# Microvast Holdings, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Microvast Holdings, Inc.](/companies/mvst.md) (CIK 1760689)
- Form: 10-Q
- Filed: 2023-11-09
- Accepted by EDGAR: Nov 9, 2023, 14:05 ET
- Period: 2023-09-30
- Accession: 0001760689-23-000040
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1760689/000176068923000040/mvst-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1760689/000176068923000040/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $80.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $202.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $62.2m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $167.8m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $17.9m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $34.2m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $13.2m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $33.6m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$26.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$84.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $491.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $1.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$26.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$81.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.08 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.26 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.08 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.26 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 313,108,457 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 309,541,499 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$70.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $153.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $67.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $403.9m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.02bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $336.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $449.2m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $30.8m | us-gaap:LongTermDebt |
| Short-term borrowings | at 2023-09-30 | $24.8m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-09-30 | $565.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 36,713 characters.

*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 is publicly traded on the Nasdaq stock exchange (the “NASDAQ”). We design, develop and manufacture battery components and systems primarily for electric commercial vehicles and utility-scale energy storage systems (“ESS”).

When we founded Microvast in 2006, our guiding principle, which remains at the heart of everything we do today, was to adopt an innovative and creative approach to the design of lithium-ion batteries without relying on past technologies. We call this true innovation. Our design approach began without preconceptions on how to make a lithium-ion battery, which contrasts to many other battery companies which took legacy battery technologies used in consumer electronics and adopted those for use in new market opportunities, such as electric vehicles, which we believe is product development, not innovation. To understand this difference, is to understand what we have set out to achieve.

Our mission is to use our innovative approach to create the battery technologies and solutions to accelerate the adoption of electric vehicles and the integration of renewable energy sources in order to power the transition to a sustainable economy. In particular, we seek to lead the charge in establishing and securing U.S. domestic battery production, which will strengthen the U.S. battery manufacturing base and reduce reliance on foreign battery manufacturing, in what is becoming a sector with significant strategic importance. We believe continuous investment in our technology and operations will deliver long-term targeted revenue and income growth.

We have developed proprietary technologies covering the entire battery system through our vertically integrated approach: from basic cell materials like the cathode, anode, electrolyte and separator, to cooling systems and software controls for the battery pack. Since our inception, we have primarily focused on developing new battery solutions for the transportation industry which requires batteries that are ultra-fast charging, high energy density, long lasting and safe.

In the future, in addition to expanding our production of battery systems and battery components, we expect to increase our focus on producing ESS solutions to support the shift to electrification, with the goal of becoming a leading global ESS solution provider to the energy market. This is a necessity because electric vehicles can only be considered as a green technology if the energy used to power them is also green. Addressing this symbiotic relationship is at the heart of our research activities and we expect it will shape our strategies for the foreseeable future.

Our most recent innovation is our high-energy, nickel, manganese, and cobalt (“NMC”) 53.5 ampere-hour battery cell (the “53.5Ah”), whose performance characteristics make it an attractive solution for commercial vehicle and ESS applications. To bring this product to market we have made significant investments in capacity expansions in Huzhou, China and Clarksville, Tennessee. Both facilities are using the same fully-automated production equipment for the 53.5Ah battery cell which will give us considerable operating efficiencies. We expect the 53.5Ah battery cell to be our dominant revenue driver for this next phase of our growth.

Since 2009, when we launched our first ultra-fast battery system, we have sold and delivered approximately 4,069.9 megawatt hours (“MWh”) of battery systems. Our revenue for the period ended September 30, 2023, increased $41.5 million to $80.1 million, a 107% increase compared to the period ended September 30, 2022. As of September 30, 2023, we had an order backlog of approximately $678.7 million for our battery systems (the equivalent of approximately 2,526.1 MWh), over 90% of which is attributable to the U.S. and Europe. We expect to fulfill a majority of our backlog within 2023 and 2024.

On October 3, 2022, we launched our new energy division (“Microvast Energy”). The new division designs, develops and manufactures ESS containers that are co-located with solar solutions or operate as stand-alone energy assets using our battery technology. The engineering, sales, after-sales and marketing and customer care departments for Microvast Energy are headquartered in northern Colorado.

