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What changed in Microvast Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Microvast Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+596 added−518 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-16)

Top changes in Microvast Holdings, Inc.'s 2023 10-K

596 paragraphs added · 518 removed · 408 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

190 edited+72 added−46 removed132 unchanged
Biggest changeLoss before provision for income taxes for the years ended December 31, 2020, 2021 and 2022 was as follows: December 31, 2020 December 31, 2021 December 31, 2022 Domestic(USA) $ (3,584) $ (98,821) $ (116,353) Foreign (30,040) (107,662) (41,814) Loss before income tax $ (33,624) $ (206,483) $ (158,167) The current and deferred components of the income tax expense in the consolidated statements of operations were as follows: December 31, 2020 December 31, 2021 December 31, 2022 Current tax expense 1 — 33 Deferred tax expense — — — Total provision for income taxes $ 1 $ — $ 33 The components of the Group’s deferred tax assets are as follows: December 31, 2021 December 31, 2022 Deferred tax assets: Net operating loss carry-forwards $ 38,858 $ 54,459 Allowance for doubtful accounts and inventory provision 4,712 3,311 Product warranty 8,769 6,309 Impairment of property, plant and equipment 1,210 1,367 Deferred income 392 334 Accrued expense 239 235 Others 920 838 Less: valuation allowance (55,100) (66,853) Net deferred tax assets $ — $ — F-34 Table of Contents MICROVAST HOLDINGS, INC.
Biggest changeINCOME TAXES - continued The current and deferred components of the income tax expense in the consolidated statements of operations were as follows: December 31, 2021 December 31, 2022 December 31, 2023 Current tax expense $ — $ 33 $ 10 Deferred tax expense — — — Total provision for income tax $ — $ 33 $ 10 The components of the Group’s deferred tax assets are as follows: December 31, 2022 December 31, 2023 Deferred tax assets: Net operating loss carry-forwards $ 54,459 $ 67,569 Allowance for credit losses and inventory provision 3,311 1,385 Product warranty 6,309 5,306 Impairment of property, plant and equipment 1,367 282 Deferred income 334 397 Accrued expense 235 669 Others 838 615 Less: valuation allowance (66,853) (76,223) Net deferred tax assets $ — $ — The movements of valuation allowance for the years end December 31, 2021, 2022 and 2023 are as follows: December 31, 2021 December 31, 2022 December 31, 2023 Balance at beginning of the year $ 37,287 $ 55,100 $ 66,853 Additions 17,912 11,838 12,725 Reversal (99) (85) (3,355) Balance at end of the year $ 55,100 $ 66,853 $ 76,223 F-35 Table of Contents MICROVAST HOLDINGS, INC.
In 2021, as a result of the increases in the repairing cost and frequency of claims with respect to a legacy product sold in 2017 and 2018, the Company conducted intensive experiments and a root cause analysis, which was completed in October 2021. The Company concluded that a component purchased from a supplier was not meeting the Company’s performance standards.
As a result of the increases in the repairing cost and frequency of claims with respect to a legacy product sold in 2017 and 2018, the Company conducted intensive experiments and a root cause analysis, which was completed in October 2021. The Company concluded that a component purchased from a supplier was not meeting the Company’s performance standards.
Any portion of an NOL that arises in a tax year between 2018-2021 that is not previously absorbed is subject to the 80 percent limitation in tax years beginning after 2020. The CARES Act did not have a material impact on the Company’s tax provision for the years ended December 31, 2020, 2021 and 2022.
Any portion of an NOL that arises in a tax year between 2018-2021 that is not previously absorbed is subject to the 80 percent limitation in tax years beginning after 2020. The CARES Act did not have a material impact on the Company’s tax provision for the years ended December 31, 2021, 2022 and 2023.
BASIS FOR PREPARATION The financial information of the Company has been prepared using the same accounting policies as set out in the Group’s consolidated financial statements except that the Company has used the equity method to account for investments in its subsidiaries.
BASIS FOR PREPARATION The financial information of the Company has been prepared using the same accounting policies as set out in the Group’s consolidated financial statements except that the Company has used the equity method to account for investments in its subsidiaries. 2.
Deferred tax liability was not provided with respect to undistributed profits of relevant PRC subsidiaries for the years ended December 31, 2020, 2021 and 2022, as the Group concluded that profits generated by the relevant PRC subsidiaries are considered to be permanently reinvested, because the Group does not have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future and intends to retain all of its available funds and any future earnings for use in the operation and expansion of its business.
Deferred tax liability was not provided with respect to undistributed profits of relevant PRC subsidiaries for the years ended December 31, 2021, 2022 and 2023, as the Group concluded that profits generated by the relevant PRC subsidiaries are considered to be permanently reinvested, because the Group does not have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future and intends to retain all of its available funds and any future earnings for use in the operation and expansion of its business.
DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS Microvast, Inc. was incorporated under the laws of the State of Texas in the United States of America (“USA”) on October 12, 2006 and re-domiciled to the State of Delaware on December 31, 2015.
DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS Microvast, Inc. was incorporated under the laws of the State of Texas in the United States of America on October 12, 2006 and re-domiciled to the State of Delaware on December 31, 2015.
The exercise price is extracted from the warrant agreements. The expected term is derived from the exercisable years based on the warrant agreements. The expected volatility is a blend of implied volatility from the Company’s own public warrant pricing and the average volatility of peer companies.
The exercise price is extracted from the warrant agreements. The expected term is derived from the exercisable years based on the warrant agreements. The expected volatility is a blend of implied volatility from the Company’s own public warrant pricing, the average volatility of peer companies and the Company's historical volatility.
(“Hongwei”) was recognized as a NHTE by the relevant PRC government authorities in 2020 and it is entitled to an income tax rate of 15% for 2020, 2021 and 2022.
(“Hongwei”) was recognized as a NHTE by the relevant PRC government authorities in 2020 and 2023, and it is entitled to an income tax rate of 15% for 2021, 2022 and 2023.
F-8 Table of Contents MICROVAST HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY (Continued) (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) Year Ended December 31, 2022 Common Stock Shares Amount Additional paid-in capital Accumulated deficit Accumulated other Comprehensive income (loss) Statutory reserves Total Microvast Holdings, Inc.
F-8 Table of Contents MICROVAST HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY - Continued (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) Year Ended December 31, 2023 Common Stock Shares Amount Additional paid-in capital Accumulated deficit Accumulated other Comprehensive (loss) /income Statutory reserves Total Microvast Holdings, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 12. BANK BORROWINGS - continued Certain assets of the Group have been pledged to secure the above banking facilities granted to the Group.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 12. BANK BORROWINGS - continued Certain assets of the Group have been pledged to secure the above banking facilities granted to the Group.
(b) The Sponsor Group includes Common Stock owned by the Sponsor, Stefan M. Selig, Richard O. Rieger and Amy Butte. (c) Includes 1,687,500 shares that may be subject to cancellation in accordance with the amended escrow agreement. F-22 Table of Contents MICROVAST HOLDINGS, INC.
(b) The Sponsor Group includes Common Stock owned by the Sponsor, Stefan M. Selig, Richard O. Rieger and Amy Butte. (c) Includes 1,687,500 shares that may be subject to cancellation in accordance with the amended escrow agreement. F-23 Table of Contents MICROVAST HOLDINGS, INC.
The loan facilities can only be used for the construction project of manufacturing capacity expansion at the Group’s facility located in Huzhou, China. The 2022 Facility Agreement contains certain customary restrictive covenants, including but not limited to disposal of assets and dividend distribution without the consent of the lender, and certain customary events of default.
The loan facilities can only be used for the construction project of manufacturing capacity expansion at the Group’s facility located in Huzhou, China. The 2022 Facility Agreement contains certain customary restrictive covenants, including but not limited to disposal of assets and dividend distribution without the consent of the lenders, and certain customary events of default.
Changes in provisions related to pre-existing legacy products were made based on actual claims and intensive testing and analysis on the legacy products.
In 2021, changes in provisions related to pre-existing legacy products were made based on actual claims and intensive testing and analysis on the legacy products.
MPS was recognized as a “New and High Tech Enterprise” (“NHTE”) by the relevant PRC government authorities in 2018 and 2021. Therefore, MPS, as the NHTE, is entitled to an income tax rate of 15% for 2020, 2021 and 2022. Huzhou Hongwei New Energy Automobile Co., Ltd.
MPS was recognized as a “New and High Tech Enterprise” (“NHTE”) by the relevant PRC government authorities in 2018 and 2021. Therefore, MPS, as the NHTE, is entitled to an income tax rate of 15% for 2021, 2022 and 2023. Huzhou Hongwei New Energy Automobile Co., Ltd.
Germany German enterprise income tax, which is a combination of corporate income tax and trade tax, is calculated at an average tax rate of 31.9%, 29.1% and 27.9% for the years ended December 31, 2020, 2021 and 2022, respectively, for the Company’s subsidiary located in Germany in accordance with relevant tax rules and regulations in Germany.
Germany German enterprise income tax, which is a combination of corporate income tax and trade tax, is calculated at an average tax rate of 29.1%, 27.9% and 29.9% for the years ended December 31, 2021, 2022 and 2023, respectively, for the Company’s subsidiary located in Germany in accordance with relevant tax rules and regulations in Germany.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 3. REVERSE RECAPITALIZATION - continued The Merger is accounted for as a reverse recapitalization under U.S. GAAP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 3. REVERSE RECAPITALIZATION - continued The Merger is accounted for as a reverse recapitalization under U.S. GAAP.
The Warrants entitle the holder to purchase one share of the Company’s Common Stock at an exercise price of $11.50 per share. During the year ended December 31, 2022, none of the Public Warrants or the Private Warrants have been exercised. The Public Warrants became exercisable 30 days after the completion of the Merger.
The Warrants entitle the holder to purchase one share of the Company’s Common Stock at an exercise price of $11.50 per share. During the year ended December 31, 2023, none of the Public Warrants or the Private Warrants have been exercised. The Public Warrants became exercisable 30 days after the completion of the Merger.
F-11 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 1.
F-11 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 1.
F-17 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 2.
F-17 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 2.
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Microvast Holdings, Inc. and its subsidiaries (the “ Company ”) as of December 31, 2021 and 2022, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ (deficit)/equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes and the schedule listed in Schedule I (collectively referred to as the “ financial statements ”).
Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Microvast Holdings, Inc. and its subsidiaries (the “ Company ”) as of December 31, 2022 and 2023, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes and the schedule listed in Schedule I (collectively referred to as the “ financial statements ”).
Contract balances Contract balances include accounts receivable and advances from customers. Accounts receivable represent cash not received from customers and are recorded when the rights to consideration is unconditional. The allowance for doubtful accounts reflects the best estimate of probable losses inherent to the accounts receivable balance.
Contract balances Contract balances include accounts receivable and advances from customers. Accounts receivable represent cash not received from customers and are recorded when the rights to consideration is unconditional. The allowance for credit losses reflects the best estimate of probable losses inherent to the accounts receivable balance.
F-7 Table of Contents MICROVAST HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY - (Continued) (In thousands of U.S. dollars, except share and per share data, or otherwise noted) Year Ended December 31, 2021 Common Stock Shares Amount Additional paid-in capital Accumulated deficit Accumulated other comprehensive income Statutory reserve Total Microvast Holdings, Inc.
F-7 Table of Contents MICROVAST HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY - Continued (In thousands of U.S. dollars, except share and per share data, or otherwise noted) Year Ended December 31, 2022 Common Stock Shares Amount Additional paid-in capital Accumulated deficit Accumulated other comprehensive income/(loss) Statutory reserve Total Microvast Holdings, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 2.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 2.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 5.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 5.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 10.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 10.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 14.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 14.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 16.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 16.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 16.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 16.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 18.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 18.
All preferred shares that existed prior to the Merger were converted into common stock pursuant to the Merger and as of December 31, 2022, the Company does not have any preferred shares in issue.
All preferred shares that existed prior to the Merger were converted into common stock pursuant to the Merger and as of December 31, 2023, the Company does not have any preferred shares in issue.
On December 19, 2022, Microvast Inc. and a third party set up a company named Microvast Precision Works Co., Ltd ("MPW"). The Company holds a 70% shareholding in MPW, and the third party holds 30%. The total registered capital of MPW is $7,246 which the shareholders will fund pro-rata to their shareholding.
On December 19, 2022, Microvast Inc. and a third party set up a company named Microvast Precision Works Co., Ltd ("MPW"). The Company holds a 70% shareholding in MPW and consolidates MPW, and the third party holds 30%. The total registered capital of MPW is $7,246 which the shareholders intended to fund pro-rata to their shareholding.
On July 23, 2021 (the “Closing Date”), Microvast, Inc. and Tuscan Holdings Corp.(“Tuscan”) consummated the previously announced merger (the “Merger”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated February 1, 2021, between Tuscan, Microvast, Inc. and TSCN Merger Sub Inc., a Delaware corporation (“Merger Sub”).
On July 23, 2021 (the “Closing Date”), Microvast, Inc. and Tuscan Holdings Corp.(“Tuscan”) consummated the previously announced merger (the “Merger” or the "Business Combination"), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated February 1, 2021, between Tuscan, Microvast, Inc. and TSCN Merger Sub Inc., a Delaware corporation (“Merger Sub”).
As the component was not incorporated into other products, no additional accrual was made to other existing products sold. F-26 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 12.
As the component was not incorporated into other products, no additional accrual was made to other existing products sold. F-27 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 12.
NONCONTROLLING INTERESTS - continued Pursuant to an extension agreement signed in September 2020, $30,000 was paid to the Exiting Investors in March 2021, and the remaining repayments were deferred to 2023 and thereafter, depending on the successful completion of a financing by the Company in 2022 or 2023.
Pursuant to an extension agreement signed in September 2020, $30,000 was paid to the Exiting Investors in March 2021, and the remaining repayments were deferred to 2023 and thereafter, depending on the successful completion of a financing by the Company in 2022 or 2023.
Level 3 Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. Revenue recognition Nature of Goods and Services The Group’s revenue consists primarily of sales of lithium-ion batteries.
SIGNIFICANT ACCOUNTING POLICIES - continued Fair value - continued Level 3 Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. Revenue recognition Nature of Goods and Services The Group’s revenue consists primarily of sales of lithium-ion batteries.
In September 2022, MPS entered into supplement agreements with Huzhou Saiyuan to change the repayment schedule as follows: (i) $14,629 (RMB100 million) will be repaid, together with interest accrued, on or before November 10, 2022, (ii) $14,630 (RMB100 million) will be repaid, together with interest accrued, on or before December 31, 2022, and (iii) the remaining $43,888 (RMB300 million) will be repaid, together with interest accrued, on or before January 31, 2027.
