# Microvast Holdings, Inc. (MVST) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Microvast Holdings, Inc.'s 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1760689/000176068925000010/mvst-20241231.htm
Accession: 0001760689-25-000010
Filing date: 2025-03-31
Report date: 2024-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/MVST/
All MD&A years: /company/MVST/mda/
Previous year: /company/MVST/mda/fy2023/ (FY 2023)
Next year: /company/MVST/mda/fy2025/ (FY 2025)

Results of Operations

This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.

Comparison of the Year Ended December 31, 2024 to the Year Ended December 31, 2023

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

[[GREPCENT_TABLE]]
[["Amounts in thousands","December 31,"],["","2024","","2023","","$ Change","","% Change"],["Revenues","379,801","","","306,617","","","73,184","","","23.9","%"],["Cost of revenues","(260,249)","","","(249,390)","","","(10,859)","","","4.4","%"],["Gross profit","119,552","","","57,227","","","62,325","","","108.9","%"],["","31.5","%","","18.7","%"],["Operating expenses:"],["General and administrative expenses","(81,486)","","","(96,787)","","","15,301","","","(15.8)","%"],["Research and development expenses","(41,065)","","","(45,004)","","","3,939","","","(8.8)","%"],["Selling and marketing expenses","(22,576)","","","(23,614)","","","1,038","","","(4.4)","%"],["Impairment loss of long-lived assets","(93,173)","","","(504)","","","(92,669)","","","18386.7","%"],["Total operating expenses","(238,300)","","","(165,909)","","","(72,391)","","","43.6","%"],["Subsidy income","2,658","","","1,953","","","705","","","36.1","%"],["Operating loss","(116,090)","","","(106,729)","","","(9,361)","","","8.8","%"],["Other income and expenses:"],["Interest income","742","","","3,609","","","(2,867)","","","(79.4)","%"],["Interest expense","(9,711)","","","(2,628)","","","(7,083)","","","269.5","%"],["Gain on debt restructuring","9,406","","","\u2014","","","9,406","","","100.0","%"],["Other income/ (expense), net","156","","","(713)","","","869","","","(121.9)","%"],["Changes in fair value of warrant liability and convertible loan","(79,960)","","","59","","","(80,019)","","","(135625.4)","%"],["Loss before income tax","(195,457)","","","(106,402)","","","(89,055)","","","83.7","%"],["Income tax expense","\u2014","","","(10)","","","10","","","(100.0)","%"],["Net loss","(195,457)","","","(106,412)","","","(89,045)","","","83.7","%"],["Less: Net loss attributable to noncontrolling interest","\u2014","","","(76)","","","76","","","(100.0)","%"],["Net loss attributable to Microvast Holdings, Inc.","(195,457)","","","(106,336)","","","(89,121)","","","83.8","%"]]
[[/GREPCENT_TABLE]]

Revenue

Our revenue increased from $306.6 million in 2023 to $379.8 million in 2024, reflecting a 23.9% year-over-year (YoY) growth. This expansion was primarily driven by a 41.6% increase in sales volume, rising from 1,139.6 MWh in 2023 to 1,613.6 MWh in 2024.

The surge in volume was fueled by strong demand for our battery cell products from both new and existing customers across the Asia-Pacific and European markets. As we broadened our geographic footprint and strengthened customer relationships, our ability to scale production and meet rising demand contributed to this sustained growth.

Cost of Revenue and Gross Profit

Our cost of revenues for the year ended December 31, 2024, increased by 4.4% compared to 2023, primarily due to higher sales volumes. However, this increase was significantly lower than the 23.9% year-over-year revenue growth, reflecting improved operational efficiency, cost controls, and economies of scale.

63

Table of Contents

As a result, our gross profit margin expanded from 18.7% in 2023 to 31.5% in 2024. This improvement was driven by higher production utilization, which enhanced the absorption of fixed costs. A more favorable product mix, with a growing share of higher-margin battery solutions, contributed to increased profitability. Additionally, lower raw material prices helped reduce input costs. These factors collectively highlight our ability to scale operations while improving profitability, positioning us for continued margin expansion and long-term financial growth.

Selling and Marketing

Selling and marketing expenses for the year ended December 31, 2024, decreased by $1.0 million (4.4%) compared to 2023. This reduction was primarily driven by a $2.1 million decrease in share-based compensation expenses and reductions of the U.S. headcount in Q2 2024, which was partially offset by continued investments in customer engagement and market expansion initiatives.

General and Administrative

General and administrative expenses for the year ended December 31, 2024, decreased by $15.3 million (15.8%) compared to 2023. This decline was primarily driven by a $24.4 million reduction in share-based compensation expenses, partially offset by higher legal and insurance costs.

Research and Development

Research and development expenses for the year ended December 31, 2024, decreased by $3.9 million (8.8%) compared to 2023. This reduction was primarily driven by a $5.0 million decrease in share-based compensation expenses, partially offset by a $1.8 million increase in personnel-related costs as we expanded our research team to support ongoing product development and innovation initiatives.

Impairment loss from long-lived assets

During the first half year of 2024, the Company decided to pause the construction of the battery plant in Clarksville, Tennessee until additional funding for the remaining capital expenditure is secured. The Company reassessed the recoverability of the long-lived assets in U.S. For the year ended December 31, 2024, the Company recognized $93.2 million impairment losses which is mainly from the impairment of long-lived assets in U.S.

Subsidy Income

Subsidy income increased from $2.0 million for the year ended December 31, 2023 to $2.7 million in the same period in 2024. The amounts are the one-time awards granted by local governments in 2023 and 2024.

