Microvast Holdings, Inc. (MVST)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

References in this Report to the “Company,” “Microvast Holdings, Inc.,” “Microvast,” “our,” “us” or “we” refer to Microvast Holdings, Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the interim consolidated financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. See the risk factors included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025 and in Part II, Item 1A of this Quarterly Report for further discussion of the risks and uncertainties that could affect our business, financial condition and results of operations.

The Business

Founded in 2006 and headquartered in Houston, Texas, Microvast Holdings, Inc. (NASDAQ: MVST) strives to be a global leader in advanced specialized battery technologies. Since our public listing in 2021, we have focused on delivering high-performance lithium-ion battery solutions for the next generation of commercial and industrial electrification. We specialize in the design, development, and manufacturing of battery components and systems primarily for electric commercial vehicles and energy storage systems (“ESS”). We have recently aligned our commercial priorities and resources to focus on selected near-term opportunities in the commercial vehicle market, while continuing to evaluate future opportunities in the ESS market. Our guiding principle is to innovate lithium-ion battery designs from the ground up without relying on legacy technologies. We believe that this approach allows us to create purpose-built solutions for new markets, rather than repurposing existing ones.

Our mission is to become a leader in U.S. domestic battery production, reducing reliance on overseas suppliers, and strengthening national energy independence. We believe that this mission, along with our engineering expertise, vertically integrated business model, and our focus on continuous investment in our research and development and operations, differentiates us from competitors and positions us for long-term revenue and income growth.

We employ a vertically integrated approach, which we believe provides a competitive advantage in optimizing performance and cost. Our proprietary technology stack spans the entire battery system, including the core cell materials (cathode, anode, electrolyte, and separator), cells, modules, packs, thermal management systems, and intelligent battery management systems. This end-to-end expertise has driven critical advancements in ultra-fast charging, high energy density, long cycle life, and safety, all critical factors for commercial transportation and ESS applications. With significant in-house capabilities in design, testing, and R&D, we continue to strive to build an industry-leading body of knowledge in battery chemistry and performance.

Our Strategy

Our objective is to drive long-term stakeholder value by scaling our proprietary battery technologies across high-growth sectors. Since 2008, our research and development efforts have been dedicated to pioneering cutting-edge battery technologies that offer ultra-fast charging, extended cycle life, high energy density, and enhanced safety. Our commitment to innovation has well positioned us in developing the next-generation of lithium-ion batteries. We are focused on designing battery technologies for use primarily on electric commercial vehicles and remain committed to advancing ESS in the future. We believe our solutions empower industries to transition to cleaner, more efficient power sources, unlocking new levels of performance, longevity, and cost efficiency. Historically, demand for electric commercial vehicle batteries was concentrated in the Asia & Pacific regions. We are now working towards a balanced global strategy throughout Europe and North America. As customer demand for our products and services has grown in Europe and the U.S., we have expanded to meet these growth opportunities. We continue to invest in our operations in Asia-Pacific to capitalize on regional growth. This provides a balanced global strategy while maintaining strong partnerships with original equipment manufacturers (“OEMs”) in high-demand markets. We have primarily supplied our battery solutions to OEMs for use in electric commercial and specialty vehicles. We are continuously advancing our battery technologies to improve performance, efficiency, and reliability in commercial applications.

We believe the energy storage industry is positioned for continued expansion. In 2025, third-party industry data shows that global power capacity grew by approximately 90 gigawatts, an estimated 23% increase from the previous year. Industry projections indicate expected further expansion, with an average CAGR in deployed gigawatts of 23% between 2025 and 2035. The U.S. and China are expected to lead this growth, with U.S. power capacity projected to increase from approximately 45 gigawatts in 2025 to approximately 125 gigawatts by 2030. By remaining positioned to refine our technology, we aim to advance our ESS solutions to meet the evolving demand of power sector and complement existing resources in meeting growing global demand for reliable and flexible power. We plan to leverage many of the component-level technologies from our commercial vehicle segment to develop our energy storage products.