In September 2020 and 2022, MPS entered into two supplement agreements with Huzhou Saiyuan, respectively, to change the repayment schedule as follows: (i) $14,629 (RMB100 million) was repaid, together with interest accrued, on or before November 10, 2022, (ii) $14,630 (RMB100 million) was repaid, together with interest accrued, on or before December 31, 2022, and (iii) the remaining $43,888 (RMB300 million) will be repaid, together with interest accrued, on or before January 31, 2027.
Cash and cash equivalents and restricted cash are classified within Level 1 of the fair value hierarchy because they are valued based on the quoted market price in an active market. The fair value of the warrant liability and Bridge Notes are based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy.
Cash and cash equivalents and restricted cash are classified within Level 1 of the fair value hierarchy because they are valued based on the quoted market price in an active market. The fair value of the warrant liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy.
GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries. F-42 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 24.
GAAP differ from those reflected in the statutory financial statements of the Company’s subsidiaries. F-42 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 24.
SIGNIFICANT ACCOUNTING POLICIES - continued Share-based compensation Share-based payment transactions with employees are measured based on the grant date fair value of the equity instrument and recognized as compensation expense on a straight-line basis over the requisite service period, with a corresponding impact reflected in additional paid-in capital.
Share-based compensation Share-based payment transactions with employees are measured based on the grant date fair value of the equity instrument and recognized as compensation expense on a straight-line basis over the requisite service period, with a corresponding impact reflected in additional paid-in capital.
Significant accounting estimates reflected in the Group’s financial statements include allowance for doubtful accounts, provision for obsolete inventories, impairment of long-lived assets, valuation allowance for deferred tax assets, product warranties, fair value measurement of Bridge Notes, fair value measurement of warrant liability and share based compensation.
Significant accounting estimates reflected in the Group’s financial statements include allowance for credit losses, provision for obsolete inventories, impairment of long-lived assets, valuation allowance for deferred tax assets, product warranties, fair value measurement of Bridge Notes, fair value measurement of warrant liability and share based compensation.
Chinese labor regulations require the Group to accrue for these benefits based on certain percentages of the employees’ salaries. The total provisions for such employee benefits were $2,192, $2,774 and $3,370 for the years ended December 31, 2020, 2021 and 2022, respectively. 24.
Chinese labor regulations require the Group to accrue for these benefits based on certain percentages of the employees’ salaries. The total provisions for such employee benefits were $2,774, $3,370 and $3,552 for the years ended December 31, 2021, 2022 and 2023, respectively. 24.
Land use rights are amortized on a straight-line basis for 50 years or shorter of the estimated usage periods or the terms of the land use rights agreements. The Group recorded amortization expenses of $303, $325 and $310 for the years ended December 31, 2020, 2021 and 2022, respectively.
Land use rights are amortized on a straight-line basis for 50 years or shorter of the estimated usage periods or the terms of the land use rights agreements. The Group recorded amortization expenses of $325, $310 and $294 for the years ended December 31, 2021, 2022 and 2023, respectively.
F-29 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 15.
F-30 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 15.
FAIR VALUE MEASUREMENT - continued The following is a reconciliation of the beginning and ending balances for Level 3 warrant liability during the year ended December 31, 2021 and 2022: (In thousands) Year Ended December 31, 2021 2022 Balance at the beginning of the year $ — $ 1,105 Assumed warrant liability upon Merger 3,574 — Changes in fair value (2,469) (979) Balance at end of the year $ 1,105 $ 126 Measured or disclosed at fair value on a nonrecurring basis The Group measured the long-lived assets using the income approach—discounted cash flow method, when events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. 17.
FAIR VALUE MEASUREMENT - continued Measured or disclosed at fair value on a recurring basis-continued The following is a reconciliation of the beginning and ending balances for Level 3 warrant liability during the year ended December 31, 2022 and 2023: (In thousands) Year Ended December 31, 2022 2023 Balance at the beginning of the year $ 1,105 $ 126 Assumed warrant liability upon Merger — — Changes in fair value (979) (59) Balance at end of the year $ 126 $ 67 Measured or disclosed at fair value on a nonrecurring basis The Group measured the long-lived assets using the income approach—discounted cash flow method, when events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. 17.
F-41 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019, 2020 AND 2021 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 22.
F-41 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 22.
RELATED PARTY BALANCES AND TRANSACTIONS Name Relationship with the Group Ochem Chemical Co., Ltd (“Ochem”) Controlled by CEO Ochemate Material Technologies Co., Ltd (“Ochemate”) Controlled by CEO (1) Related party transaction Year Ended December 31, 2020 2021 2022 Raw material sold to Ochem $ 167 $ 390 $ — (2) Interest-free loans MPS received certain interest-free loans from related parties, Ochemate and Ochem, for the years ended December 31, 2020, 2021 and 2022, with accumulative amounts of $18,889, $8,426 and $ nil, respectively.
RELATED PARTY BALANCES AND TRANSACTIONS Name Relationship with the Group Ochem Chemical Co., Ltd (“Ochem”) Controlled by CEO Ochemate Material Technologies Co., Ltd (“Ochemate”) Controlled by CEO (1) Related party transaction Year Ended December 31, 2021 2022 2023 Raw material sold to Ochem $ 390 $ — $ — (2) Interest-free loans MPS received certain interest-free loans from related parties, Ochemate and Ochem, for the years ended December 31, 2021, 2022 and 2023, with accumulative amounts of $8,426, $— and $—, respectively.
Report of Independent Registered Public Accounting Firm F - 2 Consolidated Balance Sheets as of December 31, 202 1 and 202 2 F- 3 Consolidated Statements of Operations for the Years Ended December 31, 20 20 , 202 1 and 202 2 F- 5 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 20 20 , 202 1 and 202 2 F- 6 Consolidated Statements of Changes in Shareholders’ (Deficit)/Equity for the Years Ended December 31, 20 20 , 202 1 and 202 2 F- 7 Consolidated Statements of Cash Flows for the Years Ended December 31, 20 20 , 202 1 and 202 2 F- 10 Notes to Consolidated Financial Statements F- 12 F-1 Table of Conte n t s REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Microvast Holdings, Inc.
Report of Independent Registered Public Accounting Firm F - 2 Consolidated Balance Sheets as of December 31, 202 2 and 202 3 F- 3 Consolidated Statements of Operations for the Years Ended December 31, 202 1 , 202 2 and 202 3 F- 5 Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 202 1 , 202 2 and 202 3 F- 6 Consolidated Statements of Changes in Shareholders’ (Deficit)/Equity for the Years Ended December 31, 20 21 , 202 2 and 202 3 F- 7 Consolidated Statements of Cash Flows for the Years Ended December 31, 202 1 , 202 2 and 202 3 F- 10 Notes to Consolidated Financial Statements F- 12 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Microvast Holdings, Inc.
SIGNIFICANT ACCOUNTING POLICIES - continued Cost of revenues Cost of revenues primarily consists of the cost of the products ultimately sold to customers, shipping and handling costs charged to the Group in the sales, product warranty expense, provision for obsolete inventories and other related cost that are directly attributable to the production of products.
Cost of revenues Cost of revenues primarily consists of the cost of the products ultimately sold to customers, shipping and handling costs charged to the Group in the sales, product warranty expense, provision for obsolete inventories and other related cost that are directly attributable to the production of products.
Additionally, in no event will the Company be required to net cash settle the Warrants. The Private Warrant liability was measured at fair value, resulting in gains of $2,469 and $979 for the years ended December 31, 2021and December 31, 2022, respectively. This was classified within changes in fair value of warrant liability in the consolidated statements of operations.
Additionally, in no event will the Company be required to net cash settle the Warrants. The Private Warrant liability was measured at fair value, resulting in gains of $979 and $59 for the years ended December 31, 2022 and December 31, 2023, respectively. This was classified within changes in fair value of warrant liability in the consolidated statements of operations.
SIGNIFICANT ACCOUNTING POLICIES - continued Net loss per share Basic loss per share is computed by dividing net loss attributable to common stock, considering the accretions to redemption value of any preferred shares, by the weighted average number of common stock outstanding during the year using the two-class method.
Net loss per share Basic loss per share is computed by dividing net loss attributable to common stock, considering the accretions to redemption value of any preferred shares, by the weighted average number of common stock outstanding during the year using the two-class method.
SIGNIFICANT ACCOUNTING POLICIES - continued Concentration of credit risk Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, accounts receivable, notes receivable and short-term investments. The Group places its cash and cash equivalents with financial institutions with high credit ratings and quality.
Concentration of credit risk Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, accounts receivable, notes receivable and short-term investments. The Group places its cash and cash equivalents with financial institutions with high credit ratings and quality.
F-49 Table of Contents ADDITIONAL INFORMATION FINANCIAL STATEMENT SCHEDULE I CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY NOTES OF THE CONDENSED FINANCIAL STATEMENTS 1.
Table of Contents ADDITIONAL INFORMATION FINANCIAL STATEMENT SCHEDULE I CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY NOTES OF THE CONDENSED FINANCIAL STATEMENTS 1.
SHARE-BASED PAYMENT - continued Capped Non-vested share units - Continued At the CRSU Modification date, the Company used the Monte Carlo valuation model in determining the fair value of the CRSUs with assumptions as follows: Modification Date Expected term (years) 0.07 ~ 2.07 Volatility 50.93 % ~ 73.89% Risk-free interest rate 1.15 % ~ 3.05% Expected dividend yields 0.00% Expected term was the time left (in years) from the CRSU Modification date to the vesting date based on the terms of the applicable award agreements.
At the CRSU Modification date, the Company used the Monte Carlo valuation model in determining the fair value of the CRSUs with assumptions as follows: Modification Date Expected term (years) 0.07 ~ 2.07 Volatility 50.93 % ~ 73.89% Risk-free interest rate 1.15 % ~ 3.05% Expected dividend yields 0.00% Expected term was the time left (in years) from the CRSU Modification date to the vesting date based on the terms of the applicable award agreements.
Short-term investments The Group’s short-term held-to-maturity investments are classified based on their contractual maturity dates which are less than one year and are recorded at their amortized costs. The Company recognized $37, $ nil and $70 interest income from the short-term investments for the years ended December 31, 2020, 2021 and 2022, respectively.
Short-term investments The Group’s short-term held-to-maturity investments are classified based on their contractual maturity dates which are less than one year and are recorded at their amortized costs. The Company recognized $—, $70 and $438 interest income from the short-term investments for the years ended December 31, 2021, 2022 and 2023, respectively.
BONDS PAYABLE December 31, 2021 December 31, 2022 Long–term bonds payable Huzhou Saiyuan $ 73,147 $ 43,888 Total $ 73,147 $ 43,888 Convertible Bonds issued to Huzhou Saiyuan On December 29, 2018, MPS signed an agreement with Huzhou Saiyuan, an entity established by the local government, to issue convertible bonds to Huzhou Saiyuan for a total consideration of $87,776 (RMB600 million).
BONDS PAYABLE December 31, 2022 December 31, 2023 Long–term bonds payable Huzhou Saiyuan $ 43,888 $ 43,157 Total $ 43,888 $ 43,157 Convertible Bonds issued to Huzhou Saiyuan On December 29, 2018, MPS signed an agreement with Huzhou Saiyuan, an entity established by the local government, to issue convertible bonds to Huzhou Saiyuan for a total consideration of $87,776 (RMB600 million).
FAIR VALUE MEASUREMENT Measured or disclosed at fair value on a recurring basis The Group measured its financial assets and liabilities, including cash and cash equivalents, restricted cash, Bridge Notes and warrant liability at fair value on a recurring basis as of December 31, 2021 and 2022.
FAIR VALUE MEASUREMENT Measured or disclosed at fair value on a recurring basis The Group measured its financial assets and liabilities, including cash and cash equivalents, restricted cash and warrant liability at fair value on a recurring basis as of December 31, 2022 and 2023.
During the years ended December 31, 2020, 2021 and 2022, the Group recognized $582, $1,455 and $1,151 of revenue previously included in advance from customers as of January 1, 2020, January 1, 2021 and January 1, 2022, respectively, which consist of payments received in advance related to its sales of lithium-ion batteries.
During the years ended December 31, 2021, 2022 and 2023, the Group recognized $1,455, $1,151 and $2,492 of revenue previously included in advance from customers as of January 1, 2021, January 1, 2022 and January 1, 2023, respectively, which consist of payments received in advance related to its sales of lithium-ion batteries.
The following table summarizes net revenues from customers that accounted for 10% or more of the Group’s net revenues for 2020, 2021 and 2022: December 31, 2020 December 31, 2021 December 31, 2022 Percentage of revenue contributed by Customer A *% 11 % 12 % *Revenue from such customer represented less than 10% of the Group's revenue during the respective periods.
The following table summarizes net revenues from customers that accounted for 10% or more of the Group’s net revenues for 2021, 2022 and 2023: December 31, 2021 December 31, 2022 December 31, 2023 Percentage of revenue contributed by Customer A *% *% 18 % Percentage of revenue contributed by Customer B *% *% 11 % Percentage of revenue contributed by Customer C 11 % 12 % *% *Revenue from such customer represented less than 10% of the Group's revenue during the respective periods.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 2.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 3.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 2.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 7.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 2.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 18.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 2.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 25.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 2.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 28.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 17.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 28.
The volatility of the underlying common shares during the lives of the options was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the expected term of the options and the implied volatility of the Company.
Expected lives was derived from option agreements. The volatility of the underlying common shares during the lives of the options was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the expected term of the options and the implied volatility of the Company.
On July 23, 2021, upon the completion of the Merger between Microvast, Inc. and Tuscan, the equity interest held by the investors who remained noncontrolling shareholders of MPS were converted into 17,253,182 shares of Common Stock of the combined company as disclosed in Note 3. Noncontrolling interests of Microvast Inc.
On July 23, 2021, upon the completion of the Merger between Microvast, Inc. and Tuscan, the equity interest held by the investors who remained noncontrolling shareholders of MPS were converted into 17,253,182 shares of Common Stock of the combined company as disclosed in Note 3. F-36 Table of Contents MICROVAST HOLDINGS, INC.
We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP Beijing, the People’s Republic of China March 16, 2023 We have served as the Company’s auditor since 2011. F-2 Table of Contents MICROVAST HOLDINGS, INC.
We believe that our audits provide a reasonable basis for our opinion. /s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP Beijing, the People’s Republic of China April 1, 2024 We have served as the Company’s auditor since 2011. F-2 Table of Contents MICROVAST HOLDINGS, INC.
If Huzhou Saiyuan decides to convert the bonds to equity interests of MPS, the equity interests pledged would be released and the convertible bonds should be converted to the equity interest of MPS based on the entity value of MPS at $950,000.
If Huzhou Saiyuan decides to convert the bonds into equity interests of MPS, the equity interests pledged would be released and the convertible bonds would be converted into equity interest of MPS based on an entity value of MPS of $950,000.
