate the loss of the DOE grant.
Securities Litigation
The Company and certain of its officers have also been named as defendants in a putative class action complaint by a shareholder of the Company in the U.S. District Court for the Southern District of Texas under the caption Schelling v. Microvast Holdings, Inc., Case No. 4:23-cv-04565 (S.D. Tex.) (filed Dec. 5, 2023) (the "Schelling Action"). The complaint alleges that defendants violated certain federal securities laws by making misleading statements regarding the receipt of a conditional grant from the United States Department of Energy, the Company’s profitability, and the nature of Company-associated operations in China. On March 1, 2024, the court appointed Co-Lead Plaintiffs and Co-Lead Counsel for the proposed class of Company investors. Plaintiffs amended their complaint on May 13, 2024, and Defendants filed a motion to dismiss on June 20, 2024. Briefing on the motion to dismiss was completed on September 10, 2024. The Court has not ruled yet on the motion.
テネシー州チャンスリー裁判所に提出された契約トラブルの訴訟で、会社の子会社であるMicrovast, Inc.が被告として名指しされました。 DPR建設GP 対 Microvast, Inc. など、訴訟では、原告は同社がテネシーのMicrovast施設で行った建設作業に対する支払いを怠ったと主張し、進行中の請求金額について$19,950 、契約に基づく原告の進行中の請求金額に保持されている追加額$1,566 、契約に基づいてまだ行われていない作業の失った利益に加え、一部の手数料や経費、そして支払われるべきとされる金額を満たすために施設の差し押さえを求めています。当事者は和解契約を締結し、この問題は裁判所の命令により滞在中です。
Microvast, Inc.は、テネシー州のモンゴメリー郡の高等裁判所に提起された契約紛争訴訟の被告として指名されています。 Faith Technologies, Inc. Microvast, Inc. その他、ケース番号 CD-24-36 (Tenn. Ch.) (2024年7月15日に提起)。原告は、DPR建設との下請け契約に関して損害賠償請求を主張しており、原告はテネシー州のMicrovast施設において火災防護システムサービスを提供し、損害賠償として$1,699 、裁判所費用、弁護士費用および予備的利息を請求しています。
マイクロバスト社は、テネシー州モンゴメリー郡チャンサリー裁判所で提起された訴訟で被告として名指しされました。 Bernhard MCC対Hodess Cleanroom Construction, LLC、Hodess Construction Corporation、Microvast、Inc.、およびモンゴメリー郡産業開発委員会の事件、事件番号CD-24-26（テネシー州Ch。）（2024年5月28日提起）が、テネシー州のマイクロバスト施設の下請業者によって提起された担保実行のための訴訟。2024年5月28日に提起された、テネシー州のマイクロバスト施設に関する下請業者による担保確定の訴訟、訴え額は2,173です。2024年10月10日、この事件は結審しました。
このレポートの参考文献は「会社」、「Microvast Holdings, Inc.」、「Microvast」、「当社」または「当社」とは、Microvast Holdings, Inc. を指します。当社の財政状態と経営成績に関する以下の説明と分析は、本レポートの他の場所に含まれる未監査の中間要約財務諸表およびその注記と併せて読む必要があります。以下に示す議論と分析に含まれる特定の情報には、リスクと不確実性を伴う将来の見通しに関する記述が含まれます。
ビジネス
米国テキサス州スタッフォードに本社を置く先進のバッテリーテクノロジー企業、Microvast Holdings, Inc. はNASDAQに上場しています。私たちは高性能リチウムイオンバッテリーシステムと部品の設計、開発、製造に特化し、主に電気商用車両（'EVs'）やユーティリティ規模のエネルギー蓄積システム（'ESS'）向けに製品を供給しています。2006年の設立以来、私たちのミッションは、革新的なバッテリーテクノロジーを通じて電気自動車関連製品や再生可能エネルギーソリューションの採用を加速し、クリーンエネルギーへの移行を推進することです。
Our flagship product is the 53.5Ah high-energy nickel manganese cobalt (NMC) battery cell, which is designed specifically for electric vehicles. The 53.5Ah cell combines fast charging capabilities, high energy density, and long cycle life, making it an ideal solution for demanding commercial applications. To bring this product to market, we have made significant investments in our fully automated production facilities in Huzhou, China, which now supports large-scale production of the 53.5Ah cell.
Since the launch of our first ultra-fast charging battery system in 2009, we have delivered approximately 5,576.4 megawatt hours (“MWh”) of battery systems for electric vehicles. For the quarter ended September 30, 2024, we reported a 27% increase in revenue, reaching $101.4 million compared to $80.1 million in the same period in 2023. Our order backlog as of September 30, 2024, stands at $277.7 million for EV battery systems, representing approximately 1,144.1 MWh, with over 58% of these orders attributable to Europe and U.S. markets. We expect to fulfill a majority of our electric vehicle battery backlog within 2024 and 2025.
Looking forward, Microvast aims to expand its focus on ESS to capitalize on the growing demand for renewable energy solutions. We are committed to becoming a global leader in the ESS market, recognizing that electric vehicles are only as green as the energy that powers them. Addressing this relationship between clean energy and electrification is at the core of our research and development strategy and will shape our future growth.
