Microvast Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2025

References in this Report to the “Company,” “Microvast Holdings, Inc.,” “Microvast,” “our,” “us” or “we” refer to Microvast Holdings, Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim condensed financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Business

Microvast Holdings, Inc. is an advanced battery technology company, headquartered in Stafford, Texas, and publicly traded on the NASDAQ under the ticker symbol MVST. We specialize in the design, development, and manufacturing of battery components and systems primarily for electric commercial vehicles and utility-scale energy storage systems (“ESS”).

Founded in 2006, Microvast was built on a guiding principle that remains central to our mission today: to innovate lithium-ion battery designs without relying on legacy technologies. This approach allows us to create purpose-built solutions for new markets, rather than repurposing existing ones.

Our mission is to accelerate the global transition to electrification by delivering innovative battery solutions that support the adoption of electric vehicles and renewable energy. A key strategic focus is to become a leader in U.S. domestic battery production, reducing reliance on overseas suppliers, and strengthening national energy independence. We believe continuous investment in our technology and operations will deliver long-term revenue and income growth.

Through a vertically integrated approach, we have developed proprietary technologies spanning the entire battery system—from the core cell materials (cathode, anode, electrolyte, and separator) to cells, modules, packs, energy storage containers, thermal management systems, and intelligent battery management systems. Our expertise has driven advancements in ultra-fast charging, high energy density, long lifespan, and safety—all critical factors for commercial transportation and ESS applications.

We are expanding our production of battery systems and components, with an increased emphasis on ESS solutions to support the broader shift to electrification. Our goal is to become a global leader in ESS, bridging the gap between EVs and renewable energy.

One of our innovations is our high-energy nickel manganese cobalt (NMC) 53.5Ah battery cell, which offers an energy density of approximately 235 Wh/kg and supports over 6,000 cycles at a 1C rate while maintaining over 80% state of health (“SOH”). These characteristics make it well suited for long-range commercial vehicle and utility-scale ESS applications. To bring this product to market, we have made substantial investments in fully automated production capacity in Huzhou, China, improving manufacturing throughput and operational efficiency.

Building on this platform, we have developed a portfolio of NMC cells optimized for distinct operating needs. Our 48Ah cell is engineered for high-power, fast-charging use cases, capable of sustaining a 3C continuous charge and discharge while delivering more than 8,000 cycles with a SOH above 80%. This makes it a preferred solution for mission-critical applications such as buses or logistics fleets requiring rapid turnaround.

The 55Ah cell strikes a balance between energy and power density, offering an energy density of approximately 250 Wh/kg and supporting 3C operation of over 6,000 cycles with a SOH above 80%. Its dual-optimized profile enables deployment across a variety of demanding commercial and specialty vehicle platforms.

For applications where extended range and high energy density are paramount, we have introduced a 120Ah cell with energy density of approximately 270 Wh/kg. Under 1C charge/discharge conditions, the 120Ah cell maintains more than 5,000 cycles with SOH above 80%. With the integration of the high-voltage control box and thermal management systems, including pump and coolant, the complete power solution achieves a system-level energy density of approximately 200 Wh/kg. It is ideal for heavy-duty vehicles operating in long-haul scenarios where volumetric and gravimetric energy constraints are critical.

All of our battery cells are developed to meet rigorous global safety standards and are designed with long life, high power, and system-level integration flexibility in mind. These advancements support our strategic focus on enabling the next generation of electric commercial transportation and grid-connected energy systems.

We previously made significant investments in our capacity expansion in Clarksville, Tennessee. By the fourth quarter of 2023, certain sections of the production line had begun installation. However, progress on third-party construction and equipment delivery was impacted due to a lack of secured funding. Ultimately, in the second quarter of 2024, we paused construction efforts. We have since made a strategic decision to pivot from the originally planned NMC production in Clarksville to the 565Ah lithium iron phosphate (“LFP”) battery. We also consolidated our ESS operations from our former Colorado facility, which was sold in the quarter ended September 30, 2024, to Clarksville to enhance operational efficiencies for our U.S. business.