The Group has also entered into short-term loan agreements and bank facilities with Chinese banks. The original terms of the loans from Chinese banks are within 12 months and the interest rates range from 4.50% to 4.75% per annum .
The Group has also entered into short-term loan agreements and bank facilities with Chinese banks. The original terms of the loans from Chinese banks are within 12 months and the interest rates range from 3.40% to 4.55% per annum .
If the subscribed bonds are not repaid by the maturity date, Huzhou Saiyuan has the right to dispose of the equity interests pledged by the Company in proportion to the amount of matured bonds, or convert the bond to the equity interests of MPS within 60 days after the maturity date.
If the subscribed bonds are not repaid by the maturity date of January 31, 2027, Huzhou Saiyuan has the right to dispose of the equity interests pledged by the Company in proportion to the amount of matured bonds, or convert the bonds into equity interests of MPS within 60 days after the maturity date.
The evaluation of asset impairment requires the Group to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.
The evaluation of asset impairment requires the Group to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. Refer to Note 7 for details.
LEASES The Group has operating leases for office spaces and warehouses. Certain leases include termination options, which are factored into the Group's determination of lease payments when appropriate. Operating lease cost for the year ended December 31, 2022 was $3,030, which excluded cost of short-term contracts. Short-term lease cost for the year ended December 31, 2022 was $373.
LEASES The Group has operating leases for office spaces and warehouses. Certain leases include termination options, which are factored into the Group's determination of lease payments when appropriate. Operating lease cost for the year ended December 31, 2023 was $3,663, which excluded cost of short-term contracts. Short-term lease cost for the year ended December 31, 2023 was $435.
F-24 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 8.
F-13 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 2.
F-33 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 18.
F-21 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 2.
F-35 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2020, 2021 AND 2022 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 19.
F-37 Table of Contents MICROVAST HOLDINGS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2021, 2022 AND 2023 (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) 22.
F-48 Table of Contents ADDITIONAL INFORMATION FINANCIAL STATEMENT SCHEDULE I CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY STATEMENT OF CASH FLOWS (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) Year Ended December 31, 2020 2021 2022 Net cash used in operating activities (3,398) (2,846) (4,498) Cash flows from investing activities Purchases of property, plant and equipment (380) (18,465) — Investment in subsidiaries — (354,014) (255,662) Purchases of short-term investment — — (25,070) Net cash used in investing activities (380) (372,479) (280,732) Cash flows from financing activities Cash received from the trust account upon Merger, net of transaction costs — 223,605 — Cash received from PIPE investors upon Merger — 482,500 — Issuance of Bridge Notes — 57,500 — Payment to exited noncontrolling interests — (32,872) — Cash received from shareholders — — 27,559 Net cash generated from financing activities — 730,733 27,559 (Decrease)/increase in cash, cash equivalents and restricted cash (3,778) 355,408 (257,671) Cash, cash equivalents and restricted cash at beginning of the period 5,378 1,600 357,008 Cash, cash equivalents and restricted cash at end of the period $ 1,600 $ 357,008 $ 99,337 The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents ADDITIONAL INFORMATION FINANCIAL STATEMENT SCHEDULE I CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY STATEMENT OF CASH FLOWS (In thousands of U.S. dollars, except share and per share data, or as otherwise noted) Year Ended December 31, 2021 2022 2023 Net cash generated (used) in operating activities (2,846) (4,498) 2,552 Cash flows from investing activities Purchases of property, plant and equipment (18,465) — — Investment in subsidiaries (354,014) (255,662) (125,449) Purchases of short-term investment — (25,070) (430) Proceeds from maturity of short-term investments — — 25,500 Net cash used in investing activities (372,479) (280,732) (100,379) Cash flows from financing activities Cash received from the trust account upon Merger, net of transaction costs 223,605 — — Cash received from PIPE investors upon Merger 482,500 — — Issuance of Bridge Notes 57,500 — — Payment to exited noncontrolling interests (32,872) — — Cash received from shareholders — 27,559 — Net cash generated from financing activities 730,733 27,559 — Increase (decrease) in cash, cash equivalents and restricted cash 355,408 (257,671) (97,827) Cash, cash equivalents and restricted cash at beginning of the period 1,600 357,008 99,337 Cash, cash equivalents and restricted cash at end of the period $ 357,008 $ 99,337 $ 1,510 The accompanying notes are an integral part of these consolidated financial statements.
Basic and diluted $ (0.82) $ (1.26) $ (0.52) Weighted average shares used in calculating net loss per share of common stock: Basic and diluted 99,028,297 185,896,482 303,279,188 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents MICROVAST HOLDINGS, INC.
Basic and diluted $ (1.26) $ (0.52) $ (0.34) Weighted average shares used in calculating net loss per share of common stock: Basic and diluted 185,896,482 303,279,188 310,909,379 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents MICROVAST HOLDINGS, INC.
Upon the completion of the Merger transaction between Microvast, Inc. and Tuscan, the share, per share value and net loss per share available to Microvast Inc.’s common stockholders in the financial statements for each of the two years ended December 31, 2021 were retroactively recast to reflect the exchange ratio established in the Merger Agreement.
Upon the completion of the Merger transaction between Microvast, Inc. and Tuscan, the share, per share value and net loss per share available to Microvast Inc.’s common stockholders in the financial statements for each of the year ended December 31, 2021 were retroactively recast to reflect the exchange ratio established in the Merger Agreement. Refer to Note 3 for details.
Common equivalent stock are calculated based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. Common equivalent stock are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive.
Common equivalent stock are calculated based on the most advantageous conversion rate or exercise price from the standpoint of the security holder. Common equivalent stock are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares would be anti-dilutive. F-20 Table of Contents MICROVAST HOLDINGS, INC.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

142 edited+76 added−31 removed381 unchanged
Biggest changeIn such a case, the trading price of our securities could decline. 13 Table of Conte n t s Risk Factors Summary Below is a summary of material factors that make an investment in our common stock speculative or risky: Risks Related to Our Business and Industry • Our future growth depends upon the willingness of commercial vehicle and specialty vehicle operators and consumers to adopt electric vehicles, and the availability of alternative technology. • Certain components of our batteries pose safety risks that may cause accidents, which could lead to liability to us, cause delays in manufacturing of our product and/or adversely affect market acceptance. • We have a limited customer base and depend on a small number of customers for a significant portion of our revenues to date and this dependence is likely to continue. • We have a limited operating history and have incurred losses in the operation of our business and anticipate that we will continue to incur losses in the future.
Biggest changeRisk Factors Summary Below is a summary of material factors that make an investment in our common stock speculative or risky: Risks Related to Our Business and Industry • There is substantial doubt regarding our ability to continue as a going concern. • We may be unable to meet our current capital requirements and will require additional capital to meet our outstanding accounts payable and current liabilities. • We may be unable to meet our future capital requirements and we may require additional capital to support business growth, and this capital might not be available on acceptable terms, or at all. • Because substantially all of our revenues are currently derived from outside of the U.S. and the significant costs and restrictions associated with the repatriation of cash from our non-U.S. operations, we may not have sufficient cash flow to cover our liabilities, which may result in a material adverse effect on the Company's business. • With a limited operating history and ongoing losses, achieving or sustaining profitability remains uncertain. • Our business and our ability to complete the Clarksville Phase 1A expansion could be adversely affected by mechanics liens filed by contractors that we do not have sufficient funds to pay. • Our future growth depends upon the willingness of commercial vehicle and specialty vehicle operators and consumers to adopt electric vehicles, and the availability of alternative technology. • Some battery components pose safety risks, potentially causing accidents that could lead to liability, manufacturing delays, and negatively impact market acceptance. • We primarily produce and sell lithium-based battery systems.
Under Circular 43, both direct listing and indirect listing activities of China based enterprises will become subject to a unified filing requirement with the CSRC. We do not believe this Circular is applicable to Microvast and we believe that jurisdiction for how we conduct our offerings in the U.S. solely rests with the SEC.
Under Circular 43, both direct listing and indirect listing activities of China based enterprises will become subject to a unified filing requirement with the CSRC. We do not believe this Circular is applicable to Microvast and we believe the jurisdiction for how we conduct our offerings in the U.S. solely rests with the SEC.
In October 2022, we were notified by the 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.
In October 2022, we were notified by the 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.
These risks include: • localization of the marketing and deployment of our products; • lack of familiarity with, and burdens of, complying with foreign laws, legal and commercial standards, regulatory requirements, export requirements, tariffs and other barriers, including laws related to employment or labor; • conforming our products to various international regulatory and safety requirements where our products are sold, or homologation; • difficulty in establishing, staffing and managing foreign operations; • difficulties attracting customers in new jurisdictions; • difficulty in engaging and retaining distributors that are knowledgeable about, and can function effectively, in overseas markets; • management, communication and integration problems resulting from cultural or language differences and geographic dispersion; • different pricing environments, longer sales cycles and longer accounts receivable payment cycles and collections issues; • increased costs associated with maintaining marketing efforts in various countries; • new and different sources of competition; • increased financial accounting and reporting burdens and complexities; • diversion of our management’s attention and resources to explore, negotiate, or close acquisitions and to integrate, staff and manage geographically remote operations and employees; • sufficiency of qualified labor pools in various international markets; 27 Table of Conte n t s • foreign government taxes, currency controls, regulations and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in the U.S., and foreign tax and other laws limiting our ability to repatriate funds to the U.S.; • changes in global currency systems or fluctuations in exchange rates that may increase the volatility of or adversely affect our foreign-based revenue; • our ability to enforce our contractual rights; • compliance with anti-corruption laws, economic sanction laws and regulations, anti-tax laws, export controls and other laws and regulations regarding international business operations; • foreign government trade restrictions, customs regulations, tariffs and price or exchange controls; • preferences of foreign nations for domestically produced products; • uncertain political and economic climates; and • inability to obtain, maintain or enforce intellectual property rights in some countries.
These risks include: • localization of the marketing and deployment of our products; • lack of familiarity with, and burdens of, complying with foreign laws, legal and commercial standards, regulatory requirements, export requirements, tariffs and other barriers, including laws related to employment or labor; • conforming our products to various international regulatory and safety requirements where our products are sold, or homologation; • difficulty in establishing, staffing and managing foreign operations; • difficulties attracting customers in new jurisdictions; • difficulty in engaging and retaining distributors that are knowledgeable about, and can function effectively, in overseas markets; • management, communication and integration problems resulting from cultural or language differences and geographic dispersion; • different pricing environments, longer sales cycles and longer accounts receivable payment cycles and collections issues; • increased costs associated with maintaining marketing efforts in various countries; • new and different sources of competition; • increased financial accounting and reporting burdens and complexities; • diversion of our management’s attention and resources to explore, negotiate, or close acquisitions and to integrate, staff and manage geographically remote operations and employees; • sufficiency of qualified labor pools in various international markets; 29 Table of Contents • foreign government taxes, currency controls, regulations and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in the U.S., and foreign tax and other laws limiting our ability to repatriate funds to the U.S.; • changes in global currency systems or fluctuations in exchange rates that may increase the volatility of or adversely affect our foreign-based revenue; • our ability to enforce our contractual rights; • compliance with anti-corruption laws, economic sanction laws and regulations, anti-tax laws, export controls and other laws and regulations regarding international business operations; • foreign government trade restrictions, customs regulations, tariffs and price or exchange controls; • preferences of foreign nations for domestically produced products; • uncertain political and economic climates; and • inability to obtain, maintain or enforce intellectual property rights in some countries.
Other factors may influence the adoption of electric vehicles, including, but not limited to: 15 Table of Conte n t s • perceptions about electric vehicle quality, design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles; • perceptions about electric vehicle quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles; • volatility in sales of electric vehicles; • perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced technology, including vehicle electronics and regenerative braking systems; • negative perceptions of electric vehicles, such as that they are more expensive than non-electric vehicles and are only affordable with government subsidies or that they have failed to meet customer expectations; • the limited range over which electric vehicles may be driven on a single battery charge and the effects of weather on this range; • the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge; • concerns about electric charging infrastructure availability and reliability, which could derail past and present efforts to promote electric vehicles as a practical solution to vehicles which require gasoline; • concerns about charging station standardizations, convenience and cost influencing consumers’ perceptions regarding the convenience of electric vehicle charging stations; • concerns of potential customers about the susceptibility of battery packs to damage from improper charging, as well as the lifespan of battery packs and the cost of their replacement; • concerns regarding comprehensive insurance coverage related to electric vehicles; • developments in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, which could adversely affect sales of electric vehicles; • the environmental consciousness of consumers; • the availability and volatility in the cost of natural gas, diesel, coal, oil, gasoline and other fuels relative to electricity; • the availability of tax and other government incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles; • concerns regarding the value and costs for upkeep of electric vehicles in the used car market; • the availability of enough skilled labor in after-sale services; and • macroeconomic factors.
Other factors may influence the adoption of electric vehicles, including, but not limited to: • perceptions about electric vehicle quality, design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles; • perceptions about electric vehicle quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles; • volatility in sales of electric vehicles; • perceptions about vehicle safety in general, in particular safety issues that may be attributed to the use of advanced technology, including vehicle electronics and regenerative braking systems; • negative perceptions of electric vehicles, such as that they are more expensive than non-electric vehicles and are only affordable with government subsidies or that they have failed to meet customer expectations; • the limited range over which electric vehicles may be driven on a single battery charge and the effects of weather on this range; • the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge; • concerns about electric charging infrastructure availability and reliability, which could derail past and present efforts to promote electric vehicles as a practical solution to vehicles which require gasoline; • concerns about charging station standardizations, convenience and cost influencing consumers’ perceptions regarding the convenience of electric vehicle charging stations; • concerns of potential customers about the susceptibility of battery packs to damage from improper charging, as well as the lifespan of battery packs and the cost of their replacement; • concerns regarding comprehensive insurance coverage related to electric vehicles; • developments in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, which could adversely affect sales of electric vehicles; • the environmental consciousness of consumers; • the availability and volatility in the cost of natural gas, diesel, coal, oil, gasoline and other fuels relative to electricity; • the availability of tax and other government incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles; • concerns regarding the value and costs for upkeep of electric vehicles in the used car market; • the availability of enough skilled labor in after-sale services; and • macroeconomic factors.
Risks Related to Ownership of Common Stock • We may issue additional shares of common stock or other equity securities, which may depress the market price of common stock. • Resales of our common stock may cause the market price of our securities to drop significantly, even if our business is doing well. • Even though the warrants have become exercisable, there is no guarantee that the warrants will be in the money prior to their expiration, and they may expire worthless. • The Tuscan Group (as defined below) is likely to make a substantial profit even if the trading price of our common stock materially declines due to the nominal purchase price Tuscan paid for the Founder Shares (as defined below).