We originally intended to produce 53.5Ah cells from our Clarksville, Tennessee facility for our ESS and EV products and had made significant investments in our capacity expansion there. However, due to market demand, regulation policies, and our competitors lowering their selling prices, we believe lithium iron phosphate (“LFP”) cells are a better battery fit for our ESS solutions and intend to produce LFP cells from our Tennessee facility instead of 53.5Ah cells. As such, we expect that all of our production of 53.5Ah cells will be from our facilities in China, and in the United States we will focus on LFP production for our energy storage solutions to customers worldwide. We believe this strategic shift towards LFP technology in the U.S. leverages cost benefits, safety features, regulatory compliance, and lower environmental impact for the following reasons:
Production and Application Suitability. While NMC batteries provide high energy density and performance suitable for electric vehicles, we believe these characteristics are less critical for energy storage systems. LFP batteries, in contrast, offer performance parameters that align well with ESS requirements due to their stability and durability over longer discharge periods.
Cost Efficiency and Resource Utilization. LFP batteries are generally 20-40% less expensive per kilowatt-hour compared to NMC batteries. We believe this cost advantage, coupled with the reduced reliance on scarce minerals such as cobalt, makes LFP an economically and environmentally preferable choice for ESS. The extended lifecycle of our LFP
batteries enhances their cost-effectiveness over prolonged operational durations, presenting a compelling value proposition for large-scale energy storage applications.
Reliability Enhancements. LFP batteries demonstrate better structural stability and higher thermal thresholds, reducing risks associated with overheating and thermal runaway. Our proprietary technology, which incorporates nitrogen protection systems within our ESS containers, further enhances the reliability profile of our ESS solutions, demonstrating our dedication to risk mitigation in the energy storage sector.
Tax Incentives. Our domestically produced LFP batteries and energy storage containers are expected to qualify with U.S. domestic content requirements and qualify for the Inflation Reduction Act Section 45X energy efficiency incentives, thereby enhancing the economic viability of our ESS solutions.
Environmental Impact. LFP batteries do not contain cobalt, which is often associated with significant environmental degradation and ethical concerns related to its mining practices. This attribute underscores our commitment to environmental sustainability and positions LFP batteries as a more eco-friendly option in the energy storage market.
While we believe these advantages make LFP batteries better suited for meeting the current and future demands of our ESS solutions, we are in the early stages of exploring this new product which is currently in the pilot stage in China. We can provide no assurance as to whether and when our LFP product will become available, when our Clarksville, Tennessee facility will be completed, or if our LFP batteries will ever be marketable. The lithium-based battery market is highly competitive and there can be no assurance that the use of our LFP product or ESS solutions will gain market acceptance. Additionally, we might encounter practical difficulties and may incur additional costs during the scale-up of our LFP operations.
Completion of the Business Combination
On July 23, 2021, Microvast Holdings, Inc. (formerly known as Tuscan Holdings Corp.) consummated the previously announced acquisition of Microvast, Inc., a Delaware corporation, pursuant to the Agreement and Plan of Merger dated February 1, 2021, between Tuscan, Microvast and TSCN Merger Sub Inc., a Delaware corporation, pursuant to which Merger Sub merged with and into Microvast, with Microvast surviving the merger.
Going Concern
In accordance with Accounting Standards Codification (“ASC”) Topic 205-40, Going Concern, we evaluate whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern. This evaluation includes considerations related to our liquidity resource. Given the uncertainties around our liquidity as described in Note 2 to the unaudited condensed consolidated financial statements of this Quarterly Report and in this Management's Discussion and Analysis of Financial Condition and Results of Operations, we have concluded that there is substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of the unaudited consolidated financial statements included elsewhere in this Quarterly Report. For more information, see Note 2 to the unaudited consolidated financial statements of this Quarterly Report and the risk factors in our Annual Report on Form 10-K for the year ended December 31, 2023 "There is substantial doubt regarding our ability to continue as a going concern", "We may be unable to meet our current capital requirements and will require additional capital to meet our outstanding accounts payable and current liabilities".
Key Factors Affecting Our Performance
We believe that our future success will be dependent on several factors, including those discussed below. While these areas represent opportunities for us, they also represent challenges and risks that we must successfully address in order to continue the growth of our business and improve our results of operations.
Technology and Product Innovation
Our financial performance is driven by development and sales of new products with innovative technology. Our ability to develop innovative technology has been and will continue to be dependent on our dedicated research team. As part of our efforts to develop innovative technology, in October 2021, we expanded our R&D footprint in the U.S. We also plan to continue leveraging our knowledge base in our overseas locations, including China and to continue expanding our R&D efforts on a global basis. We expect our results of operations will continue to be impacted by our ability to develop new products with improved performance and reduced ownership cost, as well as the cost of our R&D efforts.