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Going Concern

In accordance with Accounting Standards Codification (“ASC”) Topic 205-40, Going Concern, we evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date the financial statements are issued. This evaluation initially does not consider the potential mitigating effect of management's plans that have not been fully implemented. When substantial doubt exists, management evaluates the mitigating effect of its plans to the extent it is probable that 1) the plans will be effectively implemented within one year after the date the financial statements are issued, and 2) when implemented, the plans will mitigate the relevant conditions or events that raise substantial doubt. Given the uncertainties described in Note 1 to the unaudited consolidated financial statements of this Quarterly Report and in this Management's Discussion and Analysis of Financial Condition and Results of Operations, we have concluded that substantial doubt exists about our ability to continue as a going concern within one year after the date the financial statements are issued and that management's plans to alleviate the substantial doubt cannot be deemed probable, and thus the substantial doubt about our ability to continue as a going concern has not been alleviated.

Key Factors Affecting Our Performance

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

Technology and Product Innovation

Our financial performance is driven by development and sales of new products with innovative technology. Our ability to develop innovative technology has been and will continue to be dependent on our dedicated research team. We plan to continue expanding our R&D presence in the U.S. We also plan to continue leveraging our knowledge base in our overseas locations, including China and to continue expanding our R&D efforts on a global basis. We expect our results of operations will continue to be impacted by our ability to develop new products with improved performance and reduced ownership cost as well as the cost of our R&D efforts.

We have launched the 290Ah lithium iron phosphate (“LFP”) cell-based battery packs as high-performance, modular battery solutions designed for a wide range of commercial and heavy-duty industrial applications. These packs leverage our next generation LFP cell technology to provide scalable configurations and enhanced safety profiles for the diverse operating environments required by fleets.

Utilizing this underlying 290Ah LFP technology, we have also launched the KAF™ electric powertrain solution. Designed as an integrated vehicle-level system targeted for the U.S. school bus market, the KAF™ electric powertrain combines high-voltage battery packs with a proprietary nitrogen purging safety system and key traction drive components. This architecture is intended to simplify OEM integration, reduce total deployment cost, and address thermal propagation concerns in the segment. Commercialization of the KAF™ platform and associated 290Ah LFP products remain subject to final product validation, vehicle-level integration with OEM partners, customer qualification, and availability of domestic manufacturing capacity and capital. For specific drive train components, we plan to partner with mature and high volume suppliers to source and develop this integrated solution.

Market Demand

Our revenue and profitability depend substantially on the demand for battery systems and battery components, which is driven by the growth of the commercial and specialty electric vehicle markets and the energy storage markets. Many factors contribute to the development of the electric vehicle and battery energy storage sector, including product innovation, general economic and political conditions, environmental concerns, energy demand, government support and economic incentives (e.g., the IRA in the U.S. and the E.U. Green Deal, E.U. Fit for 55). While governmental economic incentives and mandates can drive market demand for the markets in which we operate and, as a result, battery systems and components, governmental economic incentives can always be gradually reduced or eliminated. These incentives are subject to evolving geopolitical dynamics, including Foreign Entity of Concern restrictions and domestic content requirements. We continuously monitor these shifts, as any reduction, elimination, or disqualification from such incentives could adversely affect demand for our products and our financial performance.

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Manufacturing Capacity

Our ability to scale depends on the timely expansion of our manufacturing footprint. As of June 30, 2026, our order backlog was primarily composed of long-term transit and logistics partners in Europe. To address this demand, we have utilized our capital resources to strategically expand our global production capabilities.

In 2023, we successfully completed the 2 GWh cell, module, and pack production line (Phase 3.1) for our 53.5Ah cell technology at our Huzhou, China facility. This Phase 3.1 line has been operating safely and efficiently, providing a stable manufacturing base. In addition to the 53.5Ah cell, this line also supports the production of our 48Ah and 55Ah cells.

To support our product portfolio, we are building a second 2 GWh production line (Phase 3.2) at our Huzhou, China facility. The new Phase 3.2 line has been designed with flexible tooling and process architecture to accommodate multiple cell formats, including the 48Ah, 53.5Ah, 55Ah, and 120Ah variants. Installation and commissioning of the production equipment have been completed, and we anticipate continued capacity ramp-up during the second half of 2026. We believe this investment enhances our agile manufacturing capability and reinforces our commitment to delivering high-performance solutions across diverse application scenarios. Additionally, we have pilot lines utilized for prototyping and testing. Our Germany facility produces VDA modules.