Risks Related to Ownership of Common Stock • We may issue additional shares of common stock or other equity securities, which may depress the market price of common stock. 14 Table of Contents • Resales of our common stock may cause the market price of our securities to drop significantly, even if our business is doing well. • Even though the warrants have become exercisable, there is no guarantee that the warrants will be in the money prior to their expiration, and they may expire worthless. • The Tuscan Group (as defined below) is likely to make a substantial profit even if the trading price of our common stock materially declines due to the nominal purchase price Tuscan paid for the Founder Shares (as defined below).
Recently, cost inflation stemming from the COVID-19 pandemic, the Ukraine/Russia crisis and other macroeconomic factors has caused prices to increase across various sectors of the economy and we have been impacted by increases in the prices of our raw materials and other associated manufacturing costs.
Recently, cost inflation stemming from the COVID-19 pandemic, the Ukraine/Russia crisis, the Israel/Hamas crisis, and other macroeconomic factors has caused prices to increase across various sectors of the economy and we have been impacted by increases in the prices of our raw materials and other associated manufacturing costs.
These risks include, among other things, possible liability relating to product liability matters, personal injuries, intellectual property rights, contract-related claims, government contracts, health and safety liabilities, environmental matters and compliance with U.S. and foreign laws, competition laws and laws governing improper business practices.
These risks include, among other things, possible liability relating to product liability matters, securities law matters, personal injuries, intellectual property rights, contract-related claims, government contracts, health and safety liabilities, environmental matters and compliance with U.S. and foreign laws, competition laws and laws governing improper business practices.
In addition, we may not receive adequate assistance from OEMs to successfully commercialize our products, which could impair our results of operations. Under certain circumstances, our customers can cancel or terminate their contracts. We have ongoing arrangements with our customers and target customers.
In addition, we may not receive adequate assistance from OEMs to successfully commercialize our products, which could impair our results of operations. Under certain circumstances, our customers can modify or terminate their contracts. We have ongoing arrangements with our customers and target customers.
If we fail to comply with any of the present or future environmental regulations in any material aspect or cause any loss to any third parties due to our pollutant emission practices, improper handling of hazardous waste or other environmental noncompliance, we may suffer from negative publicity and may be required to pay substantial fines, pay damages to such third parties, or suspend or even cease operations.
If we fail to comply with any of the present or future environmental regulations in any material aspect or cause any loss to any third parties due to our pollutant emission practices, improper handling of hazardous waste or other environmental noncompliance, we may suffer from negative publicity and may be required to pay substantial fines, pay damages to such third parties, or suspend or even cease 33 Table of Contents operations.
In particular, we have experienced rising costs for raw materials such as polyvinylidene difluoride, lithium salts and carbonates. At this time, there can be no assurance that we will be able to pass any portion of such increases on to customers. Further, we currently do not hedge against our exposure to changing raw material prices.
In particular, we have experienced rising costs or volatility in the prices for raw materials such as polyvinylidene difluoride, lithium salts and carbonates. At this time, there can be no assurance that we will be able to pass any portion of such increases on to customers. Further, we currently do not hedge against our exposure to changing raw material prices.
In the future, we expect to obtain financing or to further increase our capital resources by issuing additional shares of our capital stock or offering debt or other equity securities, including senior or subordinated notes, debt securities convertible into equity, or shares of preferred stock.
In the future, we may obtain financing or to further increase our capital resources by issuing additional shares of our capital stock or offering debt or other equity securities, including senior or subordinated notes, debt securities convertible into equity, or shares of preferred stock.
These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the funding of our China operations or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our shares.
These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operating privileges in China, delay or restrict the funding of our China 41 Table of Contents operations or take other actions that could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading price of our shares.
Any such injuries, damages or investigations could lead to liability to us, cause delays in the manufacturing of our product and/or adversely affect market acceptance which could adversely affect our operations and financial condition. Our manufacturing process incorporates pulverized solids, which can be toxic to employees when allowed to become airborne in high concentrations.
Any such injuries, damages or investigations could lead to liability to us, cause delays in the manufacturing of our product and/or adversely affect market acceptance which could adversely affect our operations and financial condition. 19 Table of Contents Our manufacturing process incorporates pulverized solids, which can be toxic to employees when allowed to become airborne in high concentrations.
We currently purchase certain key raw mat erials for our electrodes and a variety of other components from third parties, some of which we only source from one supplier or from a limited number of suppliers. For the years ended December 31, 2020, 2021 and 2022, we purchased 12%, 12% and 18% of our raw materials from one supplier.
We currently purchase certain key raw mat erials for our electrodes and a variety of other components from third parties, some of which we only source from one supplier or from a limited number of suppliers. For the years ended December 31, 2021, 2022 and 2023, we purchased 12%, 18% and 15% of our raw materials from one supplier.
According to the PRC corporate law, our Chinese subsidiaries are required to set aside at least 10% of our after-tax profit based on the PRC accounting standards and regulations each year to our statutory surplus reserve, until the balance in the reserve reaches 50% of the registered capital of each of our Chinese subsidiaries.
According to the PRC corporate law, our Chinese subsidiaries are required to set aside at least 10% of our after-tax profit based on the PRC accounting standards and regulations each year to our statutory surplus reserve, until the balance in the reserve reaches 50% of the registered capital of each of our 40 Table of Contents Chinese subsidiaries.
We have determined that a tab component manufactured by a third-party and included in one of our legacy products was defective and has caused us to accrue additional warranty cost of approximately $46.5 million as of December 31, 2021 .
We have determined that a tab component manufactured by a third- 25 Table of Contents party and included in one of our legacy products was defective and has caused us to accrue additional warranty cost of approximately $46.5 million as of December 31, 2021 .
Wu beneficially owns at least 10% of the total voting power of all the then outstanding shares of stock of the Company entitled to vote generally in the election of directors, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; • the limitation that directors on the Board may only be removed for a cause and only upon the affirmative vote of the holders of at least a majority of the total voting power of all the then outstanding shares of stock of the Company entitled to vote generally in the election of directors, voting together as a single class; 45 Table of Conte n t s • the election that the Company will not be governed by Section 203 of the DGCL, which will prohibit the Company from taking certain actions involving an “interested stockholder” for a certain period of time; • the requirement that any amendment to the Charter will be approved by (i) the holders of 75% of the total voting power of all the then outstanding shares of stock of the Company entitled to vote generally in the election of directors, so long as Mr.
Wu beneficially owns at least 10% of the total voting power of all the then outstanding shares of stock of the Company entitled to vote generally in the election of directors, which could delay the ability of stockholders to force consideration of a proposal or to take action, including the removal of directors; • the limitation that directors on the Board may only be removed for a cause and only upon the affirmative vote of the holders of at least a majority of the total voting power of all the then outstanding shares of stock of the Company entitled to vote generally in the election of directors, voting together as a single class; • the election that the Company will not be governed by Section 203 of the DGCL, which will prohibit the Company from taking certain actions involving an “interested stockholder” for a certain period of time; 47 Table of Contents • the requirement that any amendment to the Charter will be approved by (i) the holders of 75% of the total voting power of all the then outstanding shares of stock of the Company entitled to vote generally in the election of directors, so long as Mr.
Our ability to substantially increase our manufacturing output is subject to significant constraints and uncertainties, including: • delays by our suppliers and equipment vendors and cost overruns as a result of a number of factors, many of which may be beyond our control, such as increases in raw material prices and problems with equipment vendors; • delays in the government approval process or denial of required approvals by relevant government authorities; • diversion of significant management attention and other resources; and • failure to execute our expansion plan effectively.
Our ability to substantially increase our manufacturing output is subject to significant constraints and uncertainties, including: • failure to execute our expansion plan effectively; • delays by our suppliers and equipment vendors and cost overruns as a result of a number of factors, many of which may be beyond our control, such as increases in raw material prices and problems with equipment vendors; • delays in the government approval process or denial of required approvals by relevant government authorities; • diversion of significant management attention and other resources; and • capital constraints and/or the terms on which capital is available to us.
Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or defend patents issued to us or our other intellectual property rights or to determine the enforceability, scope and validity of our proprietary rights or those of others.
Furthermore, policing 43 Table of Contents unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or defend patents issued to us or our other intellectual property rights or to determine the enforceability, scope and validity of our proprietary rights or those of others.
Nevertheless, we may never achieve commercial success with our ESS container. We have limited historical financial data upon which we may base our projected revenue and operating expenses. Accordingly, we continue to be subject to many of the risks inherent in business development, financing, unexpected expenditures, and complications and delays that often occur in a new business.
It is possible we may never achieve commercial success with our ESS container. We have limited historical financial data upon which we may base our projected revenue and operating expenses. Accordingly, we continue to be subject to many of the risks inherent in business development, financing, unexpected expenditures, and complications and delays that often occur in a new business.
Some of these arrangements are evidenced by non-binding letters of intent and memoranda of understanding, early-stage agreements that are used for design and development purposes but will require renegotiation at later stages of development or production or master agreements that have yet to be implemented under separately negotiated statements of work, each of which could be terminated or may not materialize into next-stage contracts or long-term contract partnership arrangements.
Some of these arrangements are evidenced by non-binding letters of intent and memoranda of understanding, early-stage agreements that are used for design and development purposes but will require renegotiation at later stages of development or production or master agreements that have yet to be implemented under separately negotiated statements of work, each of which could be modified to reduce the size of the project, terminated or may not materialize into next-stage contracts or long-term contract partnership arrangements.
Our sales in Russia represented less than 1% of our total revenue in 2022 and due to the ongoing military conflict in Ukraine we will not be active in the Russian market until there has been a peaceful resolution.
Our sales in Russia represented 0% and less than 1% of our total revenue in 2023 and 2022, respectively, and due to the ongoing military conflict in Ukraine we will not be active in the Russian market until there has been a peaceful resolution.
Such systems could also be subject to break-ins, sabotage and intentional acts of vandalism, as well as disruptions and security incidents as a result of non-technical issues, including intentional or inadvertent acts or omissions by employees, service providers, or others.
Such systems could also be subject to break-ins, sabotage and intentional acts of vandalism, as well as disruptions and security incidents as a result of non-technical issues, including intentional or inadvertent acts or omissions 36 Table of Contents by employees, service providers, or others.
Technical problems may arise that affect the acceptance of our product by the OEMs. If we are unable to design and develop products that meet the OEMs’ requirements, we may lose opportunities to obtain purchase orders, and our reputation may be damaged.
Technical problems may arise that affect the acceptance of our product by the OEMs. If we are unable to design and develop products that meet the OEMs’ requirements, we may lose 26 Table of Contents opportunities to obtain purchase orders, and our reputation may be damaged.
To the extent the laws become more stringent or otherwise change, our components or the vehicles into which they are incorporated may not comply with applicable international, federal, state or local laws, which would have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming, and expensive.
To the extent the laws become more stringent or otherwise change, our components or the vehicles into which they are incorporated may not comply with applicable international, federal, state or local laws, which would have an 32 Table of Contents adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming, and expensive.
We may not be able to obtain additional financing on terms favorable to us, if at all. Moreover, rising interest rates may further increase the costs of obtaining additional capital to meet our requirements.
We may not be able to obtain additional financing on terms favorable to us, if at all. Moreover, rising interest rates may further increase the costs of 16 Table of Contents obtaining additional capital to meet our requirements.
However, there is no guarantee that the warrants will ever be in the money prior to their expiration, and as such, the warrants may expire worthless. 43 Table of Conte n t s Further, on October 1, 2021, we filed a registration statement with the SEC on Form S-8 providing for the registration of shares of common stock issued or reserved for issuance under the Microvast Holdings, Inc. 2021 Equity Incentive Plan (the “2021 Plan”).
However, there is no guarantee that the warrants will ever be in the money prior to their expiration, and as such, the warrants may expire worthless. 45 Table of Contents Further, on October 1, 2021, we filed a registration statement with the SEC on Form S-8 providing for the registration of shares of common stock issued or reserved for issuance under the Microvast Holdings, Inc. 2021 Equity Incentive Plan (the “2021 Plan”).
Our future success heavily depends on the continued service of our senior executives and other key employees. In particular, we rely on the expertise and experience of our Chairman, Chief Executive Officer and President, Mr. Yang Wu, our Chief Financial Officer, Mr. Craig Webster and our Chief Technology Officer, Dr. Wenjuan Mattis.
Our future success heavily depends on the continued service of our senior executives and other key employees. In particular, we rely on the expertise and experience of our Chairman, Chief Executive Officer and President, Mr. Yang Wu, our Chief Revenue Officer, Sascha Rene Kelterborn, our Chief Financial Officer, Mr. Craig Webster and our Chief Technology Officer, Dr. Wenjuan Mattis.
Our general liability insurance may not be sufficient to cover potential liability from product liability claims. We currently have general liability insurance with an annual limit of up to approximately $89.9 million to cover liabilities arising from product liability claims or product recalls worldwide (excluding the U.S. and Canada), which may not be sufficient to cover potential liability claims.
Our general liability insurance may not be sufficient to cover potential liability from product liability claims. We currently have general liability insurance with an annual limit of up to approximately $78.7 million to cover liabilities arising from product liability claims or product recalls worldwide (excluding the U.S. and Canada), which may not be sufficient to cover potential liability claims.
To the extent that we choose not to use exemptions from various reporting requirements under the JOBS Act, we will incur additional compliance costs, which may impact our financial condition. 44 Table of Conte n t s Our Charter provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
To the extent that we choose not to use exemptions from various reporting requirements under the JOBS Act, we will incur additional compliance costs, which may impact our financial condition. 46 Table of Contents Our Charter provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders.
If our products manufactured from imported pa rts or components fail to meet the regulatory thresholds to qualify as “domestic origin” under the applicable regulations, we might be disqualified or otherwise precluded from supplying those products to customers that are subject to applicable “Buy America” requirements, or we might be liable to those customers for having 20 Table of Conte n t s failed to comply with certifications or representations that our products are “domestic origin,” each of which would likely adversely affect our business, prospects, financial condition and operating results.
If our products manufactured from imported pa rts or components fail to meet the regulatory thresholds to qualify as “domestic origin” under the applicable regulations, we might be disqualified or otherwise 23 Table of Contents precluded from supplying those products to customers that are subject to applicable “Buy America” requirements, or we might be liable to those customers for having failed to comply with certifications or representations that our products are “domestic origin,” each of which would likely adversely affect our business, prospects, financial condition and operating results.
Incurring significant expenses and distracting our personnel for an intellectual property-related proceeding could have a material adverse effect on our business, financial condition, results of operations and prospects. 42 Table of Conte n t s Risks Related to Ownership of Common Stock We may issue additional shares of common stock or other equity or convertible securities, which may depress the market price of common stock and could make it difficult for another company to acquire us.