Our revenue and profitability depend substantially on the demand for battery systems and battery components, which is driven by the growth of the commercial and passenger electric vehicle and energy storage markets. Many factors contribute to the development of the electric vehicle and battery energy storage sector, including product innovation, general economic and political conditions, environmental concerns, energy demand, government support and economic incentives (e.g., the Inflation Reduction Act in the U.S. and the E.U. Green Deal, E.U. Fit for 55). While governmental economic incentives and mandates can drive market demand for the markets in which we operate and, as a result, battery systems and components, governmental economic incentives can always be gradually reduced or eliminated. Any reduction or elimination of governmental economic incentives may result in reduced demand for our products and adversely affect our financial performance.
Manufacturing Capacity
Our growth depends on being able to meet anticipated demand for our products. As of September 30, 2024, we had a backlog of approximately $277.7 million for our electric vehicles battery systems, equivalent to approximately 1,144.1 MWh. To increase our manufacturing output, address our backlog and capture growing market opportunities, we have made significant investment in capacity expansions in both Huzhou, China and Tennessee, United States.
In the third quarter of 2023, we successfully completed the 2 GWh cell, module and tray capacity expansion for our 53.5Ah cell technology in Huzhou, China which is now in operation and generating revenue from sales of electric battery systems.
The Tennessee expansion was originally scheduled to be completed in the fourth quarter of 2023 and was intended for production of 53.5Ah cells for our ESS solutions. However, we believe LFP cells are a better battery fit for our ESS solutions and intend to produce LFP cells from the Tennessee facility instead of 53.5Ah cells. As such, we expect that all our production of 53.5Ah cells will be from our facilities in China, and in the United States we will focus on LFP production for our energy storage solutions to customers worldwide. Additionally, our ESS products previously assembled in Colorado are now planned to be assembled at our Tennessee facility. In order to complete the Tennessee expansion, we need to secure financing to meet the remaining capital expenditure needs, and the timing of when this project will be in operation remains uncertain. We are in the process of evaluating the amount of capital expenditures needed to complete the Tennessee expansion in light of the intended production shift from NMC cells to LFP cells.
Future capacity expansions will require significant capital expenditures and will require a corresponding expansion of our supporting infrastructure, further development of our sales and marketing team, an expansion of our customer base and strengthened quality control. This capacity expansion will be carried out in a measured manner based on our ongoing assessment of medium- and long-term demand for our solutions.
Sales Geographic Mix
After initially being focused on the Asia & Pacific regions, we have expanded and continue to expand our presence and product promotion to Europe and the U.S. to capitalize on the rapidly growing electric vehicle and battery energy storage markets in those geographies. As we continue to expand our geographic focus to Europe and the U.S., we believe sales of our products in Europe and the U.S. will have the potential to generate higher gross margins because average sales prices for customers in Europe and the U.S. are typically significantly higher than the average sales prices in China. It has been our experience that buyers in Europe and the U.S. are more motivated by the technologies and quality of our products than are buyers in China, making them less sensitive to the price of our products than are similarly situated buyers in China where we are also faced with intense competition from local Chinese battery manufacturers. Therefore, the geographic sources of our revenue will have an impact on our revenue and gross margins.
Manufacturing Costs
Our profitability may also be affected by our ability to effectively manage our manufacturing costs. Our manufacturing costs are affected by fluctuations in the price of raw materials. If raw material prices increase, we will have to offset these higher costs either through price increases to our customers or through productivity improvements. Our ability to control our raw materials costs is also dependent on our ability to negotiate with our suppliers for a better price and our ability to source raw materials from reliable suppliers in a cost-efficient manner. In addition, we expect that an increase in our sales volume will enable us to lower our manufacturing costs through economies of scale.
We operate in an industry that is subject to many established environmental regulations, which have generally become more stringent over time, particularly with respect to hazardous waste generation and disposal and pollution control. These regulations affect the cost of our products and our gross margins. We are also affected by regulations in our target markets, such as economic incentives to purchasers of electric vehicles, tax credits for electric vehicle manufacturers or developers of renewable energy projects, and economic penalties that may apply to a car manufacturer based on its fleet-wide emissions or more generally legislation aimed at reducing GHGs. Each of these regulations may expand the market size for both electric vehicles and energy storage , which would, in turn, benefit us. We have operations and sales in China, the Asia & Pacific region, Europe and the U.S. and, as a result, changes in trade restrictions and tariffs could impact our ability to meet projected sales or margins.
Basis of Presentation
We currently conduct our business through one operating segment. Our historical results are reported in accordance with U.S. GAAP and in U.S. dollars.
Components of Results of Operations
Revenues
We derive revenue from the sales of our electric battery products, including LpTO, LpCO, MpCO, HpCO and HnCo battery power systems. While we have historically marketed and sold our products primarily in China and the wider Asia-Pacific region, While we have historically marketed and sold our products primarily in China and the broader Asia-Pacific region, we are also expanding our international sales presence, with notable revenue growth in the EMEA (Europe, Middle East, and Africa) region. This expansion reflects increasing demand and positive growth trends in EMEA as we continue to broaden our global market reach. The following table sets forth a breakdown of our revenue by major geographic regions in which our customers are located, for the periods indicated:
We have historically derived a portion of our revenue in a given reporting period from a limited number of key customers, which vary from period to period. The following table summarizes net revenues from customers that accounted for over 10% of our net revenues for the periods indicated:
Three Months Ended September 30,
2024
2023
A
54
%
18
%
B
*
15
%
C
*
12
%
Nine Months Ended September 30,
2024
2023
A
43
%
15
%
B
*
14
%
D
11
%
*
*Revenue from such customers represented less than 10% of our revenue during the respective periods.