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Results of Operations

This section of this Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024.

Comparison of the Year Ended December 31, 2025 to the Year Ended December 31, 2024

The following table sets forth our historical operating results for the periods indicated (in thousands, except percentages):

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Revenue

Our revenue increased from $379.8 million in 2024 to $427.5 million in 2025, reflecting a 12.6% year-over-year growth. This expansion was primarily driven by a 16.5% increase in sales volume, rising from 1,613.6 MWh in 2024 to 1,879.5 MWh in 2025. This volume growth was supported by rising demand for our battery cell products from existing and new customers across the European and U.S. markets. Our full-year revenue was impacted by evolving regulatory shifts in the Korean market and customer platform ramp up delays.

Cost of Revenue, Energy Storage System Impairment, and Gross Profit

Our cost of revenues for the year ended December 31, 2025, increased by 4.9% compared to 2024, primarily due to higher sales volumes. However, this increase was significantly lower than the 12.6% year-over-year revenue growth, reflecting improved utilization which enhanced the absorption of fixed costs, decreases in raw material costs, and improved economies of scale as we grow our manufacturing capacity.

Our gross profit margin was 28.6% for the year ended December 31, 2025, compared to 31.5% in 2024. This change was primarily attributable to a $32.5 million inventory impairment charge related to specialized ESS components, which negatively impacted our gross margin by 7.6 percentage points. Excluding the impact of this specific non-cash charge, the underlying gross margin performance reflected a more favorable product mix and improved manufacturing efficiencies across our battery solution portfolio.

Operating Expenses

General and administrative expenses

General and administrative expenses for the year ended December 31, 2025, decreased by $23.7 million, or 29.0%, compared to 2024. This decline was primarily driven by a $17.4 million reduction in share-based compensation expenses and a favorable $8.6 million increased impact from foreign currency fluctuations related to the Euro and RMB.

Research and development expenses

Research and development expenses for the year ended December 31, 2025, decreased by $7.0 million, or 16.9%, compared to 2024. This reduction in R&D was primarily driven by a $5.5 million decrease in share-based compensation expenses.

Selling and marketing expenses

Selling and marketing expenses for the year ended December 31, 2025, decreased by $0.4 million, or 1.7%, compared to 2024.

Impairment loss of long-lived assets

The impairment loss of long-lived assets for the year ended December 31, 2025 decreased by $89.0 million, or 95.6%, compared to the same period in 2024. The 2025 loss was primarily driven by the charges related to assets held for sale, where carrying values exceeded fair value less costs to sell.

Subsidy Income

Subsidy income increased from $2.7 million for the year ended December 31, 2024 to $3.1 million in 2025. The amounts are the one-time awards granted by local governments in 2024 and 2025.

Gain on Debt Restructuring

During the year ended December 31, 2025, the Company recognized a gain of $1.3 million from negotiated settlements of payables.

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Changes in Fair Value of Warrant Liability and Convertible Loan

For the year ended December 31, 2025, we recognized a loss of $39.1 million. This loss was primarily driven by the period-over-period remeasurement of our convertible loan at fair value. For further discussion regarding the valuation methodology and inputs, see Note 25 – Convertible loan measured at fair value.

Benefit from (provision for) Income Taxes

For the year ended December 31, 2025, we recognized deferred tax benefits of $5.4 million, primarily due to the remeasurement of our deferred tax assets for MPS. This was partially offset by $0.1 million in income tax expense associated with profitable foreign operations.

Liquidity and Capital Resources

Overview

Since inception, we have financed our operations primarily through capital contributions from equity holders, the issuance of convertible notes, and bank borrowings. As of December 31, 2025, our principal sources of liquidity included cash, cash equivalents, and restricted cash totaling $169.2 million, of which $105.0 million was comprised in cash and cash equivalents.

Of the cash and cash equivalents as of December 31, 2025, $40.3 million is held by our China subsidiary and $21.9 million is held by our European subsidiaries. These funds are generally intended to support local operations. If we were to repatriate these funds to the U.S., we may be required to accrue and pay applicable withholding taxes. We currently intend to retain available funds and future earnings to support ongoing operations and expansion efforts in China, Europe, and the U.S.