Incurring significant expenses and distracting our personnel for an intellectual property-related proceeding could have a material adverse effect on our business, financial condition, results of operations and prospects. 44 Table of Contents Risks Related to Ownership of Common Stock We may issue additional shares of common stock or other equity or convertible securities, which may depress the market price of common stock and could make it difficult for another company to acquire us.
We have become subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed companies with significant operations in China, and we have and we may continue to expend significant resources to investigate and 39 Table of Conte n t s resolve the matter which could harm our business operations, stock price and reputation, especially if such matter cannot b e addressed and resolved favorably.
We have become subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed companies with significant operations in China, and we have and we may continue to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation, especially if such matter cannot b e addressed and resolved favorably.
The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, numerous competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors.
The market 17 Table of Contents for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, numerous competitors, evolving government regulation and industry standards, frequent new vehicle announcements and changing consumer demands and behaviors.
The Tuscan Group paid only a nominal aggregate purchase price of $25,000 for the Founder Shares, or approximately $0.004 per share, while the initial public offering (“IPO”) price of our common stock was $10.00 per share and the trading price of our common stock $1.20 as of March 10, 2023.
The Tuscan Group paid only a nominal aggregate purchase price of $25,000 for the Founder Shares, or approximately $0.004 per share, while the initial public offering (“IPO”) price of our common stock was $10.00 per share and the trading price of our common stock $0.767 as of March 25, 2024.
As standards emerge, such as those in China which include specifications for hardware, 23 Table of Conte n t s connecting equipment and service networks and standards for communication and inspection, compatibility of prior fast-charging stations envisioned in our CCT Plan could be made obsolete. We also incorporate materials manufactured by third parties into our products.
As standards emerge, such as those in China which include specifications for hardware, connecting equipment and service networks and standards for communication and inspection, compatibility of prior fast-charging stations envisioned in our CCT Plan could be made obsolete. We also incorporate materials manufactured by third parties into our products.
We anticipate using outsourced service providers to help provide certain services, and any such outsourced service providers face similar security and system disruption risks as we do. Some of the 34 Table of Conte n t s systems used in our business will not be fully redundant, and our disaster recovery planning cannot account for all eventualities.
We anticipate using outsourced service providers to help provide certain services, and any such outsourced service providers face similar security and system disruption risks as we do. Some of the systems used in our business will not be fully redundant, and our disaster recovery planning cannot account for all eventualities.
We believe that our financial statements reflect adequate reserves to cover such a contingency, but ther e can be no assurances in that regard. 33 Table of Conte n t s In addition, under several of the tax regimes under which we operate, related party transactions must be conducted on an arm’s-length basis.
We believe that our financial statements reflect adequate reserves to cover such a contingency, but ther e can be no assurances in that regard. In addition, under several of the tax regimes under which we operate, related party transactions must be conducted on an arm’s-length basis.
The trading volatility of our common stock may be due to a number of factors such as those listed in “ —Risks Related to our Business and Industry ” and “—Risks Related to doing Business in China” and the following: • our operating and financial performance and prospects; • our quarterly or annual earnings or those of other companies in our industry compared to market expectations; • conditions that impact demand for our products; • future announcements concerning our business, our product users’ businesses or our competitors’ businesses; • the public’s reaction to our press releases, other public announcements and filings with the SEC; • the market’s reaction to our reduced disclosure and other requirements as a result of being an “emerging growth company” under the JOBS Act; • the size of our public float; • coverage by or changes in financial estimates by securities analysts or failure to meet their expectations; • market and industry perception of our success, or lack thereof, in pursuing our growth strategy; • strategic actions by us or our competitors, such as acquisitions or restructurings; • changes in laws or regulations which adversely affect our industry or us; • changes in accounting standards, policies, guidance, interpretations or principles; • changes in senior management or key personnel; • issuances, exchanges or sales, or expected issuances, exchanges or sales of our capital stock; • changes in our dividend policy; • adverse resolution of new or pending litigation against us; • the impact of the COVID-19 pandemic on our financial condition and the results of operations; • the conflict between Russia and Ukraine and any restrictive actions that have been or may be taken by the U.S. and/or other countries in response thereto, such as sanctions or export controls; and 46 Table of Conte n t s • changes in general market, economic and political conditions in the U.S. and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events.
The trading volatility of our common stock may be due to a number of factors such as those listed in “ —Risks Related to our Business and Industry ” and “—Risks Related to doing Business in China” and the following: • our operating and financial performance and prospects; • our quarterly or annual earnings or those of other companies in our industry compared to market expectations; • conditions that impact demand for our products; • future announcements concerning our business, our product users’ businesses or our competitors’ businesses; • the public’s reaction to our press releases, other public announcements and filings with the SEC; • the market’s reaction to our reduced disclosure and other requirements as a result of being an “emerging growth company” under the JOBS Act; • the size of our public float; • coverage by or changes in financial estimates by securities analysts or failure to meet their expectations; • the issuance of short reports; • market and industry perception of our success, or lack thereof, in pursuing our growth strategy; • strategic actions by us or our competitors, such as acquisitions or restructurings; • changes in laws or regulations which adversely affect our industry or us; • changes in accounting standards, policies, guidance, interpretations or principles; • changes in senior management or key personnel; • issuances, exchanges or sales, or expected issuances, exchanges or sales of our capital stock; • changes in our dividend policy; • adverse resolution of new or pending litigation against us; • the impact of possible pandemics on our financial condition and the results of operations; • the conflict between Russia and Ukraine and the conflict in the Middle East between Israel and Hamas and any restrictive actions that have been or may be taken by the U.S. and/or other countries in response thereto, such as sanctions or export controls; and • changes in general market, economic and political conditions in the U.S. and global economies or financial markets, including those resulting from natural disasters, terrorist attacks, acts of war and responses to such events. 48 Table of Contents These broad market and industry factors may materially reduce the market price of common stock, regardless of our operating performance.
For instance, for the years ended December 31, 2020, 2021 and 2022, we derived 38.5%, 38.6% and 35.2%, respectively, of our sales from outside of China, including sales in the U.S., France, Germany, India, Singapore, the U.K., among others.
For instance, for the years ended December 31, 2021, 2022 and 2023, we derived 38.6%, 35.2% and 49.0%, respectively, of our sales from outside of China, including sales in the U.S., France, Germany, India, Singapore, the U.K., among others.
The uncertain nature, magnitude, and duration of hostilities stemming from Russia’s recent invasion of Ukraine, including the potential effects of sanctions limitations, possibility of counter-sanctions, retaliatory cyber-attacks on the world economy and markets, further disruptions to global supply chains and potential shipping delays, have contributed to increased market volatility and uncertainty, which could have an a dverse impact on macroeconomic factors that affect our business.
The uncertain nature, magnitude, and duration of hostilities stemming from Russia’s invasion of Ukraine, and the war between Israel and Hamas in the Middle East including the potential effects of sanctions limitations, possibility of counter-sanctions, retaliatory cyber-attacks on the world economy and markets, further disruptions to global supply chains and potential shipping delays, have contributed to increased market volatility and uncertainty, which could have an a dverse impact on macroeconomic factors that affect our business.
Expenses to upgrade equipment to more cutting-edge designs may be necessary, raising costs. New component materials developed through our vertically integrated manufacturing process may require new, advanced equipment to produce.
Expenses to upgrade equipment to more cutting-edge designs may be necessary, raising costs. 24 Table of Contents New component materials developed through our vertically integrated manufacturing process may require new, advanced equipment to produce.
Further, in connection with Russia’s invasion of Ukraine, the U.S., the E.U. and certain other governments around the world have responded by imposing various economic sanctions which restrict or prohibit certain business opportunities in Russia and Ukraine. These sanctions are complex and are rapidly evolving.
Further, in connection with Russia’s invasion of Ukraine and the war between Israel and Hamas in the Middle East, the U.S., the E.U. and certain other governments around the world have responded by imposing various economic sanctions which restrict or prohibit certain business opportunities in Russia, Ukraine, and in the Middle East. These sanctions are complex and are rapidly evolving.
General Risk Factors • Our lengthy and variable sales cycle makes it difficult for us to forecast our revenue and operating results. • We face risks related to health epidemics, including the COVID-19 pandemic, and geopolitical risks such as the Ukraine/Russia crisis, which could have a material adverse effect on our business and results of operations.
General Risk Factors • Our lengthy and variable sales cycle makes it difficult for us to forecast our revenue and operating results. • We face risks related to health epidemics and geopolitical risks such as the ongoing Ukraine and Russia crisis and the Israel and Hamas crisis, which could have a material adverse effect on our business and results of operations.
We spend substantial time and effort assisting potential customers in evaluating our products, 48 Table of Conte n t s including providing demonstrations and validation. Even after initial approval by appropriate decision-makers, the negotiation and documentation processes for the actual adoption of our products can be lengthy.
We spend substantial time and effort assisting potential customers in evaluating our products, including providing demonstrations and validation. Even after initial approval by appropriate decision-makers, the negotiation and documentation processes for the actual adoption of our products can be lengthy.
Risks Related to Our Business and Industry Our future growth depends upon the willingness of commercial-vehicle and specialty-vehicle operators and consumers to adopt electric vehicles. Our growth is highly dependent upon the adoption of electric vehicles by commercial-vehicle and specialty-vehicle operators and consumers.
Our future growth depends upon the willingness of commercial-vehicle and specialty-vehicle operators and consumers to adopt electric vehicles. Our growth is highly dependent upon the adoption of electric vehicles by commercial-vehicle and specialty-vehicle operators and consumers.
If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or the Company has breached certain legal obligations, resulting in a diversion of our time and resources. 25 Table of Conte n t s Our management has limited experience in operating a public company.
If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or the Company has breached certain legal obligations, resulting in a diversion of our time and resources. 27 Table of Contents Our management has limited experience in operating a public company.
In 28 Table of Conte n t s 2021, as a result of increases in the repairing cost and frequency of claims with respect to a certain legacy product sold in 2017 and 2018, we conducted an analysis and concluded that a particular component purchased from a supplier was not meeting our performance standards.
In 30 Table of Contents 2021, as a result of increases in the repairing cost and frequency of claims with respect to a certain legacy product sold in 2017 and 2018, we conducted an analysis and concluded that a particular component purchased from a supplier was not meeting our performance standards.
If we fail to adopt these new technologies, or develop new 18 Table of Conte n t s technologies of our own, such technologies may, if successfully developed by our competitors, offer significant performance or price advantages compared with our technologies and our technology leadership and competitive strengths may be adversely affected.
If we fail to adopt these new technologies, or develop new technologies of our own, such technologies may, if successfully developed by our competitors, offer significant performance or price advantages compared with our technologies and our technology leadership and competitive strengths may be adversely affected.
Therefore, if any government imposes more stringent 31 Table of Conte n t s regulations in the future, we will have to incur additional substantial costs and expenses in order to comply with new regulations, which may negatively affect our results of operations.
Therefore, if any government imposes more stringent regulations in the future, we will have to incur additional substantial costs and expenses in order to comply with new regulations, which may negatively affect our results of operations.
Even if we maintain adequate insurance, any successful claim could materially and adversely affect our reputation and prospects and divert management’s time and attention. If we are sued for any injury allegedly caused by our future products, our liability could exceed our total assets 32 Table of Conte n t s and our ability to pay such liability.
Even if we maintain adequate insurance, any successful claim could materially and adversely affect our reputation and prospects and divert management’s time and attention. If we are sued for any injury allegedly caused by our future products, our liability could exceed our total assets and our ability to pay such liability.
Biodiesel for trucks and specialty vehicles could become more commonplace, which would directly compete with our bus and specialty vehicle batteries, and which may result in decreased demand for our product. We mainly manufacture and market lithium-based battery systems.
Biodiesel for trucks and specialty vehicles could become more commonplace, which would directly compete with our bus and specialty vehicle batteries, and which may result in decreased demand for our product. We primarily produce and sell lithium-based battery systems.
Even though the warrants have become exercisable, there is no guarantee that the warrants will be in the money prior to their expiration, and they may expire worthless. The exercise price for our warrants is $11.50 per share of common stock, and the trading price of our common stock was $1.20 as of March 10, 2023.
Even though the warrants have become exercisable, there is no guarantee that the warrants will be in the money prior to their expiration, and they may expire worthless. The exercise price for our warrants is $11.50 per share of common stock, and the trading price of our common stock was $0.767 as of March 25, 2024.
Our international operations subject us to potentially adverse tax consequences. We generally conduct our international operations through wholly-owned subsidiaries, branches and representative offices and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions.
International operations could lead to complex and unfavorable tax outcomes. We generally conduct our international operations through wholly-owned subsidiaries, branches and representative offices and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Our intercompany relationships are subject to complex transfer pricing regulations administered by taxing authorities in various jurisdictions.
This expansion will impose significant added responsibilities on our senior management and our resources, including financial resources and the need to identify, recruit, maintain and integrate additional employees. Our expansion will also expose us to greater overhead and support costs and other risks associated with the manufacture and commercialization of new products.
In addition, expansion imposes significant added responsibilities on our senior management and our resources, including financial resources and the need to identify, recruit, maintain and integrate additional employees. Our expansion will also expose us to greater overhead and 18 Table of Contents support costs and other risks associated with the manufacture and commercialization of new products.
Due to our international business activities, any changes in the U.S. federal income taxation of such activities may increase our worldwide effective tax rate and adversely affect our financial position and results of operations. We could be subject to additional tax liabilities.
Due to our international business activities, any changes in the U.S. federal income taxation of such activities may increase our worldwide effective tax rate and adversely affect our financial position and results of operations. We may face unforeseen tax liabilities that could affect our financial health.
The impact of COVID-19, including changes in consumer and business behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity.
For example, the COVID-19 pandemic caused changes in consumer and business behavior, pandemic fears and market downturns, and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity.
Despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. In addition, the issuance of a patent does not ensure that it is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties.
Despite our efforts, unauthorized parties may still access and use our proprietary information. In addition, the issuance of a patent does not ensure that it is valid or enforceable, so even if we obtain patents, they may not be valid or enforceable against third parties.
We may not be able to substantially increase our manufacturing output in order to fulfill orders from our customers. We have expanded and expect to continue to expand our battery manufacturing capacity to meet the expected demand for our products.
We may not be able to substantially increase our manufacturing output in order to fulfill orders from our customers. We have expanded and expect to continue to expand our battery manufacturing capacity to meet the expected demand for our products. Such expansion will require significant capital expenditures.
OEMs 24 Table of Conte n t s often require unique configurations or custom designs for battery systems. We tailor the design of our battery systems to the electric vehicles manufactured by our OEM customers.