Cost of Revenues and Gross Profit
Cost of revenues includes direct and indirect materials, manufacturing overhead (including depreciation, freight and logistics), warranty reserves and expenses, write-down of obsolete inventories, and labor costs and related personnel expenses, including stock-based compensation and other related expenses that are directly attributable to the manufacturing of products.
Gross profit is equal to revenues less cost of revenues. Gross profit margin is equal to gross profit divided by revenues.
Operating Expenses
Operating expenses consist of selling and marketing, general and administrative and research and development expenses.
Selling and marketing expenses. Selling and marketing expenses consist primarily of personnel-related costs associated with our sales and marketing functions, including share-based compensation, and other expenses related to advertising and promotions of our products. We intend to hire additional sales personnel, initiate additional marketing programs and build additional relationships with our customers. Accordingly, we expect that our selling and marketing expenses will continue to increase in absolute dollars in the long term as we expand our business.
General and administrative expenses. General and administrative expenses consist primarily of personnel-related expenses associated with our executive team members, including share-based compensation, legal, finance, human resource and information technology functions, as well as fees for professional services, depreciation and amortization and insurance expenses. We expect to incur additional costs as we hire personnel and enhance our infrastructure to support the anticipated growth of our business.
Research and development expenses. Research and development expenses consist primarily of personnel-related expenses, including share-based compensation, raw material expenses relating to materials used for experiments, utility expenses and depreciation expenses attributable to research and development activities. Over time, we expect our research and development expense to increase in absolute dollars as we continue to make significant investments in developing new products, applications, functionality and other offerings.
Government subsidies represent government grants received from local government authorities. The amounts of and conditions attached to each subsidy were determined at the sole discretion of the relevant governmental authorities. Our subsidy income is non-recurring in nature.
Other Income and Expenses
Other income and expenses consist primarily of interest expense associated with our debt financing arrangements, interest income earned on our cash balances, gains and losses from foreign exchange conversion, and gains and losses on disposal of assets.
Income Tax Expense
We are subject to income taxes in the U.S. and foreign jurisdictions in which we do business, namely the PRC, Germany and the UK. These foreign jurisdictions have statutory tax rates different from those in the U.S. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the absorption of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. We regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the U.S. Internal Revenue Service (the “IRS”), and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our current expectations, charges or credits to our income tax expense may become necessary. Any such adjustments could have a significant impact on our results of operations.
Income tax in the PRC is generally calculated at 25% of the estimated assessable profit of our subsidiaries in the PRC, except that two of our PRC subsidiaries were qualified as “High and New Tech Enterprises” and thus enjoyed a preferential income tax rate of 15%. Federal corporate income tax rate of 21% is applied for our U.S. entity. Income tax in the UK is calculated at an average tax rate of 19% of the estimated assessable profit of our subsidiary in the UK. German enterprise income tax, which is a combination of corporate income tax and trade tax, is calculated at 29.9% of the estimated assessable profit of our subsidiary in Germany.
Comparison of the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023
The following table sets forth our historical operating results for the periods indicated:
Three Months Ended September 30,
$ Change
% Change
2024
2023
Amount in thousands
Revenues
$
101,388
$
80,116
$
21,272
26.6
%
Cost of revenues
(67,776)
(62,232)
(5,544)
8.9
%
Gross profit
33,612
17,884
15,728
87.9
%
33.2
%
22.3
%
Operating expenses:
General and administrative expenses
(11,841)
(24,980)
13,139
(52.6)
%
Research and development expenses
(10,692)
(13,241)
2,549
(19.3)
%
Selling and marketing expenses
(4,963)
(6,031)
1,068
(17.7)
%
Impairment loss of long-lived assets
(12)
(422)
410
(97.2)
%
Total operating expenses
(27,508)
(44,674)
17,166
(38.4)
%
Subsidy income
1,082
442
640
144.8
%
Profit/(loss) from operations
7,186
(26,348)
33,534
(127.3)
%
Other income and expenses:
Interest income
186
582
(396)
(68.0)
%
Interest expense
(4,290)
(491)
(3,799)
773.7
%
Changes in fair value of warrant and convertible loan
2,766
(42)
2,808
(6685.7)
%
Other income
7,399
127
7,272
5726.0
%
Profit/(loss) before provision for income taxes
13,247
(26,172)
39,419
(150.6)
%
Income tax expense
—
—
—
—
%
Net profit/(loss)
$
13,247
$
(26,172)
$
39,419
(150.6)
%
Less: net loss attributable to noncontrolling interests
—
(42)
42
(100.0)
%
Net profit/(loss) attributable to Microvast Holdings, Inc.'s shareholders
$
13,247
$
(26,130)
$
39,377
(150.7)
%
Revenues
Our revenues increased from approximately $80.1 million for the three months ended September 30, 2023 to approximately $101.4 million for the same period in 2024, primarily driven by an increase in sales volume from approximately 319.2 MWh for three months ended September 30, 2023 to approximately 434.0 MWh for the same period in 2024.