On July 11, 2023, we announced that we are expanding our ESS business to a new facility in Windsor, Colorado.

This new facility provides nearly 100,000 square feet of space for assembling ESS containers, with ample room to add additional assembly capacity for our ESS business as needed and is expected to become operational in 2023.

In October 2022, we were notified by the U.S. Department of Energy (“DOE”) that we had been selected, in collaboration with General Motors, to receive $200 million in grant funding as part of the DOE's Battery Materials Processing and Battery Manufacturing initiative pursuant to the recently enacted infrastructure law, subject to negotiation of specific terms and conditions. The grant funding was expected to support the construction of a new polyaramid separator manufacturing facility in Hopkinsville, Kentucky. On May 23, 2023 the DOE announced that it was declining to award the previously-announced $200 million grant to us. Notwithstanding the DOE’s decision, we plan to continue making significant investments in the United States, including completing our battery manufacturing facility in Clarksville, Tennessee. We also remain committed to building a polyaramid separator manufacturing plant in the United States but intend to focus on our core business in the near term.

### 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.

### Key Factors Affecting Our Performance

We believe that our future success will be dependent on several factors, including the factors 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 the 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. , In October 2021, as part of our efforts to develop innovative technology, we expanded our R&D footprint in Orlando by purchasing a 75,000 square foot facility dedicated to R&D. We plan to continue expanding our R&D presence in the U.S. We also plan to continue leveraging our knowledge base in our overseas locations, including Europe and 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.

### 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. In order to do this, we will need to increase our manufacturing capacity. As of September 30, 2023, we had a backlog of approximately $678.7 million for our battery systems, equivalent to approximately 2,526.1 MWh. So far, we have used $392.4 million of the proceeds from the Business Combination that was completed in July 2021 to expand our manufacturing facilities and for the purchase of property and equipment associated with our existing manufacturing and R&D facilities. This investment program allows us to increase our manufacturing output, enabling us to address our backlog and to capture growing market opportunities. We expect the total capital expenditures related to these capacity expansions in Huzhou, China and Clarksville, Tennessee, which will give us an additional 4 GWh of capacity, to be in the range of $460.0 million to $490.0 million.

Future capacity expansions will be carried out in a measured manner based on our ongoing assessment of medium- and long-term demand for our solutions. Any such capacity expansions will require significant additional capital expenditures and will require corresponding expansion of our supporting infrastructure, further development of our sales and marketing team, 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. and Europe 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, some of which have state support. 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

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, and economic penalties that may apply to vehicle manufacturers based on its fleet-wide emissions. Each of these regulations may expand the market size of electric vehicles, which would, in turn, benefit us. We have operations and sales in 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, we are also expanding our sales presence internationally. The following table sets forth a breakdown of our revenue by major geographic regions in which our customers are located, for the periods indicated:

*(In thousands)*

|  | Three Months Ended September 30, 2022 Amt% |  | 2023 Amt% |  |
| --- | ---: | ---: | ---: | ---: |
| People’s Republic of China ("PRC") | $26,542 | 69% | $36,289 | 45% |
| Other Asia & Pacific countries | 7,394 | 19% | 24,611 | 31% |
| **Asia & Pacific** | **33,936** | **88%** | **60,900** | **76%** |
| **Europe** | **3,432** | **9%** | **19,034** | **24%** |
| **U.S.** | **1,248** | **3%** | **182** | **—%** |
| **Total** | **$38,616** | **100%** | **$80,116** | **100%** |

*(In thousands)*

|  | Nine Months Ended September 30, 2022 Amt% |  | 2023 Amt% |  |
| --- | ---: | ---: | ---: | ---: |
| People’s Republic of China ("PRC") | $80,326 | 57% | $115,023 | 57% |
| Other Asia & Pacific countries | 45,420 | 33% | 46,280 | 23% |
| **Asia & Pacific** | **125,746** | **90%** | **161,303** | **80%** |
| **Europe** | **11,062** | **8%** | **38,556** | **19%** |
| **U.S.** | **2,890** | **2%** | **2,183** | **1%** |
| **Total** | **$139,698** | **100%** | **$202,042** | **100%** |

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, 2022 | 2023 |
| --- | --- | ---: |
| A | \*% | 18% |
| B | \*% | 15% |
| C | \*% | 12% |
| D | 15% | \*% |
| E | 12% | \*% |

|  | Nine Months Ended September 30, 2022 | 2023 |
| --- | --- | ---: |
| A | \*% | 15% |
| B | \*% | 14% |
| F | 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, provision for 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.