OEMs often require unique configurations or custom designs for battery systems. We tailor the design of our battery systems to the electric vehicles manufactured by our OEM customers.
However, we have and intend to expand into new applications, including the recent development of our ESS container, and also have and continue to expand our customer demographic in 26 Table of Conte n t s order to further grow our business.
However, we have and intend to expand into new applications, 28 Table of Contents including the recent development of our ESS container, and also have and continue to expand our customer demographic in order to further grow our business.
Any political or trade controversies between the U.S. and the PRC and any future allegations or regulations might negatively impact us, whether or not directly related to our business, could affect investors’ willingness to hold or buy our stock and reduce the price of our common stock. Risks Related to our Intellectual Property We rely substantially on unpatented proprietary technologies.
Any political or trade controversies between the U.S. and the PRC and any future allegations or regulations might negatively impact us, whether or not directly related to our business, could affect investors’ willingness to hold or buy our stock and reduce the price of our common stock.
We could become subject to regulations issued by the Cyberspace Administration of China (“CAC”) and requirements of the PRC government’s cyber or data security laws. • Any future revocation of approvals or any future failure to obtain approvals applicable to our business or any adverse changes in foreign investment policies of the PRC government may have a material adverse impact on our business, financial condition and results of operations. • The PRC government may exert substantial influence over the manner in which we conduct our business operations in China. • China’s legal and judicial system may not adequately protect our business and operations and the rights of our investors. • Our securities may be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act (the "HFCAA") in the future if the Public Company Accounting Oversight Board (the 14 Table of Conte n t s "PCAOB") is unable to inspect or investigate completely auditors located in China.
Risks Related to Doing Business in China • Adverse policy changes by the People’s Republic of China (the “PRC”) government could negatively impact China’s economic growth and, consequently, our business growth and competitive position. • PRC government regulations significantly impact our Chinese operations, with changes potentially increasing costs or limiting activities.We could become subject to regulations issued by the Cyberspace Administration of China (“CAC”) and requirements of the PRC government’s cyber or data security laws. • Any future revocation of approvals or any future failure to obtain approvals applicable to our business or any adverse changes in foreign investment policies of the PRC government may have a material adverse impact on our business, financial condition and results of operations. • The PRC government may exert substantial influence over the manner in which we conduct our business operations in China. • China’s legal and judicial system may not adequately protect our business and operations and the rights of our investors. • Our securities may be prohibited from trading in the United States under the Holding Foreign Companies Accountable Act (the "HFCAA") in the future if the Public Company Accounting Oversight Board (the "PCAOB") is unable to inspect or investigate completely auditors located in China.
We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.
However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.
In some instances, we may have legal grounds to enforce our rights related to our patented technology, but may elect not to do so as a result of the cost of litigation or the limited value in enforcing our patent rights. We could incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.
In some instances, we may have legal grounds to enforce our rights related to our patented technology, but may elect not to do so as a result of the cost of litigation or the limited value in enforcing our patent rights. Infringement claims against us could lead to substantial costs.
Similarly, the Tuscan Group purchased 837,000 private warrants in our IPO for $1.00 per warrant. Based on the $1.20 trading price of our warrants as of March 10, 2023, the Tuscan Group could earn a potential profit of $0.20 per warrant if the Tuscan Group sold all of its warrants at the current trading price.
Similarly, the Tuscan Group purchased 837,000 private warrants in our IPO for $1.00 per warrant. Based on the $0.767 trading price of our warrants as of March 25, 2024, the Tuscan Group could incur a potential loss of $0.233 per warrant if the Tuscan Group sold all of its warrants at the current trading price.
We rely on our trademarks, service marks, trade names and brand names to distinguish our products from the products of our competitors and have registered or applied to register many of these trademarks.
We depend on our trademarks, service marks, trade names, and brand names to differentiate our products from competitors’ and have registered or applied to register many of these marks .
These broad market and industry factors may materially reduce the market price of common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of common stock is low. In the past, following periods of market volatility, stockholders have instituted securities class action litigation.
In addition, price volatility may be greater if the public float and trading volume of common stock is low. In the past, following periods of market volatility, stockholders have instituted securities class action litigation.
Furthermore, our failure to keep up with rapid technological changes and evolving industry standards within the lithium-based battery market may cause our products to become obsolete and less marketable, resulting in loss of market share to our competitors. We mainly manufacture and market lithium-based battery systems.
Furthermore, our failure to keep up with rapid technological changes and evolving industry standards within the lithium-based battery market may cause our products to become obsolete and less marketable, resulting in loss of market share to our competitors. Our focus is on lithium-based battery systems, driven by our belief in their growth potential.
Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, results of operations or prospects.
Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition, results of operations or prospects. In such a case, the trading price of our securities could decline.
PRC regulations relating to foreign ownership in the power battery manufacturing industry, including the manufacturing of our current main products, have been revised periodically over the past decade. Under the current regulatory regime, there are no foreign ownership restrictions over the manufacture of power batteries.
PRC regulations relating to foreign ownership in the power battery manufacturing industry, including the manufacturing of our current main products, have been revised periodically over the past decade.
If the charging stations are not made available or are no longer compatible, the implementation of our strategy and our business and our operating results may be adversely affected. If emerging standards in charging station networks are not compatible with our current products or in-development products and technologies, we may miss market opportunities and our financial performance will suffer.
If the charging stations are not made available or are no longer compatible, the implementation of our strategy and our business and our operating results may be adversely affected. Incompatibility of emerging charging standards with our products could miss market opportunities, impacting financial performance.
Pricing and availability of raw materials for use in our business can be volatile due to numerous factors beyond our control, including general, domestic, and international economic conditions, labor costs, production levels, competition, consumer demand, import duties, and tariffs, inflation and currency exchange rates.
Volatility in raw material prices and availability can impact our business and finances. Due to numerous factors beyond our control, including general, domestic, and international economic conditions, labor costs, production levels, competition, consumer demand, import duties, and tariffs, inflation and currency exchange rates.
We may never achieve or sustain profitability. • We may be unable to meet our future capital requirements, which could limit our ability to grow and have a material adverse effect on our financial position and results of operations. • We may incur significant costs as a result of the warranties we supply with our products and services. • Our failure to increase our manufacturing output and cost-effectively manufacture our batteries in quantities which satisfy our customers’ demand and product specifications and their expectations for product quality and reliable delivery could damage our customer relationships and result in significant lost business opportunities for us. • Our planned expansion into new applications and new markets as we continue to expand our global presence pose additional risks which could adversely affect our business, financial condition and results of operations. • We rely on third parties to manufacture chargers and charging poles and to build charging stations that are necessary for using our products, and our ability to market our products depends on the establishment of charging station networks that meet the needs of our products . • We currently purchase certain key raw materials and components from third parties, some of which we only source from one supplier or from a limited number of suppliers. • Our business depends substantially on the continuing efforts of our senior executives and other key personnel, and our business may be severely disrupted if we lost their services. • Our management has limited experience in operating a public company. • Our batteries and our website, systems, and data we maintain may be subject to intentional disruption, other security incidents, or alleged violations of laws, regulations, or other obligations.
Should a viable alternative to lithium-based batteries emerge and gain market acceptance, it could significantly harm our business, financial health, and operational results. 13 Table of Contents • Our revenue heavily depends on a limited customer base, a trend likely to continue. • We have identified a material weakness in our internal controls over financial reporting. • We may incur significant costs as a result of the warranties we supply with our products and services. • Our failure to increase our manufacturing output and cost-effectively manufacture our batteries in quantities which satisfy our customers’ demand and product specifications and their expectations for product quality and reliable delivery could damage our customer relationships and result in significant lost business opportunities for us. • Our planned expansion into new applications and new markets as we continue to expand our global presence pose additional risks which could adversely affect our business, financial condition and results of operations. • We rely on third parties to manufacture chargers and charging poles and to build charging stations that are necessary for using our products, and our ability to market our products depends on the establishment of charging station networks that meet the needs of our products. • We currently purchase certain key raw materials and components from third parties, some of which we only source from one supplier or from a limited number of suppliers. • Losing our senior executives or key personnel could severely disrupt our business. • Our management has limited experience in operating a public company. • Our batteries and our website, systems, and data we maintain may be subject to intentional disruption, other security incidents, or alleged violations of laws, regulations, or other obligations. • Cyberattacks or risks related to cybersecurity could have a material effect on our business.
We incurred a net loss of approximately $158.2 million for the year ended December 31, 2022, and an accumulated deficit of approximately $791.2 million since our inception in 2006 through the year ended December 31, 2022.
We incurred a net loss of approximately $106.4 million for the year ended December 31, 2023, and an accumulated deficit of approximately $897.5 million since our inception in 2006 through the year ended December 31, 2023.
For example, the validity, enforceability and scope of protection available under the relevant intellectual property laws in China is uncertain and still evolving. Implementation and enforcement of PRC intellectual property-related laws has historically been deficient and ineffective. Accordingly, the protection of intellectual property rights in China may not be as effective as in the U.S. or other developed countries.
Implementation and enforcement of PRC intellectual property-related laws has historically been deficient and ineffective. Accordingly, the protection of intellectual property rights in China may not be as effective as in the U.S. or other developed countries.
For example, on August 16, 2021, we filed a Form 12b-25 stating that we and our independent registered public accounting firm required additional time to complete and review our quarterly report on Form 10-Q for the quarter ended June 30, 2021.
For example, on March 15, 2024, we filed a Form 12b-25 stating that we required additional time to complete this annual report on Form 10-K, and on August 16, 2021, we filed a Form 12b-25 stating that we required additional time to complete our quarterly report on Form 10-Q for the quarter ended June 30, 2021.
Our foreign currency exchange losses may also be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies. As a result, fluctuations in exchange rates may have a material adverse effect on our financial condition.
Our foreign currency exchange losses may also be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies. As a result, fluctuations in exchange rates may have a material adverse effect on our financial condition. U.S. tax law changes on international activities could significantly affect our finances and operational results.
Credit volatility could impact our working capital for manufacturing or result in cost changes or interruptions to suppliers whose components we rely upon if we are unable to access the needed credit for our operations.
The uncertainty in global economic conditions varies by geographic segment and can result in substantial volatility in global credit markets. Credit volatility could impact our working capital for manufacturing or result in cost changes or interruptions to suppliers whose components we rely upon if we are unable to access the needed credit for our operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeResearch and development Leased Clarksville, Tennessee United States 577,000 sq. ft. on 82 acres Manufacturing (cell, module and pack), testing, warehouse, sales, administrative offices Owned Denver, Colorado United States 24,993 sq.ft. on 6.76 acres ESS headquarters, administrative offices Owned Berlin Germany 185,000 sq. ft. on 9 acres European headquarters, administrative offices, manufacturing (module and pack), testing, warehouse, sales, after sales-service Leased London United Kingdom 4,990 sq. ft.
Biggest changeResearch and development Leased Clarksville, Tennessee United States 577,000 sq. ft. on 82 acres Manufacturing (cell, module and pack), testing, warehouse, sales, administrative offices Owned Windsor, Colorado United States 99,536 sq.ft on 5.324 acres Manufacturing (ESS Assembling), testing, warehouse Owned Timnath, Colorado United States 24,993 sq.ft. on 6.76 acres ESS headquarters, administrative offices Owned Berlin Germany 185,000 sq. ft. on 9 acres European headquarters, administrative offices, manufacturing (module and pack), testing, warehouse, sales, after sales-service Leased London United Kingdom 4,990 sq. ft.
ITEM 2. PROPERTIES Facilities Our corporate headquarters is located near Houston, Texas at 12603 Southwest Freeway, Suite 300, Stafford, Texas 77477. A summary of our physical properties as of December 31, 2022 follows in the table below. Location Country Approximate Size Function Owned / Leased Stafford, Texas United States 4,400 sq. ft.
ITEM 2. PROPERTIES Facilities Our corporate headquarters is located in Stafford, Texas at 12603 Southwest Freeway, Suite 300, Stafford, Texas 77477. A summary of our physical properties as of December 31, 2023 follows in the table below. Location Country Approximate Size Function Owned / Leased Stafford, Texas United States 4,400 sq. ft.
Manufacturing (other), testing, warehouse, sales, after-sales service, research and development, administrative offices, and canteen services Leased 50 Table of Conte n t s
Manufacturing (other), testing, warehouse, sales, after-sales service, research and development, administrative offices, and canteen services Leased 53 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeCommitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 51 Table of Conte n t s PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS For a description of our pending legal proceedings, please see Note 28. Commitments and Contingencies, to the consolidated financial statements included elsewhere in this Annual Report.
However, the results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation has the potential to have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. For a description of our pending legal proceedings, please see Note 28.
Regardless of the outcome, litigation has the potential to have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 54 Table of Contents PART II
Removed
ITEM 3. LEGAL PROCEEDINGS From time to time we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business.
Added
While the lawsuits are being vigorously defended, the outcome of any litigation is inherently uncertain, and there is always the possibility that a court rules in a manner that is adverse to the interests of the Company and the individual defendants. However, the amount of any such loss in that scenario cannot be reasonably estimated at this time.
Removed
Although the results of litigation and claims are inherently unpredictable and uncertain, we are not currently a party to any legal proceedings the outcome of which, if determined adversely to us, are believed to, either individually or taken together, have a material adverse effect on our business, operating results, cash flows or financial condition.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeNo further awards may be granted under the Stock Incentive Plan. 52 Table of Conte n t s (2) Represents shares issuable pursuant to the 2021 Plan.
Biggest changeNo further awards may be granted under the Stock Incentive Plan. 55 Table of Contents (2) Represents shares available for future issuance under the 2021 Plan.
Share-Based Payment, to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report. The following table sets forth, as of December 31, 2022, certain information related to our compensation plans under which shares of our common stock may be issued.
Share-Based Payment, to our audited consolidated financial statements included in Part II, Item 8 of this Annual Report. The following table sets forth, as of December 31, 2023, certain information related to our compensation plans under which shares of our common stock may be issued.
The following line graph compares the cumulative total stockholder return on our common stock with the cumulative total return of (i) our common stock, (ii) the NASDAQ Composite Index and (iii) the NASDAQ Clean Edge Green Energy Index Fund (QCLN) from March 27, 2019 to December 31, 2022.
The following line graph compares the cumulative total stockholder return on our common stock with the cumulative total return of (i) our common stock, (ii) the NASDAQ Composite Index and (iii) the NASDAQ Clean Edge Green Energy Index Fund (QCLN) from March 27, 2019 to December 31, 2023.
Holders of Common Stock As of March 10, 2023, there were approximately 127 registered holders of our common stock according to the records maintained by our transfer agent. Dividend Policy We currently intend to retain all available funds and any future earnings to fund the development and growth of our business.