Going Concern Evaluation

In accordance with ASU No. 2014-15, management evaluated whether conditions and events, considered in the aggregate, raise substantial doubt about our ability to continue as a going concern within one year after the date these consolidated financial statements are issued. Based on our current business plan, we projected that existing cash and assets held for sale would not be sufficient to fund operations through the next twelve months. These conditions initially raised substantial doubt about our ability to continue as a going concern.

Management has implemented several primary plans intended to alleviate these conditions:

•Operating Cash Flows: For the year ended December 31, 2025, we generated $75.9 million in net cash from operating activities. Our order backlog stood at $196.1 million, the majority of which is expected to be fulfilled in 2026 and 2027. While we anticipate some absorption pressure during the ramp up of our Huzhou 3.2 manufacturing line expansion, we expect gross margins to remain relatively stable.

•Refinancing of Short-term Borrowings: Based on our historical ability to access credit, we expect to maintain the ability to refinance these obligations as needed as they become due over the next twelve months.

•Equity Funding: Under our Controlled Equity Offering Sales Agreement (the “Sales Agreement”), the Company has received $27.9 million in net proceeds through the date of this issuance. We intend to continue utilizing the Sales Agreement to raise additional capital as needed for general corporate purposes and debt repayment.

Based on the execution of these plans, management has concluded it is probable that these actions will alleviate substantial doubt about the Company's ability to continue as a going concern and provide adequate liquidity to meet our requirements for the next twelve months. However, there is no assurance that the Company will be able to alleviate these concerns.

Additional Liquidity Initiatives

We secured $85.7 million in bank loans during the year ended December 31, 2025 (see Note 12 – Bank Borrowings). The Company has been exploring a potential sale of its Lake Mary, Florida facility with a prospective buyer

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for a gross purchase price of $11,500. This divestiture is intended to provide additional liquidity without impacting core operations. The transaction is subject to customary closing conditions and a due diligence period for the buyer. The Company currently anticipates that, if completed, the transaction would close during the second quarter of 2026.

Financings

As of December 31, 2025, our debt obligations consisted of:

•Bank borrowings of $106.3 million, the terms of which range from 1 to 18 months. The interest rates of our bank borrowings ranged from 2.60% to 4.85% per annum.

•Convertible bonds of $41.7 million, with interest rates ranging from 3% to 4%. The convertible bonds are due in 2027.

•Convertible loan measured at fair value of $140.9 million. This loan bears interest at Term SOFR plus an applicable margin of 9.75%. Of this, 3.75% is paid in kind and added to the outstanding principal balance, and the remainder is paid in cash. See Note 25 – Convertible loan measured at fair value for details.

As of December 31, 2025, we were in compliance with all material terms and covenants of our loan agreements, credit agreements, and bonds.

On July 23, 2021, we received $705.1 million in net proceeds from our Business Combination. We have used $514.2 million of the net proceeds to expand our manufacturing facilities and for the purchase of property and equipment associated with our existing manufacturing and R&D facilities. In addition, $190.9 million of the net proceeds were used for general working capital.

Although no additional binding financing agreements have been entered into, the Company remains engaged in discussions with third parties to explore further capital-raising opportunities. Future capital requirements may change based on business developments, market conditions, and liquidity needs. The Company continues to evaluate potential options, including equity offerings and debt financing, to provide financial flexibility and long-term growth.

The exercise price for our outstanding warrants is $11.50 per share of common stock, and the trading price of our common stock was $2.10 as of March 9, 2026. There is no guarantee that the warrants will be exercised prior to their expiration, however, we do not expect this to impact our liquidity.

Capital Expenditures and Other Contractual Obligations

Our capital expenditures amounted to $38.7 million and $49.9 million for the years ended December 31, 2025 and 2024, respectively. Our capital expenditures in 2025 were primarily related to our Huzhou Phase 3.2 expansion, which is funded primarily by localized borrowings and cash flow from our China operations, and deferred payments related to our Clarksville facility. 2024 capital expenditures were primarily related to the const

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