Cost of Revenues and Gross Profit
Our cost of revenues for the three months ended September 30, 2024 increased by $5.5 million, or 8.9%, compared to the same period in 2023. The increase in the cost of revenues was primarily in line with the increased sales,
partially offset by $0.8 million of decreased share-based compensation expenses.
Our gross margin increased from 22.3% for the three months ended September 30, 2023 to 33.2% for the same period in 2024. The increase in gross margin was due to a combination of factors including better economies of scale through improving utilization, more favorable product mix and lower raw material prices.
Selling and Marketing expenses for the three months ended September 30, 2024 decreased $1.1 million or 17.7% compared to the same period in 2023. The decrease in Selling and Marketing expense was primarily due to $0.4 million of decreased share-based compensation expenses and the expenditure control in the U.S. since May 2024.
General and Administrative
General and Administrative expenses for the three months ended September 30, 2024 decreased $13.1 million or 52.6% compared to the same period in 2023. The decrease in General and Administrative expenses was primarily due to $7.1 million of decreased share-based compensation expenses and the expenditure control in the U.S. since May 2024.
Research and Development
Research and Development expenses for the three months ended September 30, 2024 decreased $2.5 million or 19.3% compared to the same period in 2023. The decrease in Research and Development expenses was primarily due to $1.3 million of decreased share-based compensation expenses and the expenditure control in the U.S. since May 2024.
Other income
For the three months period ended September 30, 2024, we recorded $7.4 million of other income mainly due to $7.7 million gain on the payable concession during the third quarter of 2024.
Changes in fair value of warrant and convertible loan
For the three months period ended September 30, 2024, we recorded a gain of $2.8 million mainly due to the change in fair value of convertible loan with shareholder of $2.8 million, details please see Note 14 – Convertible loan with shareholder measured at fair value.
Comparison of the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023
The following table sets forth our historical operating results for the periods indicated:
Nine Months Ended September 30,
$ Change
% Change
2024
2023
Amount in thousands
Revenues
$
266,414
$
202,042
$
64,372
31.9
%
Cost of revenues
(188,382)
(167,839)
(20,543)
12.2
%
Gross profit
78,032
34,203
43,829
128.1
%
29.3
%
16.9
%
Operating expenses:
General and administrative expenses
(59,146)
(68,874)
9,728
(14.1)
%
Research and development expenses
(32,291)
(33,609)
1,318
(3.9)
%
Selling and marketing expenses
(15,580)
(16,916)
1,336
(7.9)
%
Impairment loss of long-lived assets
(64,924)
(473)
(64,451)
13626.0
%
Total operating expenses
(171,941)
(119,872)
(52,069)
43.4
%
Subsidy income
2,351
1,156
1,195
103.4
%
Operating loss
(91,558)
(84,513)
(7,045)
8.3
%
Other income and expenses:
Interest income
551
3,481
(2,930)
(84.2)
%
Interest expense
(8,116)
(1,437)
(6,679)
464.8
%
Changes in fair value of warrant and convertible loan
1,240
(25)
1,265
(5060.0)
%
Other income, net
7,864
673
7,191
1068.5
%
Loss before income tax
(90,019)
(81,821)
(8,198)
10.0
%
Income tax expense
—
—
—
—
%
Net loss
$
(90,019)
$
(81,821)
$
(8,198)
10.0
%
Less: net loss attributable to noncontrolling interests
—
(21)
21
(100.0)
%
Net loss attributable to Microvast Holdings, Inc.'s shareholders
$
(90,019)
$
(81,800)
$
(8,219)
10.0
%
Revenues
Our revenues increased from approximately $202.0 million for the nine months ended September 30, 2023 to approximately $266.4 million for the same period in 2024, primarily driven by an increase in sales volume from approximately 722.0 MWh for nine months ended September 30, 2023 to approximately 1,088.9MWh for the same period in 2024.
Cost of Revenues and Gross Profit
Our cost of revenues for the nine months ended September 30, 2024 increased by $20.5 million, or 12.2%, compared to the same period in 2023. The increase in the cost of revenues was primarily in line with the increased sales, partially offset by $1.2 million of decreased share-based compensation expenses.
Our gross margin increased from 16.9% for the nine months ended September 30, 2023 to 29.3% for the same period in 2024. The increase in gross margin was due to a combination of factors including better economies of scale, more favorable product mix and lower raw material prices.
Selling and Marketing expenses for the nine months ended September 30, 2024 decreased by $1.3 million or 7.9% compared to the same period in 2023. The decrease in Selling and Marketing expense was primarily due to $1.6 million of decreased share-based compensation expenses.
General and Administrative
General and Administrative expenses for the nine months ended September 30, 2024 decreased by $9.7 million, or 14.1%, compared to the same period in 2023. The decrease in General and Administrative expenses was primarily due to $15.8 million of decreased share-based compensation expenses, offset by $6.7 million of increased professional fee and insurance fee.