In August 2024, we introduced the Mega Energizer 6 (“ME6”), a 6 megawatt-hour (“MWh”) ESS container featuring our proprietary 565Ah LFP battery. The shift toward LFP technology for the U.S. ESS market is a strategic decision, offering lower costs, enhanced safety, and improved environmental performance compared to NMC technology. The ME6 system delivers over 10,000 cycles, compact energy storage, and enhanced reliability through IP55, C4, and nitrogen protection features.

Our 565Ah LFP cell adopts an aqueous-based slurry system for both cathode and anode production, which avoids the use of costly NMP (N-Methyl-2-Pyrrolidone) solvents and aligns better with regulatory and environmental conditions in North America. The planned cell production line in Clarksville, Tennessee is designed as a vertically integrated manufacturing facility, to enable production of battery cells and trays as well as the containers. Although construction progress has been delayed due to funding constraints, we remain committed to completing the Clarksville facility and establishing it as our primary U.S. base for LFP production.

In January 2025, we announced what we believe is a major breakthrough in all-solid-state battery (“ASSB”) technology. Our architecture eliminates all liquid or gel electrolytes through a proprietary non-porous solid electrolyte membrane and a bipolar stacking configuration. This enables single-cell voltages beyond conventional limits, potentially enabling outputs of tens to hundreds of volts. We have demonstrated a 48-volt monolithic cell as a functional prototype, with potential scalability to higher voltages as required. The current ASSB design includes inherent fault tolerance, unlike conventional cells, which prevents a single point of failure from taking down an entire system. This cell design, if able to be commercialized, could have potential use cases in emerging high-growth sectors. The bipolar design reduces the need for interconnects at the module and pack level, resulting in improved energy density, simplified system architecture, and enhanced safety. We are evaluating the industrialization paths and planning to establish a pilot line for production study.

For the three months ended September 30, 2025, our revenue increased by $21.9 million, reaching $123.3 million, a 21.6% year-over-year increase. Additionally, our order backlog stood at $237.7 million, with the majority of these orders expected to be fulfilled in 2025 and 2026. As we continue to expand production capacity and advance next-generation battery technologies, we remain committed to driving battery innovation, scaling global production, and delivering high-performance sustainable energy solutions that power the future of mobility and energy storage.

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, Presentation of Financial Statements – Going Concern, the Company evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date the consolidated financial statements are issued.

In prior periods, the Company disclosed that substantial doubt existed about its ability to continue as a going concern due to uncertainties related to liquidity, capital requirements, and recurring operating losses. However, during the the nine months period ended September 30, 2025, the Company achieved positive operating profit and operating cashflow, reflecting meaningful progress toward sustainable profitability. This improvement was driven by increased customer demand, improved gross margins, and reduced operating expenses, all of which positively impacted the Company’s liquidity position.

Based on this recent operating performance, current cash balances, available funding sources, and management’s expectations regarding future operations and capital needs, the Company has concluded that it is probable that its plans will alleviate substantial doubt about its ability to continue as a going concern for at least twelve months from the issuance date of these unaudited condensed consolidated financial statements.

For additional detail, refer to Note 2 - Significant Accounting Policies to the unaudited condensed consolidated financial statements included in this Quarterly Report and to the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024.

Key Factors Affecting Our Performance

Our future success depends on several critical factors, including those outlined below. While these represent opportunities for growth, they also pose challenges and risks that we must effectively manage to sustain our business momentum and improve financial performance.

Technology and Product Innovation

Our financial performance is driven by the development and commercialization of advanced battery technologies tailored for electric vehicles and energy storage systems. Recent innovations include multiple lithium-ion cell platforms engineered for either high energy density or fast-charging high-power performance, all designed to meet the stringent demands of commercial transportation and grid-scale storage markets. These innovations reflect our vertically integrated approach, from core materials to system-level solutions, and are the result of sustained investment in R&D.