### 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 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 27.9% of the estimated assessable profit of our subsidiary in Germany.

### Results of Operations

### Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022

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

*Amount in thousands*

|  | Three Months Ended September 30, 2022 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $38,616 | $80,116 | $41,500 | 107.5% |
| Cost of revenues | (36,623) | (62,232) | (25,609) | 69.9% |
| **Gross profit** | 1,993 | 17,884 | 15,891 | 797.3% |
|  | 5.2% | 22.3% |  |  |
| **Operating expenses:** |  |  |  |  |
| General and administrative expenses | (22,585) | (25,402) | (2,817) | 12.5% |
| Research and development expenses | (11,457) | (13,241) | (1,784) | 15.6% |
| Selling and marketing expenses | (5,561) | (6,031) | (470) | 8.5% |
| **Total operating expenses** | (39,603) | (44,674) | (5,071) | 12.8% |
| Subsidy income | 520 | 442 | (78) | (15.0)% |
| **Operating loss** | (37,090) | (26,348) | 10,742 | (29.0)% |
| **Other income and expenses:** |  |  |  |  |
| Interest income | 870 | 582 | (288) | (33.1)% |
| Interest expense | (774) | (491) | 283 | (36.6)% |
| Changes in fair value of warrant liability | 101 | (42) | (143) | (141.6)% |
| Other income, net | 349 | 127 | (222) | (63.6)% |
| **Loss before income tax** | (36,544) | (26,172) | 10,372 | (28.4)% |
| Income tax expense | — | — | — | —% |
| **Net loss** | $(36,544) | $(26,172) | $10,372 | (28.4)% |
| Less: net loss attributable to noncontrolling interests | — | (42) | (42) | 100.0% |
| **Net loss attributable to Microvast Holdings, Inc.'s shareholders** | $(36,544) | $(26,130) | $10,414 | (28.5)% |

### Revenues

Our revenues increased from approximately $38.6 million for the three months ended September 30, 2022 to approximately $80.1 million for the same period in 2023, primarily driven by an increase in sales volume from approximately 112.2 MWh for three months ended September 30, 2022 to approximately 319.2 MWh for the same period in 2023.

### Cost of Revenues and Gross Profit

Our cost of revenues for the three months ended September 30, 2023 increased by $25.6 million, or 69.9%, compared to the same period in 2022. The increase in the cost of revenues was primarily in line with the increased sales, partially offset by $0.4 million of decreased share-based compensation expenses.

Our gross margin increased from 5.2% for the three months ended September 30, 2022 to 22.3% for the same period in 2023. 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.

### Operating Expenses

#### Selling and Marketing

Selling and Marketing expenses for the three months ended September 30, 2023 were stable compared to the same period in 2022.

#### General and Administrative

General and Administrative expenses for the three months ended September 30, 2023 increased by $2.8 million, or 12.5%, compared to the same period in 2022. The increase in General and Administrative expenses was primarily due to $1.8 million of increased personnel-related expenses, $1.9 million of increased exchange loss and other increases related to business expansion, offset by $2.4 million of decreased share-based compensation expenses.

#### Research and Development

R&D expenses for the three months ended September 30, 2023 increased by $1.8 million, or 15.6%, compared to the same period in 2022. The increase in R&D expenses was primarily due to $1.5 million of increased personnel-related expenses as we increased headcount of our research team as a result of our efforts to further develop and enhance our products.

### Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

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

*Amount in thousands*

|  | Nine Months Ended September 30, 2022 | 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Revenues | $139,698 | $202,042 | $62,344 | 44.6% |
| Cost of revenues | (132,851) | (167,839) | (34,988) | 26.3% |
| **Gross profit** | 6,847 | 34,203 | 27,356 | 399.5% |
|  | 4.9% | 16.9% |  |  |
| **Operating expenses:** |  |  |  |  |
| General and administrative expenses | (83,021) | (69,347) | 13,674 | (16.5)% |
| Research and development expenses | (33,010) | (33,609) | (599) | 1.8% |
| Selling and marketing expenses | (17,369) | (16,916) | 453 | (2.6)% |
| **Total operating expenses** | (133,400) | (119,872) | 13,528 | (10.1)% |
| Subsidy income | 1,233 | 1,156 | (77) | (6.2)% |
| **Operating loss** | (125,320) | (84,513) | 40,807 | (32.6)% |
| **Other income and expenses:** |  |  |  |  |
| Interest income | 1,604 | 3,481 | 1,877 | 117.0% |
| Interest expense | (2,465) | (1,437) | 1,028 | (41.7)% |
| Changes in fair value of warrant liability | 921 | (25) | (946) | (102.7)% |
| Other income, net | 758 | 673 | (85) | (11.2)% |
| **Loss before income tax** | (124,502) | (81,821) | 42,681 | (34.3)% |
| Income tax expense | — | — | — | —% |
| **Net loss** | $(124,502) | $(81,821) | $42,681 | (34.3)% |
| Less: net loss attributable to noncontrolling interests | — | (21) | (21) | 100.0% |
| **Net loss attributable to Microvast Holdings, Inc.'s shareholders** | $(124,502) | $(81,800) | $42,702 | (34.3)% |

### Revenues

Our revenues increased from approximately $139.7 million for the nine months ended September 30, 2022 to approximately $202.0 million for the same period in 2023, primarily driven by an increase in sales volume from approximately 478.7 MWh for nine months ended September 30, 2022 to approximately 722.0 MWh for the same period in 2023.

### Cost of Revenues and Gross Profit

Our cost of revenues for the nine months ended September 30, 2023 increased by $35.0 million, or 26.3%, compared to the same period in 2022. 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 4.9% for the nine months ended September 30, 2022 to 16.9% for the same period in 2023. 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.

### Operating Expenses

#### Selling and Marketing

Selling and Marketing expenses for the nine months ended September 30, 2023 was stable compared to the same period in 2022.

#### General and Administrative

General and Administrative expenses for the nine months ended September 30, 2023 decreased by $13.7 million, or 16.5%, compared to the same period in 2022. The decrease in General and Administrative expenses was primarily due to $20.5 million of decreased share-based compensation expenses, offset by $3.7 million of increased personnel-related expenses and the other increases related to business expansion.

#### Research and Development

R&D expenses for the nine months ended September 30, 2023 were stable compared to the same period in 2022.

### 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. We expect existing cash, cash equivalents, short-term marketable securities, and cash flows from operations and financing activities to continue to be sufficient to fund our operating and investing activities for at least the next 12 months and thereafter for the foreseeable future.

As of September 30, 2023, our principal sources of liquidity were our cash and cash equivalents, restricted cash and short-term investments in the amount of $114.7 million. In October 2023, we signed a supplemental agreement with the banks under the 2022 Facility Agreement to extend the drawdown date to June 9, 2024 on the $70.4 million (RMB500 million) that is undrawn under that project finance facility for the construction of our Huzhou capacity expansions. We also have $21.7 million available under a working capital credit line.

The consolidated net cash position as of September 30, 2023 included cash and cash equivalents of $24.6 million and $0.2 million held by our PRC and UK 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.

### Financings

As of September 30, 2023, we had bank borrowings of $55.7 million, the terms of which range from 3 to 39 months. The interest rates on our bank borrowings ranged from 3.40% to 4.8% per annum. As of September 30, 2023, we had convertible bonds outstanding of $43.9 million, with interest rates ranging from 3% to 4%. The convertible bonds are all due in 2027. As of September 30, 2023, we were in compliance with all material terms and covenants of our loan agreements, credit agreements and bonds. Our US operations have no bank or third party debt funding, and as our business and asset base grows in the US, however we expect to enter into debt financing arrangements to support our expansion plans for the US market. 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.

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 $392.4 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, $122.1 million of the net proceeds were used for working capital as of September 30, 2023.

We believe we will be able to meet our working capital requirements for at least the next 12 months and fund our expansion plans with proceeds from bank borrowings and other third-party debt funding.

To reduce share dilution, we may from time to time repurchase our warrants, including in the open market, by way of tender offers or privately negotiated purchases.