Holders of Common Stock As of March 25, 2024, there were approximately 102 registered holders of our common stock according to the records maintained by our transfer agent. Dividend Policy We currently intend to retain all available funds and any future earnings to fund the development and growth of our business.
Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 60,466,526 (1) $ 6.08 16,490,228 (2) Equity compensation plans not approved by security holders — $ — — Total 60,466,526 16,490,228 (1) Includes 56,675,326 stock options and restricted stock units (“RSUs”) granted under the Microvast, Inc.
Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by security holders 60,226,882 (1) $ 6.01 16,729,872 (2) Equity compensation plans not approved by security holders — $ — — Total 60,226,882 16,729,872 (1) Includes (i) 56,675,326 stock options and restricted stock units (“RSUs”) granted under the Microvast, Inc.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeComparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2022 The following table sets forth our historical operating results for the periods indicated: Amounts in thousands December 31, 2021 2022 $ Change % Change Revenues 151,976 204,495 52,519 34.6 % Cost of revenues (194,719) (195,422) (703) 0.4 % Gross (loss) profit (42,743) 9,073 51,816 121.2 % (28.1) % 4.4 % Operating expenses: General and administrative expenses (101,632) (104,572) (2,940) 2.9 % Research and development expenses (34,385) (43,508) (9,123) 26.5 % Selling and marketing expenses (21,431) (22,611) (1,180) 5.5 % Total operating expenses (157,448) (170,691) (13,243) 8.4 % Subsidy income 6,127 1,672 (4,455) (72.7) % Operating loss (194,064) (159,946) 34,118 (17.6) % Other income and expenses: Interest income 446 3,179 2,733 612.8 % Interest expense (5,411) (3,323) 2,088 (38.6) % Other (expense) income, net (62) 944 1,006 (1622.6) % Loss on changes in fair value of convertible notes (9,861) — 9,861 (100.0) % Change in fair value of warrant liability 2,469 979 (1,490) (60.3) % Loss before income tax (206,483) (158,167) 48,316 (23.4) % Income tax expense — (33) (33) 100.0 % Net loss (206,483) (158,200) 48,283 (23.4) % Revenue Our revenue increased from approximately $152.0 million for the year ended December 31, 2021 to approximately $204.5 million for 2022 primarily driven by an increase in sales volume from approximately 489.2 MWh for year ended December 31, 2021 to approximately 694.2 MWh for the same period in 2022, which is due to the increase in the sales of battery cell products to new and existing customers in the Asia & Pacific region and the U.S.
Biggest changeDiscussions of 2021 items and year-to-year comparisons between 2021 and 2022 are not included in this Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K filed on March 16, 2023. 61 Table of Contents Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2023 The following table sets forth our historical operating results for the periods indicated: Amounts in thousands December 31, 2022 2023 $ Change % Change Revenues 204,495 306,617 102,122 49.9 % Cost of revenues (195,422) (249,390) (53,968) 27.6 % Gross profit 9,073 57,227 48,154 530.7 % 4.4 % 18.7 % Operating expenses: General and administrative expenses (104,572) (97,291) 7,281 (7.0) % Research and development expenses (43,508) (45,004) (1,496) 3.4 % Selling and marketing expenses (22,611) (23,614) (1,003) 4.4 % Total operating expenses (170,691) (165,909) 4,782 (2.8) % Subsidy income 1,672 1,953 281 16.8 % Operating loss (159,946) (106,729) 53,217 (33.3) % Other income and expenses: Interest income 3,179 3,609 430 13.5 % Interest expense (3,323) (2,628) 695 (20.9) % Other income/ (expense), net 944 (713) (1,657) (175.5) % Change in fair value of warrant liability 979 59 (920) (94.0) % Loss before income tax (158,167) (106,402) 51,765 (32.7) % Income tax expense (33) (10) 23 (69.7) % Net loss (158,200) (106,412) 51,788 (32.7) % Less: Net loss attributable to noncontrolling interest — (76) (76) 100.0 % Net loss attributable to Microvast Holdings, Inc.
Income tax in China is generally calculated at 25% of the estimated assessable profit of our subsidiaries in China, except that two of our subsidiaries in China are qualified as “High and New Tech Enterprises” and thus enjoy a preferential income tax rate of 15%. The federal corporate income tax rate of 21% is applied for our U.S. entity.
Income tax in China is generally calculated at 25% of the estimated assessable profit of our subsidiaries in China, except that two of our subsidiaries in China are qualified as “High and New Tech Enterprises” and thus enjoy a preferential income tax rate of 15%. The federal corporate income tax rate of 21% is applied for our U.S. entities.
Our income tax in the U.K. is calculated at an average tax rate of 19% of the estimated assessable profit of our subsidiary in the U.K. The 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.
Our income tax in the U.K. is calculated at an average tax rate of 19% of the estimated assessable profit of our subsidiary in the U.K. The German enterprise income tax, which is a combination of corporate income tax and trade tax, is calculated at 29.9% of the estimated assessable profit of our subsidiary in Germany.
We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenues of at least $1.235 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of our IPO; (c) the date on which we have, during the preceding three-year period, issued 64 Table of Conte n t s more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates is at least $700 million as of the last business day of our most recently completed second fiscal quarter.
We will remain an emerging growth company until the earliest of (a) the last day of the fiscal year during which we have total annual gross revenues of at least $1.235 billion; (b) the last day of our fiscal year following the fifth anniversary of the completion of our IPO; (c) the date on which we have, during the preceding three-year period, issued more than $1.0 billion in non-convertible debt; or (d) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates is at least $700 million as of the last business day of our most recently completed second fiscal quarter.
At the point of the loss recognition, a new, lower cost basis for those inventories is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. We recorded inventory impairment losses of $18.3 million and $4.8 million during the years ended December 31, 2021 and 2022, respectively.
At the point of the loss recognition, a new, lower cost basis for those inventories is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. We recorded inventory impairment losses of $4.8 million and $3.6 million during the years ended December 31, 2022 and 2023, respectively.
This cash outflow primarily consisted of $150.9 million 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, and $25.0 million of purchase of short-term investments. During the year ended December 31, 2021, cash used in investing activities totaled $87.9 million.
During the year ended December 31, 2022, cash used in investing activities totaled $175.9 million. This cash outflow primarily consisted of $150.9 million 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, and $25.0 million of purchase of short-term investments.
The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.
The JOBS Act provides that a company can choose not to take advantage of the extended transition 67 Table of Contents period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable.
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.
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.
Results of Operations This section of this Form 10-K generally discusses 2021 and 2022 items and year-to-year comparisons between 2021 and 2022.
Results of Operations This section of this Form 10-K generally discusses 2022 and 2023 items and year-to-year comparisons between 2022 and 2023.
Gain on change in fair value of warrant liability For the year ended December 31, 2022, we recorded a gain of $1.0 million due to the change in fair value of warrant liability compared to a gain of $2.5 million in the same period of 2021, primarily because of the fair value fluctuation of our warrants.
Gain on change in fair value of warrant liability For the year ended December 31, 2023, we recorded a gain of $0.1 million due to the change in fair value of warrant liability compared to a gain of $1.0 million in the same period of 2022, primarily because of the fair value fluctuation of our warrants.
Our most recent innovation is our high-energy nickel manganese 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.
Our most recent innovation is our high-energy nickel manganese cobalt (“NMC”) 53.5 ampere-hour battery cell (the “53.5Ah”), whose performance characteristics make it an ideal solution for commercial vehicle and ESS applications. To bring this product to market we have made significant investments in capacity expansion in Huzhou, China.
The convertible bonds are due in 2027. As of December 31, 2022, 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.
As of December 31, 2023, 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.
Should we need to repatriate to the U.S. part or all of the funds held by 60 Table of Conte n t s our international subsidiaries in the form of a dividend, we would need to accrue and pay withholding taxes.
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 have used $238.8 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, $54.3 million of the net proceeds were used for working capital as of December 31, 2022.
We have used $425.6 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, $132.8 million of the net proceeds were used for working capital as of December 31, 2023.
We monitor the inventory impairments periodically and, since battery technology continues to advance, we may incur inventory impairment losses in the future. 63 Table of Conte n t s Income Taxes We utilize the asset and liability method in accounting for income taxes.
We monitor the inventory impairments periodically and, since battery technology continues to advance, we may incur inventory impairment losses in the future. Income Taxes We utilize the asset and liability method in accounting for income taxes.
Research and Development R&D expenses for the year ended December 31, 2022 increased $9.1 million, or 26.5%, compared to the same period in 2021.
Research and Development R&D expenses for the year ended December 31, 2023 increased $1.5 million, or 3.4%, compared to the same period in 2022.
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 December 31, 2022, we had a backlog of approximately $410.5 million for our battery systems, equivalent to approximately 1,599.7 MWh.
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 December 31, 2023, we had a backlog of approximately $276.4 million for our battery systems, equivalent to approximately 1,637.9 MWh.
The consolidated net cash position as of December 31, 2022 included cash and cash equivalents of $1.3 million, $23.5 million and $0.5 million held by our China, German and UK subsidiaries, respectively, that is not available to fund domestic operations unless funds are repatriated.
The consolidated net cash position of $88.2 million as of December 31, 2023 included cash and cash equivalents of $22.3 million, $10.4 million and $0.2 million held by our China, German and UK subsidiaries, respectively, that is not available to fund domestic operations unless funds are repatriated.
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.
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.
For the year ended December 31, 2022, one customer accounted for 12% of our net revenues. In 2021, one customer accounted for 11% of our net revenues.
For the year ended December 31, 2023, two customers accounted for 18% and 11% of our net revenues. In 2022, one customer accounted for 12% of our net revenues.
Cash Flows The following table provides a summary of our cash flow data for the years indicated: Year Ended December 31, 2021 2022 Amount in thousands Net cash used in operating activities (45,039) (53,928) Net cash used in investing activities (87,862) (175,945) Net cash provided by financing activities 624,949 4,967 Cash Flows from Operating Activities During the year ended December 31, 2022, our operating activities used $53.9 million in cash.
Cash Flows The following table provides a summary of our cash flow data for the years indicated: Year Ended December 31, 2022 2023 Amount in thousands Net cash used in operating activities (53,928) (75,303) Net cash used in investing activities (175,945) (165,605) Net cash provided by financing activities 4,967 33,041 Cash Flows from Operating Activities During the year ended December 31, 2023, our operating activities used $75.3 million in cash.
Cash Flows from Investing Activities During the year ended December 31, 2022, cash used in investing activities totaled $175.9 million.
Cash Flows from Investing Activities During the year ended December 31, 2023, cash used in investing activities totaled $165.6 million.
Since 2009, when we launched our first ultra-fast battery system, we have sold and delivered approximately 3,347.9 megawatt hours (“MWh”) of battery systems. Our revenue for the year ended December 31, 2022, increased $52.5 million to $204.5 million, a 35% increase compared to the year ended December 31, 2021.
Since 2009, when we launched our first ultra-fast battery system, we have sold and delivered approximately 4,487.5 megawatt hours (“MWh”) of battery systems. Our revenue for the year ended December 31, 2023, increased $102.1 million to $306.6 million, a 50% increase compared to the year ended December 31, 2022.
Our subsidy income is non-recurring in nature. 57 Table of Conte n t s Other Income and Expenses Other income and expenses consist primarily of the 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.
Other Income and Expenses Other income and expenses consist primarily of the 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.
We establish a reserve for the estimated cost of the product warranty at the time revenue is recognized. The portion of the warranties we expect to incur within the next 12 months is recorded in accrued expenses and other current liabilities, while the remainder is recorded in other non-current liabilities on the consolidated balance sheets.
The portion of the warranties we expect to incur within the next 12 months is recorded in accrued expenses and other current liabilities, while the remainder is recorded in other non-current liabilities on the consolidated balance sheets.
The following table sets forth a breakdown of our revenue by the major geographic regions in which our customers are located for the periods indicated: Year ended December 31, 2021 2022 (In thousands) (In thousands) Revenue % Revenue % China 93,326 61 % 132,469 65 % Other Asia & Pacific countries 38,190 25 % 52,566 25 % Asia & Pacific Region $ 131,516 86 % $ 185,035 90 % Europe 19,542 13 % 15,809 8 % U.S. 918 1 % 3,651 2 % Total $ 151,976 100 % $ 204,495 100 % We have historically derived a portion of our revenue in a given reporting period from a limited number of key customers, which have varied from period to period.
The following table sets forth a breakdown of our revenue by the major geographic regions in which our customers are located for the periods indicated: Year ended December 31, 2022 2023 (In thousands) (In thousands) Revenue % Revenue % China 132,469 65 % 156,480 51 % Other Asia & Pacific countries 52,566 25 % 62,653 21 % Asia & Pacific Region $ 185,035 90 % $ 219,133 72 % Europe 15,809 8 % 84,358 27 % U.S. 3,651 2 % 3,126 1 % Total $ 204,495 100 % $ 306,617 100 % We have historically derived a portion of our revenue in a given reporting period from a limited number of key customers, which have varied from period to period.
General and Administrative General and administrative expenses for the year ended December 31, 2022 increased $2.9 million, or 2.9%, compared to the same period in 2021.
General and Administrative General and administrative expenses for the year ended December 31, 2023 decreased $7.3 million, or 7.0%, compared to the same period in 2022.
Estimated costs related to warranties are recorded in the period in which the related product sales occur. The warranty liability recorded at each balance sheet date reflects management’s best estimates of its product warranties based on historical information and other currently available evidence. Our product warranties generally range from one to eight years.
The warranty liability recorded at each balance sheet date reflects management’s best estimates of its product warranties based on historical information and other currently available evidence. Our product warranties generally range from one to eight years. We establish a reserve for the estimated cost of the product warranty at the time revenue is recognized.
The increase in R&D expenses was primarily due to (i) $3.9 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; (ii) $2.5 million of increased costs of materials used for experiments due to more testing activities, (iii) $0.9 million of increased share-based compensation expenses and (iv) other increases related to business expansion.
The increase in Research and Development was primarily due to $5.7 million of increased personnel-related expenses as we increased headcount in our research team as a result of our efforts to further develop and enhance our products, offset by $2.9 million of decreased share-based compensation expenses and $2.1 million of decreased costs of materials used for experiments.
Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these 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.
GAAP. The preparation of these 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.
This cash inflow was a result of $58.7 million proceeds from bank borrowings partially offset by $24.5 million repayment on bank borrowings and $29.2 million partial repayment on outstanding bonds. During the year ended December 31, 2021, cash provided by financing activities totaled $624.9 million.
Cash Flows from Financing Activities During the year ended December 31, 2023, cash generated by financing activities totaled $33.0 million. This cash inflow was a result of $47.8 million proceeds from bank borrowings partially offset by $14.1 million repayment on bank borrowings and $0.7 million partial repayment on outstanding bonds.