To support ongoing technology development, we continue to expand our R&D footprint globally. In October 2021, we acquired a 75,000 square foot facility in Lake Mary, Florida designated as a long-term innovation center focused on next-generation strategic technology research & development. Together, these U.S. centers complement our core research operations in China and Germany, forming a global R&D network. As a high-technology enterprise, we expect our results of operations to be shaped by both the performance of new products and the cost-efficiency of our R&D investments.

Market Demand

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 IRA 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, 2025, we had a backlog of approximately $237.7 million for our electric vehicle battery systems, equivalent to approximately 1,045.5 MWh. To increase our manufacturing output, address our backlog and capture growing market opportunities, we have made significant investment in capacity expansions in both our Huzhou, China facility with further investment planned in our Clarksville, Tennessee facility, contingent on receipt of sufficient funding.

In the third quarter of 2023, we successfully completed a 2 GWh cell, module, and pack production line (Phase 3.1) for our 53.5Ah cell technology at our Huzhou, China facility. This Phase 3.1 line has been operating safely and efficiently, providing a stable manufacturing base for revenue generation in our commercial vehicle segment. In addition to the 53.5Ah cell, this line also supports the production of our 48Ah high-power cells and is scheduled to begin pilot production of 55Ah cells by the end of 2025.

To support our expanding product portfolio, we are building a second 2 GWh production line (Phase 3.2) at our Huzhou, China facility. While this new Phase 3.2 line is primarily configured for the manufacturing of our next-generation 120Ah high-energy cells, it has been designed with flexible tooling and process architecture to accommodate multiple cell formats, including the 53.5Ah, 48Ah, and 55Ah variants. The clean rooms and utility equipment installation have been completed for Phase 3.2. Production equipment installation completion is expected by year-end, with commissioning and pilot production to follow. This investment enhances our agile manufacturing capability and reinforces our commitment to delivering high-performance solutions across diverse application scenarios.

Additional financing is needed to resume progress for our Clarksville facility, and further progress is still contingent on having full access to funding to complete the remaining project work.

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.

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 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.

Regulatory Landscape

The battery industry is subject to stringent and evolving environmental regulations, particularly concerning hazardous waste management, pollution control, and sustainability requirements. Over time, these regulations have become increasingly strict, impacting both product costs and gross margins. Compliance with these standards requires continuous investment in manufacturing processes, material sourcing, and waste disposal practices to ensure adherence to environmental mandates across multiple jurisdictions.

Additionally, government policies and economic incentives play a critical role in shaping demand for EVs and ESS. Incentives such as EV purchase subsidies, tax credits for battery manufacturers, and renewable energy project grants have historically supported market growth. Similarly, carbon emission penalties and fleet-wide regulatory requirements for automakers further drive the adoption of zero-emission transportation and clean energy solutions. These policies expand our total addressable market, creating opportunities for increased sales and broader adoption of our battery technologies. However, changes in these incentives—such as reductions or eliminations of subsidies—could negatively affect demand for our products.

As a global company with operations and sales in China, the Asia-Pacific region, Europe, and the U.S., we are also exposed to trade policies, tariffs, and regulatory shifts that could impact our ability to meet projected sales and maintain profit margins. Any significant changes in international trade agreements, supply chain restrictions, or geopolitical tensions may influence production costs, material sourcing, and cross-border sales strategies. Changes in tariff policy in particular, whether threatened or implemented, may raise costs for consumers which could lead to softened consumer demand. In addition, because our manufacturing center is located in China, ongoing trade developments between the United States and China, such as import and export controls, may complicate our ability to rely on those manufacturing centers for continued production. Navigating these regulatory complexities is essential to sustaining our competitive position and long-term growth trajectory.

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 our sales have historically been concentrated in China and the broader Asia-Pacific region, we are actively expanding our international presence to capture growing demand in key global markets. The following table sets forth a breakdown of our revenue by major geographic regions, based on the locations of our customers, for the periods indicated:

(In thousands)

(In thousands)

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:

36

*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 share-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

Our operating expenses consist of general and administrative expenses (“G&A”), research and development (“R&D”) expenses, selling and marketing expenses (“S&M”), and impairment loss of long lived assets.