Research and Development
Research and Development expenses for the nine months ended September 30, 2024 decreased by $1.3 million, or 3.9%, compared to the same period in 2023. The decrease in Research and Development expenses was primarily due to $2.8 million of decreased share-based compensation expenses, offset by other investments in R&D activities.
Impairment loss of long-lived assets
The impairment loss of long-lived assets was $64.9 million for the nine months ended September 30, 2024, primarily driven by a $64.8 million impairment loss in our U.S. operations in the second quarter of 2024. During the first half year of 2024, we initiated a strategic shift towards LFP technology in the U.S., and we decided to pause the construction of our battery plant in Tennessee until additional funding for the remaining capital expenditure is secured. As a result of these events and circumstances in the second quarter, we conducted impairment testing for our long-lived assets in the U.S. and recognized an impairment loss of $64.8 million.
Other income
For the nine months period ended September 30, 2024, we recorded $7.9 million of other income mainly due to $7.7 million gain on the payable concession during the third quarter of 2024.
Changes in fair value of warrant and convertible loan
For the nine months period ended September 30, 2024, we recorded a gain of $1.2 million mainly due to the change in fair value of convertible loan with shareholder of $1.2 million, details please see Note 14 – Convertible loan with shareholder measured at fair value.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily from capital contributions from equity holders, the issuance of convertible notes and bank borrowings.
The consolidated net cash position as of September 30, 2024 included cash and cash equivalents of $29.6 million and $19.3 million held by our PRC and European subsidiaries, respectively, that is not available to fund our U.S. operations unless funds are repatriated. Should we need to repatriate to the U.S. part or all of the funds held by our international subsidiaries in the form of a dividend, we would need to accrue and pay withholding taxes. We do not intend to pay any cash dividends on our common stock in the foreseeable future and intend to retain all of the available funds and any future earnings for use in the operation and expansion of our business in the PRC, Europe and the U.S.
In accordance with Accounting Standards Update ("ASU") No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40),” management has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the unaudited condensed consolidated financial statements are issued and has determined that the Company’s ability to continue as a going concern is dependent on its ability to raise additional capital or secure financing. In light of the capital expenditures required to settle the outstanding payables associated with the Group's Tennessee expansion and operating requirements under its current business plan, the Company is projecting that its existing cash and cash equivalents will not be sufficient to fund its operations and capital expenditure needs through
the next twelve months from the date of issuance of its unaudited condensed consolidated financial statements. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.
Management has secured a $29,911 bank loan in the third quarter of 2024, with an additional $9,962 received in October 2024. Further details can be found in Note 7- Bank Borrowings. Workforce reductions were made in the U.S. during the second and third quarters of 2024, delivering cost savings and enhanced cash flow. Further plans to alleviate the conditions that raise substantial doubt include:
1.Operational Improvements: With profitability achieved in the third quarter of 2024, management expects that continued execution of its strategies will generate positive cash flow from operations over the next twelve months.
2.Asset Sales: The Group is actively pursuing the sale of non-core U.S. real estate assets, with an expectation of increasing liquidity without affecting core operations.
3.Additional Funding Options: Although no additional binding financing agreement has been entered into besides those disclosed in the unaudited condensed consolidated financial statements, the Group is actively engaged in discussions with third parties to explore further funding options.
These plans are not final and are subject to market and other conditions not within our control. As such, there can be no assurance that we will be successful in obtaining sufficient capital. Accordingly, management has concluded under the accounting standards that these plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern. Should sufficient capital not be secured through the plans, or should there be a delay in the timing of securing capital through these alternatives, this would have adverse implications for the Company and our shareholders. In these scenarios, we will need to seek other options, including delaying or reducing operating and capital expenditure and the possibility of an alternative transaction.
Financings
As of September 30, 2024, we had bank borrowings of $119.6 million, the terms of which range from 1 to 27 months. The interest rates on our bank borrowings ranged from 3.30% to 4.85% per annum. As of September 30, 2024, we had convertible bonds outstanding of $43.2 million, with interest rates ranging from 3% to 4%. The convertible bonds are all due in 2027. As of September 30, 2024, we also had the Convertible loan with shareholder of $24.4 million outstanding at an initial interest rate equal to Term SOFR for the applicable interest period, plus an initial applicable margin of 9.75% per annum, 3.75% of which shall be paid in kind and added to the outstanding principal under the Convertible loan with shareholder, with the remaining interest to be paid in cash. See Note 14 for details. As of September 30, 2024, we were in compliance with all material terms and covenants of our loan agreements, credit agreements and bonds.
On July 23, 2021, we received $708.4 million from the completion of the Business Combination, $705.1 million net of transaction costs paid by Microvast, Inc. We have used $469.3 million of the net proceeds from the Business Combination to expand our manufacturing facilities and for the purchase of property and equipment associated with our existing manufacturing and R&D facilities. In addition, $181.3 million of the net proceeds were used for working capital as of September 30, 2024.
Capital expenditures and other contractual obligations
Our capital expenditures amounted to $150.9 million and $186.8 million for the years ended December 31, 2022 and 2023, respectively. Our capital expenditures in 2022 and 2023 related primarily to the construction of manufacturing facilities in Huzhou, China and Clarksville, Tennessee. The Huzhou, China expansion was completed in the third quarter of 2023.