### Capital expenditures and other contractual obligations

Our future capital requirements will depend on many factors, including, but not limited to, funding our planned production capacity expansions and general working capital. We believe the proceeds from the bank borrowings and other third-party debt funding will be sufficient to cover the remaining payment of our planned expansions totaling 4GWh and our general working capital needs. In addition, we may in the future enter into arrangements to further increase our production capacity or seek 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.

### 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 13 – Leases, in the notes to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Report on Form 10-Q.

### Capital Expenditures

In 2021, we started our capacity expansion plans in Huzhou, China, and Clarksville, Tennessee. The Phase 3.1 expansion in Huzhou for the production of 53.5Ah cells, modules and packs was completed during Q3 2023 and we expect it will reach its 2 GWh per year design capacity by the end of the year. With the Phase 3.1 line now in full operation we are supplying battery systems using the 53.5ah cell technology to our customers across the globe, and we expect this to result in an increasing contribution of revenues from European and US customers in the foreseeable future.

The 2GWh expansion project in Clarksville, Tennessee which is also dedicated to our new 53.5Ah cell technology is expected to be in trial production by the end of Q1 2024, with customer shipments anticipated to begin in Q2 2024. The completion of these projects is expected to increase our existing production capacity by 4 GWh once operational. We expect the total capital expenditures related to these capacity expansions in Huzhou, China and Clarksville, Tennessee to be in the range of $460.0 million to $490.0 million, which we finance primarily through the proceeds from the Business Combination, bank borrowings and other third-party debt funding, which we believe will be sufficient to cover all of the disclosed and estimated costs.

Our planned capital expenditures are based on management’s current estimates and may be subject to change. There can be no assurance that we will execute our capital expenditure plans as contemplated at or below-estimated costs, and we may also from time-to-time determine to undertake additional capital projects and incur additional capital expenditures. As a result, actual capital expenditures in future years may be more or less than the amounts shown.

There have not been any other material changes during the three and nine months ended September 30, 2023 to our contractual obligations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

### Cash Flows

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

*Amount in thousands*

|  | Nine Months Ended September 30, 2022 | 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | (58,595) | (70,350) |
| Net cash used in investing activities | (84,719) | (153,120) |
| Net cash generated from financing activities | 34,226 | 12,153 |

### Cash Flows from Operating Activities

During the nine months ended September 30, 2023, our operating activities used $70.4 million in cash. This decrease in cash consisted of (1) a net loss of $81.8 million and non-cash charges of $79.2 million, of which $14.6 million is depreciation of property, plant and equipment and $51.6 million is non-cash share-based compensation expense; and (2) a $67.8 million decrease in cash flows from operating assets and liabilities including $23.3 million cash outflow due to the net increase of accounts receivable and notes receivable, $54.5 million increase in inventories, $27.3 million increase in accounts payable and notes payable, $14.0 million cash outflow from accrued and other liabilities and prepaid expense and other current asset, and $3.3 million cash outflow from other operating assets and liabilities.

### Cash Flows from Investing Activities

During the nine months ended September 30, 2023, cash used in investing activities totaled $153.1 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, 2023, cash generated from financing activities totaled $12.2 million. This cash inflow was a result of $18.4 million proceeds from bank borrowings offset by $6.2 million repayment on bank borrowings.

### 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, 2023. 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, 2022.

## Market risk

As filed, 4,268 characters.

### 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

Until our capacity expansion in Clarksville, Tennessee is in production, our major operational activities are carried out in the PRC and a majority of the transactions are denominated in Renminbi. 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 Renminbi. The effect of an immediate 10% adverse change in foreign exchange rates on Renminbi-denominated accounts as of September 30, 2023, including intercompany balances, would result in a foreign currency loss of $8.3 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 $0.6 million as of September 30, 2023.

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.

## Controls and procedures

As filed, 1,163 characters.

### 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2023. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023 and believed that 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.

### Changes in Internal Control Over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 718 characters.

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, 2022, 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.

Filed Nov 9, 2023.
Source: SEC EDGAR, the filing index for accession 0001760689-23-000040. Last ingested by Listed: Nov 10, 2026, 04:06 ET. No prices; not investment advice.