General and administrative expenses

G&A expenses primarily comprise personnel-related costs for our executive, legal, finance, human resources, and IT teams, along with professional service fees, depreciation, amortization, insurance costs and exchange gain/loss due to fluctuations in the Euro/RMB exchange rate. As we scale operations, we anticipate additional expenditures for personnel hiring, infrastructure development, and compliance-related activities. These investments are necessary to support our anticipated growth and ensure operational efficiency.

Research and development expenses

R&D expenses primarily include salaries and share-based compensation for our engineers and scientists, as well as raw material costs for experimental development, utility expenses, and depreciation costs related to R&D activities. As we continue to invest in new product development, advanced battery technologies, and enhanced functionality, we expect R&D expenditures to increase in absolute dollar terms. These investments are critical to maintaining technological leadership and delivering next-generation battery solutions to the market.

Selling and marketing expenses

S&M expenses include personnel-related costs for our sales and marketing teams, including salaries, share-based compensation, and commission-based incentives. These expenses also cover advertising, promotional activities, and customer engagement efforts to drive product awareness and sales growth. As we continue to expand, we plan to hire additional sales personnel, enhance marketing programs, and strengthen customer relationships. Consequently, S&M expenses are expected to increase in absolute dollar terms over the long term.

Impairment loss of long-lived assets

Impairment loss of long-lived assets primarily from the impairment loss of long-lived assets in U.S. The impairment loss is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Subsidy Income

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 fair value changes of warrant liability and convertible loan, interest expense associated with our debt financing arrangements, interest income earned on our cash balances and gain on debt restructuring.

Income Tax Expense

We are subject to income taxes in the U.S. and foreign jurisdictions in which we do business, namely China, Germany, the UK, and other European countries. 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 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 China is generally calculated at 25% of the estimated assessable profit of our subsidiaries in China, except that two of our Chinese subsidiaries were qualified as “High and New Tech Enterprises” and thus enjoyed a preferential income tax rate of 15%. A federal corporate income tax rate of 21% is applied for our U.S. entity. The U.S. entity is also subject to Global Intangible Low-Taxed Income, a provision in the U.S. tax code designed to ensure that U.S. multinational companies pay a minimum tax on foreign earnings. 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 29.1% of the estimated assessable profit of our subsidiary in Germany.

Results of Operations

Comparison of the Three Months Ended September 30, 2025 to the Three Months Ended September 30, 2024

The following table sets forth our historical operating results for the periods indicated:

Amount in thousands

Revenues

Our revenues for the three months ended September 30, 2025 increased by $21.9 million, or 21.6%, compared to the same period in 2024. The increase was primarily driven by a 15.6% increase in sales volume from approximately 434.0 MWh for the three months ended September 30, 2024 to approximately 501.7 MWh for the same period in 2025.

Cost of Revenues and Gross Profit

Our cost of revenues for the three months ended September 30, 2025 increased by $9.1 million, or 13.4%, compared to the same period in 2024. The increase in the cost of revenues was primarily driven by an increase in sales volumes, and was partially offset by $0.7 million of decreased share-based compensation expenses.

Our gross profit for the three months ended September 30, 2025 increased to 37.6% of revenue from 33.2% of revenue in the same period in 2024. This improvement was driven by higher production utilization, which enhanced fixed costs absorption, as well as favorable product mix, highlighted by a growing share of higher-margin battery solutions. These factors contributed to the expansion in gross profit.

Operating Expenses

General and administrative expenses

General and administrative expenses for the three months ended September 30, 2025 increased $7.8 million or 66.1% compared to the same period in 2024. The increase in G&A expenses was primarily due to $3.7 million of increased exchange loss attributed to unfavorable fluctuations in the Euro/RMB exchange rate and $5.6 million of litigation expense, partially offset by $2.9 million of decreased share-based compensation expenses.