Because of delays in securing additional financing, including our fund-raising process being negatively impacted by the loss of the DOE grant, in the fourth quarter of 2023 we experienced slow progress in continuing construction of our Clarksville, Tennessee expansion, slowing down certain project work streams due to the need for additional financing. This resulted in further delays and increased costs with negative effects on our liquidity and ability to meet accounts payable, especially for our U.S. operations. The Tennessee expansion was originally scheduled to be completed in the fourth quarter of 2023 and was intended for production of 53.5Ah cells for our ESS solutions. However, we now believe LFP cells are a better battery fit for our ESS solutions and intend to produce LFP cells from the Tennessee facility instead of 53.5Ah cells. In order to complete the Tennessee expansion, we need to secure financing to meet the remaining capital expenditure needs, and the timing of when this project will be in operation remains uncertain. We are in the process of evaluating the amount of capital expenditures needed to complete the Tennessee expansion in light of the intended production shift from NMC cells to LFP cells.
Further, due to the working capital needs of MPS China and adverse tax consequences as well as foreign restrictions, we are unable to repatriate cash from China to pay our accounts payable in the U.S. and fund the continued expansion of our U.S. operations. We are in discussions with third parties to assess strategic alternatives, including ways to enhance our liquidity and/or the sale or disposal of certain U.S. real estate assets that are not integral to the our cell manufacturing or assembly operations. Until financing is in place, this will limit our growth opportunities especially in the U.S. market. Also, we will be forgoing potential Inflation Reduction Act credits until such time as the Clarksville, Tennessee expansion is in operation.
Our future capital requirements will depend on many factors, including, but not limited to funding planned production capacity expansions and for general working capital. In addition, we may in the future enter into arrangements to acquire or invest in complementary businesses or technologies. We may need to seek additional equity or debt financing in order to meet these future capital requirements. If we are unable to raise additional capital or secure financing when desired, or on terms that are acceptable to us, our business, financial condition and results of operations could be adversely affected. There are no material off-balance sheet arrangements other than those described below.
Lease Commitments
We lease certain facilities and equipment under non-cancellable lease agreements that expire at various dates through 2036. For additional information, see Note 12 – Leases, in the notes to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report on Form 10-Q.
Purchase Commitments
We regularly enter into non-cancelable contractual obligations primarily related to purchases of inventory. As of September 30, 2024, such purchase commitments, which do not qualify for recognition on our Unaudited Condensed Consolidated Balance Sheets, amount to $52.3 million , most of which is short-term.
There have not been any other material changes during the three and nine months ended September 30, 2024 to our contractual obligations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Cash Flows
The following table provides a summary of our cash flow data for the periods indicated:
Nine Months Ended September 30,
2024
2023
Amount in thousands
Net cash used in operating activities
(3,287)
(70,350)
Net cash used in investing activities
(11,972)
(153,120)
Net cash generated from financing activities
46,635
12,153
Cash Flows from Operating Activities
During the nine months ended September 30, 2024, our operating activities used $3.3 million in cash. This decrease in cash consisted of (1) a net loss of $90.0 million and non-cash charges of $135.2 million, of which $22.4 million is depreciation of property, plant and equipment, $30.3 million is non-cash share-based compensation expense and $64.9 million is impairment loss from long-lived asset; and (2) a $48.5 million decrease in cash flows from operating assets and liabilities including $27.3 million cash inflow due to the net decrease of accounts receivable and notes receivable, $4.1 million increase in inventories, $54.7 million cash outflow from accounts payable and notes payable, $30.8 million cash outflow from accrued and other liabilities and prepaid expense and other current asset, and $13.8 million cash inflow from other operating assets and liabilities.
During the nine months ended September 30, 2024, cash used in investing activities totaled $12.0 million. This cash outflow primarily consisted of capital expenditures related to the expansion of our manufacturing facilities and to the purchase of property and equipment associated with our existing manufacturing and R&D facilities.
Cash Flows from Financing Activities
During the nine months ended September 30, 2024, cash generated from financing activities totaled $46.6 million. This cash inflow was a result of $70.4 million proceeds from bank borrowings and $25.0 million proceeds from Convertible loan offset by $31.9 million repayment on bank borrowings and $0.5 million of debt cost for Convertible loan, $16.4 million of deferred payment related to purchases of property, plant and equipment.
Critical Accounting Policies and Estimates
Our unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
There have been no substantial changes to these estimates, or the policies related to them during the nine months ended September 30, 2024, except for the impairment of long-lived assets illustrated in below paragraphs. For other discussion of these estimates and policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023.
In accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”), we evaluate our long-lived assets, such as property and equipment, for impairment whenever events and circumstances indicate that the assets might be impaired due to the carrying amount of an asset group not being recoverable. When the projected undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts, the assets are adjusted to their estimated fair value and an impairment loss is recorded as a component of operating expenses. For assets held for sales, the amount of potential impairment may be based upon appraisal of the asset, estimated market value of similar assets or estimated cash flow from the disposition of the asset. The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.