So far we have used $238.8 million of the proceeds from the Business Combination to expand our manufacturing facilities in order to increase our manufacturing output, enabling us to address our backlog and to capture growing market opportunities, and we plan to spend in the range of $180 million to $210 million during 2023 on continued expansions of our facilities in Huzhou, China and Clarksville, Tennessee.
So far we have used $425.6 million of the proceeds from the Business Combination to expand our manufacturing facilities in order to increase our manufacturing output, enabling us to address our backlog and to capture growing market opportunities.
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.
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.
This capacity expansion will be carried out in a measured manner based on our ongoing assessment of medium- and long-term demand for our solutions. 55 Table of Conte n t s 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.
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.
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.
This necessity stems from the premise that electric vehicles are truly green only if powered by green energy. Addressing this symbiotic relationship is at the heart of our research activities and we expect it will shape our strategies for the foreseeable future.
Subsidy Income Subsidy income decreased from $6.1 million for the year ended December 31, 2021 to $1.7 million in the same period in 2022, primarily due to a one-time award granted by local governments in China in 2021.
Subsidy Income Subsidy income increased from $1.7 million for the year ended December 31, 2022 to $2.0 million in the same period in 2023. The amounts are the one-time awards granted by local governments in 2022 and 2023.
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. We believe the following critical accounting policies involve a higher degree of judgment and complexity than our other accounting policies.
Our actual results could differ from these estimates. We believe the following critical accounting policies involve a higher degree of judgment and complexity than our other accounting policies. Therefore, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.
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.
We believe continuous investment in our technology and operations will deliver long-term targeted revenue and income growth. Through a vertically integrated approach, we have developed proprietary technologies spanning the entire battery system, from basic cell materials (cathode, anode, electrolyte, separator) to cooling systems and software controls.
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.
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.
Future capacity expansions, which are already being planned, 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.
Future capacity expansions, will require significant capital expenditures and will require a corresponding expansion of our supporting infrastructure, further development of our sales and marketing team, an expansion of our customer base and strengthened quality control. This capacity expansion will be carried out in a measured manner based on our ongoing assessment of medium- and long-term demand for our solutions.
Operating Expense Selling and Marketing Selling and marketing expenses for the year ended December 31, 2022 increased $1.2 million, or 5.5%, compared to the same period in 2021. The increase in selling and marketing expenses was primarily due to $0.7 million of increased share-based compensation expenses and other increases related to business expansion.
Operating Expense Selling and Marketing Selling and marketing expenses for the year ended December 31, 2023 increased $1.0 million, or 4.4%, compared to the same period in 2022.
Financings As of December 31, 2022, we had bank borrowings of $46.4 million, the terms of which range from three months to two years. The interest rates of our bank borrowings ranged from 4.50% to 4.80% per annum. As of December 31, 2022, we had convertible bonds of $43.9 million, with interest rates ranging from 3% to 4%.
The interest rates of our bank borrowings ranged from 3.40% to 4.60% per annum. As of December 31, 2023, we had convertible bonds of $43.2 million, with interest rates ranging from 3% to 4%. The convertible bonds are due in 2027.
As of December 31, 2022, we had an order backlog of approximately $410.5 million for our battery systems (the equivalent of approximately 1,599.7 MWh), nearly 90% of which is attributable to the U.S. and Europe. We expect to fulfill a majority of our backlog within 2023 and 2024.
As of December 31, 2023, our battery systems had an order backlog of about $276.4 million (equivalent to approximately 1,637.9 MWh), with nearly 84% attributable to Europe and the U.S.. We expect to fulfill a majority of our backlog within 2024 and 2025. Completion of the Business Combination On July 23, 2021, Microvast Holdings, Inc.
This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. 53 Table of Conte n t s The Business Microvast Holdings, Inc. is an advanced battery technology company headquartered near Houston, Texas, and is publicly traded on the NASDAQ stock exchange (the “NASDAQ”).
This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. 56 Table of Contents The Business Microvast Holdings, Inc., an advanced battery technology company, is headquartered in Stafford, Texas, and publicly traded on the NASDAQ. We design, develop and manufacture battery components and systems primarily for electric commercial vehicles and utility-scale energy storage systems (“ESS”).
Liquidity and Capital Resources Since inception, we have financed our operations primarily from capital contributions from equity holders, issuance of convertible notes and bank borrowings.
Liquidity and Capital Resources Since inception, we have financed our operations primarily from capital contributions from equity holders, issuance of convertible notes and bank borrowings. As of December 31, 2023, our principal sources of liquidity were our cash and cash equivalents, restricted cash and short-term investments in the amount of $93.8 million.
R&D expenses consist primarily of personnel-related expenses, including stock-based compensation, raw material expenses relating to materials used for experiments, utility expenses and depreciation expenses attributable to R&D activities. Over time, we expect our R&D expense to increase in absolute dollars as we continue to make significant investments in developing new products, applications, functionality and other offerings.
R&D expenses consist primarily of personnel-related expenses, including stock-based compensation, raw material expenses relating to materials used for experiments, utility expenses and depreciation expenses attributable to R&D activities.
(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.
(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. 57 Table of Contents Going Concern In accordance with Accounting Standards Codification (“ASC”) Topic 205-40, Going Concern, we evaluate whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern.
Therefore, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations. Product Warranty We provide product warranties, which entail the repair or replacement of non-conforming items, in conjunction with sales of products.
Product Warranty We provide product warranties, which entail the repair or replacement of non-conforming items, in conjunction with sales of products. Estimated costs related to warranties are recorded in the period in which the related product sales occur.
The increase in General and administrative expenses was primarily due to $7.8 million of increased share-based compensation expenses, $2.4 million of increased insurance fees after becoming a public company and other increases related to business expansion and other increases related to business expansion, offset by $6.9 million exchange gain and other expense saving.
The decrease in General and administrative expenses was primarily due to $23.4 million of decreased share-based compensation expenses, offset by $5.8 million of increased headcount, $3.3 million of increased IT and software expenses and other increases related to business expansion.
Components of Results of Operations Revenue 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 56 Table of Conte n t s Asia-Pacific region, we are also expanding our sales presence internationally.
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.
Capital expenditures and other contractual obligations Our future capital requirements will depend on many factors, including, but not limited to funding planned production capacity expansions and for general working capital. We believe the proceeds from the Business Combination will be sufficient to cover our planned expansions and our general working capital needs.
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.
As the component was not incorporated into other products, no additional accrual was made to other existing products sold. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method.
Warranty reserves are recorded as a cost of revenue. 66 Table of Contents Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method.
Our capital expenditures in 2021 and 2022 related primarily to the construction of manufacturing facilities under our expansion plans for our facilities in Clarksville, Tennessee and Huzhou, China. In 2021, we started our capacity expansion plans in Huzhou, China, Berlin, Germany and Clarksville, Tennessee.
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.
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. The exercise price for our outstanding warrants is $11.50 per share of common stock, and the trading price of our common stock was $1.20 as of March 10, 2023.
We expect the total capital expenditures related to these capacity expansions in Huzhou, China and Clarksville, Tennessee to be in the range of $480.0 million to $530.0 million. Our planned capital expenditures are based on management’s current estimates and may be subject to change.
There is no guarantee that the warrants will be exercised prior to their expiration, however, we do not expect this to impact our liquidity and 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 the Business Combination.
The exercise price for our outstanding warrants is $11.50 per share of common stock, and the trading price of our common stock was $0.767 as of March 25, 2024. There is no guarantee that the warrants will be exercised prior to their expiration, however, we do not expect this to impact our liquidity.
Cost of Revenue and Gross Profit Our cost of sales for the year ended December 31, 2022 remained stable compared to the same period in 2021. Our gross profit margin increased from negative 28.1% for the year ended December 31, 2021 to 4.4% for the same period in 2022.
Cost of Revenue and Gross Profit Our cost of revenues for the year ended December 31, 2023 increased 27.6% compared to the year ended December 31, 2022 as a result of our revenue increase, with the rate of increase being lower than the 49.9% increase in our revenues compared to the year ended December 31, 2022.
Purchase Commitments We regularly enter into non-cancelable contractual obligations primarily related to purchases of inventory.
Purchase Commitments We regularly enter into non-cancelable contractual obligations primarily related to purchases of inventory. As of December 31, 2023, such purchase commitments, which do not qualify for recognition on our Consolidated Balance Sheets, amount to $52.6 million, most of which is short-term.
This decrease in cash consisted of (1) $21.1 million in cash paid after adjusting our net loss for non-cash and non-operating items, of which $20.0 million is depreciation of property, plant and equipment, $9.9 million loss on change in fair value of convertible notes, and $2.5 million gain on change in fair value of warrant; (2) $23.9 million decrease in cash flows from operating assets and liabilities including $1.8 million cash outflow due to increase of accounts receivable and notes receivable.
This cash consisted of (1) a net loss of $106.4 million and non-cash charges of $109.6 million, of which $22.1 million is depreciation of property, plant and equipment and $65.0 million is non-cash share-based compensation expense; and (2) a $78.5 million decrease in cash flows from operating assets and liabilities including $47.1 million cash outflow due to the net increase of accounts receivable and notes receivable and $74.4 million increase in inventories, $7.7 million cash out from accrued and other liabilities and prepaid expense and other current assets, $14.4 million cash outflow from other operating assets and liabilities, partially offset by $65.1 million increase in accounts payable and notes payable . 65 Table of Contents During the year ended December 31, 2022, our operating activities used $53.9 million in cash.
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.
Our mission is to accelerate the adoption of electric vehicles and renewable energy through innovative battery technologies and solutions, driving the transition to a sustainable economy. Specifically, we aim to spearhead U.S. domestic battery production in what is a strategically vital sector and allowing over time for the reliance on supplies from overseas manufacturers to be reduced.
In addition, lengthy mandatory quarantine periods continue to restrict our ability to have non-China based employees and other invitees visit our facilities in China. 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.
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. 59 Table of Contents Components of Results of Operations Revenue We derive revenue from the sales of our electric battery products, including LpTO, LpCO, MpCO, HpCO and HnCo battery power systems.
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.
Founded in 2006, Microvast was built on a guiding principle that remains core to our mission today: to innovate lithium-ion battery design without relying on past technologies. We call this true innovation.
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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.
Added
We started without preconceived notions of lithium-ion battery creation, unlike many companies that repurposed legacy technologies for new markets like electric vehicles—a process we consider product development rather than true innovation. To understand this difference, is to understand what we have set out to achieve.
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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.
Added
This facility employs fully-automated production equipment for the 53.5Ah cell, ensuring significant operating efficiencies. We have also made significant investments in our capacity expansion in Clarksville, Tennessee and by the fourth quarter of 2023 had started to install certain sections of the production line.
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Both facilities are using the same fully-automated production equipment for the 53.5Ah cell which will give us considerable operating efficiencies. We expect the 53.5Ah cell to be our dominant revenue driver for this next phase of our growth.
Added
However, progress on certain third party construction workstreams as well as taking delivery and possession of further equipment started to be impacted toward the end of the fourth quarter due to the required funding to complete the project not being secured. We expect the 53.5Ah cell to be our dominant revenue driver for this next phase of our growth.
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Recent Developments On October 3,2022, we launched our new energy division (“Microvast Energy”). The new division will design, develop and manufacture 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.
Added
This evaluation includes considerations related to our liquidity.
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Further, in October 2022, we were notified by the 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.
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Given the uncertainties around our liquidity as described in the Risk Factors and in Management's Discussion and Analysis of Financial Condition and Results of Operations, we have concluded that there is substantial doubt about our ability to continue as a going concern for at least one year from the date of issuance of the consolidated financial statements included elsewhere in this Annual Report.
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Once finalized, the grant funding will remain subject to certain conditions precedent and other terms and conditions to be agreed 54 Table of Conte n t s between us and the DOE. The grant funding is expected to support the construction of a new polyaramid separator manufacturing facility in the U.S.
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For more information, see Note 2 to the audited consolidated financial statements of this Annual Report and Risk Factors " There is substantial doubt regarding our our ability to continue as a going concern ", " We may be unable to meet our current capital requirements and will require additional capital to meet our outstanding accounts payable and current liabilities " and " Because substantially all of our revenues are currently derived from outside of the U.S. and the significant costs and restrictions associated with the repatriation of cash from our non-U.S. operations, we may not have sufficient cash flow to cover our liabilities, which may result in a material adverse effect on the Company's business ".
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Completion of the Business Combination On July 23, 2021, Microvast Holdings, Inc.
Added
In the third quarter of 2023, we successfully completed the 2 GWh cell, module and tray capacity expansion for our 53.5Ah cell technology in Huzhou, China.
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COVID-19 To date, COVID-19 has had an adverse impact on our sales and operations. During 2022, we continued to face unanticipated challenges caused by the continued impact of the global pandemic and emerging variants of the virus, in particular due to continued lockdowns and other restrictive measures in China.
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The demand for our 53.5Ah cell technology from our commercial vehicle and ESS customer base will be primarily met from this facility until the Clarksville Phase 1A expansion is completed and 58 Table of Contents in production.
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These lockdowns did not have a direct impact on our manufacturing facility in Huzhou, China; however, they have impacted the operations of certain of our third-party suppliers and our ability to book transportation of goods. In addition, the lockdowns and other restrictive measures have significantly disrupted supply chains across many industries around the globe.
Added
Subject to our ability to access additional financing to continue and complete this expansion, management now estimates that Clarksville Phase 1A will be producing qualified 53.5Ah cells beginning approximately eight months after we secure such financing.
Removed
These and future lockdown measures may impact our ability to produce and/or timely deliver goods and services to our clients globally and further disruptions to supply chains in the automotive or energy industry may continue to reduce and/or delay our customers' demand for our products and services.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeHolding 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 $0.9 million as of December 31, 2022. 65 Table of Conte n t s 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.
Biggest changeHolding 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 $0.8 million as of December 31, 2023.
The effect of an immediate 10% adverse change in foreign exchange rates on RMB-denominated accounts as of December 31, 2022, including intercompany balances, would result in a foreign currency loss of $2.8 million.
The effect of an immediate 10% adverse change in foreign exchange rates on RMB-denominated accounts as of December 31, 2023, including intercompany balances, would result in a foreign currency loss of $11.9 million.
However, our limited operating history makes it difficult for us to judge the exact nature or extent of the seasonality of our business. 66 Table of Conte n t s
However, our limited operating history makes it difficult for us to judge the exact nature or extent of the seasonality of our business. 69 Table of Contents
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 we also closely monitor overdue debts.
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 we also closely monitor overdue debts.
In the event our foreign sales and expenses increase, our operating results may be more greatly 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.
In the event our foreign sales and expenses increase, our operating results may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business.
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At this time, we do not, but we may in the future, enter into derivatives or other 68 Table of Contents 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.
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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.

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