Research and development expenses

Research and development expenses for the three months ended September 30, 2025 decreased $2.9 million or 27.5% compared to the same period in 2024. The decrease in R&D expenses was primarily due to $1.5 million of decreased share-based compensation expenses and a $1.0 million reduction of personnel costs associated with lower employee headcount.

Selling and marketing expenses

Selling and marketing expenses for the three months ended September 30, 2025 increased $1.0 million or 21.0% compared to the same period in 2024. The increase in S&M expenses was primarily due to $1.1 million of increased service fees related to continued business development efforts, partially offset by a $0.5 million of decreased share-based compensation expenses.

Changes in Fair Value of Warrant and Convertible Loan

For the three months ended September 30, 2025, we recorded a loss of $12.6 million mainly due to the change in fair value of the Convertible Loan of $12.8 million, for details please see Note 14 – Convertible Loan measured at fair value.

Comparison of the Nine Months Ended September 30, 2025 to the Nine Months Ended September 30, 2024

The following table sets forth our historical operating results for the periods indicated:

Amount in thousands

Revenues

Our revenues for the nine months ended September 30, 2025 increased by $64.7 million, or 24.3%, compared to the same period in 2024. This increase was primarily driven by an increase in sales volume, from approximately 1,088.9 MWh for the nine months ended September 30, 2024 to approximately 1,448.9 MWh for the same period in 2025.

Cost of Revenues and Gross Profit

Our cost of revenues for the nine months ended September 30, 2025 increased by $21.6 million, or 11.5%, compared to the same period in 2024. The increase in the cost of revenues was primarily driven by an increase in sales volumes and was partially offset by $3.2 million of decreased share-based compensation expenses.

Our gross profit for the nine months ended September 30, 2024 increased to 36.6% of revenue from 29.3% of revenue in the same period in 2024. This improvement was driven by higher production utilization, which enhanced the absorption of fixed costs. Further, a more favorable product mix, with a growing share of higher-margin battery solutions, contributed to increased gross profit.

Operating Expenses

General and administrative expenses

General and administrative expenses for the nine months ended September 30, 2025 decreased $25.0 million, or 42.3%, compared to the same period in 2024. The decrease in G&A expenses was primarily due to $17.7 million of decreased share-based compensation expenses and $7.7 million of decreased exchange loss attributed to favorable fluctuations in the Euro/RMB exchange rate.

Research and development expenses

Research and development expenses for the nine months ended September 30, 2025 decreased $8.6 million, or 26.5%, compared to the same period in 2024. The decrease in R&D expenses was primarily due to $5.4 million of decreased share-based compensation expenses and a $1.9 million reduction of personnel costs associated with lower employee headcount.

Selling and marketing expenses

Selling and marketing expenses for the nine months ended September 30, 2025 were stable compared to the same period in 2024.

Impairment loss of long-lived assets

The impairment loss of long-lived assets for the nine months ended September 30, 2025 decreased $86.6 million, or 98.4%, compared to the same period in 2024. The decrease was primarily due to the impairment incurred in second quarter of 2024 related to the Company pausing the construction of the manufacturing facility in Clarksville, Tennessee until additional funding for the remaining capital expenditure is secured.

Changes in Fair Value of Warrant and Convertible Loan

For the nine months period ended September 30, 2025, we recorded a loss of $91.0 million mainly due to the change in fair value of the Convertible Loan, for details please see Note 14 – Convertible Loan 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.

As of September 30, 2025, our principal sources of liquidity were our cash and cash equivalents and restricted cash in the amount of $142.6 million.

The consolidated net cash position as of September 30, 2025 included cash and cash equivalents of $59.0 million and $22.0 million held by our Chinese 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 China, 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 our ability to continue as a going concern within one year after the date of the consolidated financial statements are issued. Considering operating requirements under our current business plan, we are projecting that the existing cash and assets available for sale and equity securities will not be sufficient to fund our operations through the next twelve months. These conditions and events raise substantial doubt about our ability to continue as a going concern.

To alleviate the conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern, management has adopted a plan to mitigate this risk, including implementation of a Controlled Equity Offering, as described in Note 18 - Subsequent Events to the consolidated financial statements. The primary plans are as described below.