During the first half year of 2024, we decided to pause the construction of the battery plant in Tennessee until additional funding for the remaining capital expenditure is secured. As a result, we reassessed the recoverability of the long-lived assets in the U.S. and utilized the residual method to estimate the fair value of the plant under construction located in Tennessee. For other long-lived assets in the U.S. to be dispose, we estimated market value or estimated cash flow from disposition of the assets. As a result of the assessment, we recorded impairment loss of long-lived assets $0.0 million and $0.4 million for the three months ended September 30, 2024 and 2023, respectively, in operating expenses. We recorded impairment loss of long-lived assets of $64.9 million and $0.5 million for the nine months ended September 30, 2024 and 2023, respectively, in operating expenses.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Exposure Risk
Our cash and cash equivalents consist of cash and money market accounts. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. In addition, our bonds payable bear interest at fixed rates and are not publicly traded. Our project finance loans in China contain a spread of 115 basis points over the Loan Prime Rate in China and accordingly are exposed to movements in that reference rate. Therefore, interest expense going forward could be materially affected by changes in the market interest rates.
The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Because our cash equivalents have a short maturity, our portfolio’s fair value is relatively insensitive to interest rate changes. We do not believe that an increase or decrease in interest rates of 100 basis points
would have a material effect on our operating results or financial condition. In future periods, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives.
Foreign Currency Exchange Risk
We have a large operational presence in China and a significant amount of our transactions are currently denominated in RMB. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our operating results as a result of transaction gains and losses related to translating certain cash balances, trade accounts receivable and payable balances, and intercompany balances that are denominated in currencies other than the U.S. Dollar, principally RMB. The effect of an immediate 10% adverse change in foreign exchange rates on Renminbi-denominated accounts as of September 30, 2024, including intercompany balances, would result in a foreign currency loss of $15.6 million. In the event our foreign sales and expenses increase, our operating results may be more affected by fluctuations in the exchange rates of the currencies in which we do business. At this time, we do not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations.
Credit Risk
Our credit risk primarily relates to our trade and other receivables, restricted cash, cash equivalents and amounts due from related parties. We generally grant credit only to clients and related parties with good credit ratings and also closely monitor overdue debts. In this regard, we consider that the credit risk arising from our balances with counterparties is significantly reduced.
The assumptions used in evaluating our exposure to credit losses associated with our financing receivables
portfolio involve estimates and significant judgment. Holding other estimates constant, a hypothetical 100 basis points
increase in the expected loss rate on the financing receivables portfolio would have resulted in an increase in the allowance
for credit losses of approximately $0.5 million as of September 30, 2024.
In order to minimize the credit risk, we have delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, we review the recoverable amount of each individual debtor at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. We will negotiate with the counterparties of the debts for settlement plans or changes in credit terms, should the need arise. In this regard, we consider that our credit risk is significantly reduced.
Seasonality
We have historically experienced higher sales during our third and fourth fiscal quarters as compared to our first and second fiscal quarters. However, our limited operating history makes it difficult for us to judge the exact nature or extent of the seasonality of our business.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2024, as a result of the material weakness identified below.
In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. GAAP. Based on such analysis and notwithstanding the identified material weakness, management, including our Chief Executive Officer and Interim Chief Financial Officer, believe the unaudited condensed consolidated financial statements included in this Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
In connection with the audit of the financial year ended December 31, 2023, we identified certain control deficiencies in the design and operation of our internal controls over our financial reporting that constituted a material weakness in aggregation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness that has been identified relates to the design and implementation of IT general controls for IT system that are relevant to the preparation of the financial statements. Specifically, we did not design and maintain adequate user access controls to restrict user and privileged access to certain particular function of the ERP during the implementation, which could allow a skilled user with privileged access to access and potentially make changes to the system relevant to the preparation of the financial statements.
Material Weakness Remediation
Subsequent to the identification of the material weakness, we have taken steps to address the control deficiencies and implemented our remediation plan, which we believe addresses the underlying causes. We are executing on our remediation plan for the material weakness by removing all inappropriate access and establishing more robust processes to control the privileged access to our system including monthly review of the system log for any inappropriate access. While we believe these efforts have improved, and will continue to improve, our internal controls and address the underlying causes of the material weakness, the material weakness will not be remediated until our remediation plan has been fully implemented and tested and we have concluded that following the improvements, our IT general controls are operating effectively for a sufficient period of time.
Changes in Internal Control Over Financial Reporting
As described above, the Company is taking steps to remediate the material weakness noted above. Other than in connection with these remediation steps, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
For a description of our pending legal proceedings, please see Note 16. Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Quarterly Report. While the lawsuits are being vigorously defended, the outcome of any litigation is inherently uncertain, and there is always the possibility that a court rules in a manner that is adverse to the interests of the Company and the individual defendants. However, the amount of any such loss in that scenario cannot be reasonably estimated at this time. Regardless of the outcome, litigation has the potential to have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Report on Form 10-Q, as well as the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, and other reports that we have filed with the SEC. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of our equity securities during the three months ended September 30, 2024.
Certain schedules to this Exhibit have been omitted in accordance with Item 601(b)(2) of Regulation S-K. The Company hereby agrees to hereby furnish supplementally a copy of all omitted schedules to the SEC upon request.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.