• Forecasted cash inflow from operations - For the nine months ended September 30, 2025, the Group generated $48.1 million of profit from operations and $59.5 million of net cash from operating activities. We have an order backlog of $237.7 million with the majority of these orders expected to be fulfilled in 2025 and 2026. We do not expect significant fluctuations in gross margin, considering our selling prices are secured by the contract backlogs and current market conditions of major raw materials. Thus, we believe that the operating cash flow in the forecasted period will continue to be positive.
• Refinancing of short-term bank borrowings - Historically, we have rolled over or obtained replacement borrowings from existing creditors for short-term bank loans upon the maturity date of the loans if needed. Of the $84.4 million in short-term bank borrowings as of September 30, 2025, we have successfully refinanced $23.5 million and assumes that it will continue to be able to further refinance for the following next twelve months.
• Funding from equity offering - On October 3, 2025, the Group entered into a Controlled Equity Offering Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. and Needham & Company, LLC relating to shares of common stock. From third quarter end to the date of issuance of the financial statements in this Report, the Group received $12.6 million in net proceeds from the sale of shares of common stock under the Sales Agreement and expects to receive additional funds as needed for the following next twelve months, the proceeds of which the Group intends to use for general corporate purposes, which may include, among other things, paying or refinancing all or a portion of the Group's indebtedness at the time, and funding acquisitions, capital expenditures and working capital. See Note 18 - Subsequent Events for details.

Based on the above, we concluded that it is probable that these plans, when fully implemented, will alleviate substantial doubt about the Group’s ability to continue as a going concern and that adequate sources of liquidity will exist to fund the working capital and capital expenditures requirements and to meet our short term debt obligations, and other liabilities and commitments as they become due.

To enhance liquidity, we secured a $70.1 million bank loan during the nine months ended September 30, 2025. 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 improving the Company's cash position.

Further strategies to strengthen liquidity include optimizing operations, asset sales, and evaluating funding options. The Company achieved positive operating profit and operating cashflow during the nine months ended September 30, 2025, and continued execution of its business strategy is expected to support positive cash flow generation over the next twelve months.

The Group remains engaged in discussions with third parties to explore additional capital-raising opportunities. Future capital requirements may change based on business developments, market conditions, and liquidity needs. The Company continues to evaluate potential options, including additional equity offerings and debt financing, to ensure financial flexibility and long-term growth.

Financings

As of September 30, 2025, we had bank borrowings of $118.8 million, the terms of which range from 1 to 21 months. The interest rates on our bank borrowings ranged from 2.70% to 4.85% per annum. As of September 30, 2025, we had convertible bonds outstanding of $41.7 million, with interest rates ranging from 3% to 4%. The convertible bonds are all due in 2027. As of September 30, 2025, we also had the $26.2 million Convertible Loan outstanding at an initial interest rate equal to Term Secured Overnight Financing Rate ("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 the remaining interest to be paid in cash. See Note 14 - Convertible loan measured at fair value for details. As of September 30, 2025, 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 $506.8 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, $198.3 million of the net proceeds were used for working capital as of September 30, 2025.

Capital Expenditures and Other Contractual Obligations

Our capital expenditures amounted to $17.4 million and $30.6 million for the three months ended September 30, 2025 and 2024, respectively. Our capital expenditures in 2025 and 2024 are primarily related to the construction and expanded production capacity of our manufacturing facilities in Clarksville, Tennessee and Huzhou, China.

In 2021, we started our capacity expansion plans in Huzhou, China, Berlin, Germany and Clarksville, Tennessee. The project in Germany was completed in 2021. The China Phase 3.1 capacity expansion was successfully completed in the third quarter of 2023. To support our expanding product portfolio and growing customer demand, we initiated our Huzhou Phase 3.2 capacity expansion in the fourth quarter of 2024 with total anticipated additional production capacity of 2 GWh annually.

Because of delays in securing additional financing, in the fourth quarter of 2023 we began experiencing slow progress in continuing construction of our Clarksville expansion, slowing down certain construction work streams due to the need for additional financing. This facility was initially intended to produce 53.5Ah cells for our ESS solutions; however, we believe that LFP cells are better suited for our ESS solutions and intend to utilize the Tennessee facility to produce LFP cells instead of 53.5Ah cells. Additionally, our ESS products that were previously developed and assembled in Colorado are now planned to be assembled at our Tennessee facility once the facility is completed. The proceeds from the Business Combination alone were not sufficient to complete the Clarksville expansion and meet our general working capital needs, and due to foreign restrictions and adverse tax consequences as well as the working capital needs of Microvast Power Systems Co. Ltd., we are unable to repatriate cash from China to meet obligations in the U.S. and fund the continued expansion of our U.S. operations. We are seeking alternative sources of capital. Until financing is in place, this will limit our growth opportunities, especially in the U.S. market where our customers desire products that meet their domestic content requirements. We are evaluating potential financing paths to complete the Tennessee facility.

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 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, 2025, such purchase commitments, which do not qualify for recognition on our unaudited condensed consolidated balance sheets, amount to $44.1 million, most of which is short-term.

There have not been any other material changes during the three and nine months ended September 30, 2025 to our contractual obligations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Cash Flows

The following table provides a summary of our cash flow data for the periods indicated:

Amount in thousands

Cash Flows from Operating Activities

During the nine months ended September 30, 2025, our operating activities generated $59.5 million in cash. This increase in cash consisted of (1) a net loss of $45.8 million and non-cash charges of $141.0 million, of which $91.0 million is due to change in the fair value of warrant and Convertible Loan, $24.2 million is depreciation of property, plant and equipment, and $13.4 million is non-cash product warranty; and (2) a $35.7 million decrease in cash flows from operating assets and liabilities including $41.2 million cash outflow due to the net increase of accounts receivable and notes receivable, $38.2 million cash outflow due to the net decrease of advance from customers, $2.6 million cash outflow due to decrease of accounts payable and notes payable, $27.9 million cash inflow from accrued and other liabilities and prepaid expense and other current assets, $17.4 million cash inflow due to decrease in inventories, and $1.0 million cash inflow from other operating assets and liabilities.

Compared to the nine months ended September 30, 2024, the nine months ended September 30, 2025 net cash generated from operating activities benefited from more profitable operations, partially offset primarily by slower collections of accounts and notes receivable.

Cash Flows from Investing Activities

During the nine months ended September 30, 2025, cash used in investing activities totaled $15.5 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, 2025, cash used in financing activities totaled $9.5 million. This cash outflow was a result of $65.9 million of repayment on bank borrowings, $1.4 million of repayment on long-term bonds payable and $12.3 million of deferred payments related to purchases of property, plant and equipment, partially offset by $70.1 million of proceeds from bank borrowings.

Critical Accounting 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, 2025. For a full 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, 2024.

International Markets Risk

Our cell, module, and pack manufacturing operations are concentrated in Huzhou, China, and we have assembly and distribution operations throughout Europe, the U.S., China and the Asia & Pacific region. Rapidly changing global trade policies, such as tariffs, sanctions and export control laws, may increase operating costs and uncertainty. Tariffs in particular may raise costs for consumers which could lead to softened customer demand. In addition, because our manufacturing centers are located in China, ongoing trade developments between the United States and China, such as import and export controls, may impact our ability to rely on those manufacturing centers for continued production. We continue to monitor domestic and international regulatory developments relevant to our manufacturing and distribution operations.

Interest Rate Exposure Risk

Our cash and cash equivalents primarily consist of cash deposits and money market accounts, which are subject to interest rate fluctuations. While these interest-earning instruments carry a degree of interest rate risk, historical fluctuations in interest income have not been material. 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. The Convertible Loan's interest rate is calculated as 975 basis points over Term SOFR. Consequently, future changes in the Term SOFR reference rate could materially affect the Company's interest expense. As a result, 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 significant operational exposure to foreign currency risk. A large portion of our transactions and cash balances are denominated in foreign currencies, primarily the Chinese Renminbi due to our operations in China, and the Euro from our sales in Europe. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. As a result, fluctuations in exchange rates for the currencies have impacted and will continue to impact our operating results, affecting items such as cash, trade receivables, trade payables, and intercompany balances that are denominated in currencies other than the U.S. dollar.

To assess our exposure, we considered the historical trends in foreign currency exchange rates and determined that it is reasonably possible that adverse changes in foreign currency exchange rates of 10% for all currencies could be experienced in the near-term. These changes were applied to our total monetary assets and liabilities denominated in currencies other than our local currencies at the balance sheet date to compute the impact these changes would have had on our net income before income taxes. These changes would have resulted in a loss of $18.3 million at September 30, 2025.

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 trade receivables, restricted cash, cash equivalents, and amounts due from related parties. We typically extend credit only to customers and counterparties with strong credit ratings and actively monitor overdue accounts to minimize default risk.

Our evaluation of credit risk exposure involves significant estimates and judgment. Holding other factors constant, a hypothetical 100-basis-point increase in the expected loss rate on our financing receivables portfolio would have resulted in an increase in the allowance for credit losses of approximately $0.7 million as of September 30, 2025.

To mitigate credit risk, we have a dedicated credit management team responsible for establishing credit limits, approving credit terms and implementing collection strategies. At each reporting period, we review the recoverability of outstanding balances and ensure that adequate impairment provisions are recorded for potentially uncollectible amounts. If necessary, we negotiate revised payment terms or settlement plans with customers facing financial difficulties. Given our robust credit risk management practices, we consider our overall credit risk exposure to be significantly mitigated.

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. We continue to monitor sales trends and market conditions to better understand the potential impact of seasonal demand fluctuations on our operations.

Evaluation of Disclosure Controls and Procedures

Under supervision and with the participation of our management, including our Chief Executive Officer and 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, 2025. 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, 2025, as a result of the material weaknesses in the Company's internal controls over financial reporting identified below. As defined in the standards established by the Public Company Accounting Oversight Board, 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.

In light of these material weaknesses, we performed additional procedures and analysis to ensure that the financial statements included in this Report were prepared in accordance with U.S. GAAP. Based on these procedures, management, including our Chief Executive Officer and Chief Financial Officer, believes the unaudited condensed consolidated financial statements included in this Report 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.

Material Weakness in Internal Controls

As previously disclosed in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, in connection with the audit of the financial year ended December 31, 2024, we identified control deficiencies in the design and operation of internal controls over financial reporting that constituted a material weakness in aggregation. Significant improvement in the design and monitoring of information technology general controls (“GITC”) was made in 2024, however a material weakness has been identified relating to the design, implementation and monitoring of GITC for the ERP system that are relevant to the preparation of our financial statements. In particular, the Company’s GITC findings included: (i) inappropriate implementation of controls allowed developers to gain access to application layer of ERP; (ii) the monitoring controls were not appropriately designed to review the overall operations of the privileged users; and (iii) the monitoring controls were not appropriately designed to review the permissions granted to users. A substantial portion of the Company's controls are dependent upon the information derived from the ERP system and therefore the dependent controls were also concluded to be ineffective.

Material Weakness Remediation

Subsequent to the identification of the material weakness, we have taken steps to address the control deficiencies and continue to implement our remediation plan, which we believe addresses the underlying causes. We executed on our remediation plan for the material weakness by:

• Removing all inappropriate access as of December 31, 2024, and strictly following segregation of duty rule set for developers.
• Establishing more robust and precise processes to monitor the privileged user activities.
• Establishing more robust and precise processes for the user access review.

While we believe these efforts 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 the changes in connection with these remediation steps, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, believe that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable levels of assurance of achieving their objectives and are effective at the reasonable assurance level. However, management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors or all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

In evaluating us and our common stock, we urge you to carefully consider the risks and other information in this Report, 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, 2024, 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.