Gain on debt restructuring

During the year ended December 31, 2024, the company recorded a gain of $9.4 million on the payable concession.

Changes in fair value of warrant liability and convertible loan

For the year ended December 31, 2024, we recorded a non-cash loss of $80.0 million, primarily related to the change in the fair value of our convertible loan. This includes a $79.7 million fair value adjustment on the convertible loan issued to a shareholder. The loss was primarily driven by a significant increase in our share price during the period, which raised the fair value of the loan's conversion feature.

These instruments are measured at fair value on a recurring basis, and their valuation requires the use of significant estimates and assumptions. The fair value changes do not impact our cash position or operating performance but have a material effect on our reported net income. As of December 31, 2024 the outstanding balance was $104.6 million.

Liquidity and Capital Resources

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, 2024, our principal sources of liquidity included cash and cash equivalents and restricted cash totaling $109.6 million.

64

Table of Contents

Our consolidated net cash position of $109.6 million as of December 31, 2024, comprised $73.0 million in cash and cash equivalents, with $37.0 million held by our China subsidiary and $9.2 million held by our German and UK subsidiaries. These funds are not readily available for domestic operations unless repatriated. If we need to transfer any of these funds to the U.S. in the form of a dividend, we would be required to accrue and pay withholding taxes. However, we do not intend to pay cash dividends on our common stock in the foreseeable future. Instead, we plan to retain available funds and future earnings to support our ongoing operations and expansion efforts in China, the E.U., and the U.S.

In accordance with Accounting Standards Update ("ASU") No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40),” management has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date of the consolidated financial statements are issued and has determined that our ability to continue as a going concern is dependent on our ability to generate cash from future operations and additional capital. In light of operating requirements under our current business plan, we are projecting that the existing cash and assets available for sale and equity securities will not be sufficient to fund our operations through the next twelve months. These conditions and events raise substantial doubt about the our ability to continue as a going concern.

To alleviate the conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern, management developed primary plans as described below.

•    Forecasted cash inflow from operations - For the year ended December 31, 2024, we generated cash flow of $2.8 million from operating activities. In the forecasted period, we have order backlog of $401.3 million, with the majority of these orders expected to be fulfilled in 2025 and 2026. Additionally, we expected to generate higher gross margins because we will generate more revenue from Europe and the U.S with higher sales prices. We don't expect significant fluctuations in the gross margin considering the selling price secured by the contract backlogs and the market conditions of major raw materials. Thus, we believe that the operating cash flow in the forecasted period will continue to grow.

•    Refinancing of short-term bank borrowings - Historically, we have rolled over or obtained replacement borrowings from existing creditors for its short-term bank loans upon the maturity date of the loans if needed. For $37.1 million short-term bank borrowings outstanding as of December 31, 2024 which we have successful refinancing experience, if needed, we will be able to refinance them as they become due for the next twelve months.    In early 2025, the Company successfully refinanced loans of $12.3 million that matured.

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

To enhance liquidity, we secured a $101.5 million bank loan during the year ended December 31, 2024 (see Note 12 – Bank Borrowings). Additionally, workforce reductions in the U.S. during the second and third quarters of 2024 have resulted in cost savings and improved cash flow.

Further strategies to strengthen liquidity include optimizing operations, asset sales, and evaluating funding options. The Company achieved income from operation in the second half of 2024, and continued execution of its business strategy is expected to support positive cash flow generation over the next twelve months. Additionally, the Group is actively pursuing the sale of non-core U.S. real estate assets, which is expected to enhance liquidity without affecting core operations.

Although no additional binding financing agreements have been entered into, the Group 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 ensure financial flexibility and long-term growth.

Financings

As of December 31, 2024, we had bank borrowings of $111.7 million, the terms of which range from one month to two years. The interest rates of our bank borrowings ranged from 3.25% to 4.85% per annum. As of December 31, 2024, 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, 2024, we also had the convertible loan with shareholder of $104.6 million outstanding at an initial interest rate equal to Term SOFR for the applicable interest period, plus an initial applicable margin of 9.75% per

65

Table of Contents

annum, 3.75% of which shall be paid in kind and added to the outstanding principal under the convertible loan with shareholder, with the remaining interest to be paid in cash. See Note 26 for details. As of December 31, 2024, we were in compliance with all material terms and covenants of our loan agreements, credit agreements and bonds.

On July 23, 2021, we received $708.4 million from the completion of the Business Combination, $705.1 million net of transaction costs paid by Microvast, Inc. We have used $475.4 million of the net proceeds from the Business Combination to expand our manufacturing facilities and for the purchase of property and equipment associated with our existing manufacturing and R&D facilities. In addition, $185.6 million of the net proceeds were used for working capital as of December 31, 2024.

Although no additional binding financing agreements have been entered into, the Group 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 ensure 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 $1.27 as of March 24, 2025. 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 $49.9 million and $186.8 million for the years ended December 31, 2024 and 2023, respectively. Our capital expenditures in 2024 and 2023 related primarily to the construction of manufacturing facilities under our Clarksville expansion and Huzhou, China.

In 2021, we started our capacity expansion plans in Huzhou, China, Berlin, Germany and Clarksville, Tennessee. The project in Germany was completed in 2021. The China Phase 3.1 capacity expansion was successfully completed in the third quarter of 2023.

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

Our future capital requirements will depend on many factors, including, but not limited to funding planned production capacity expansions and for general working capital. In addition, we may in the future enter into arrangements to acquire or invest in complementary businesses or technologies. We may need to seek additional equity or debt financing in order to meet these future capital requirements. If we are unable to raise additional capital when desired, or on terms that are acceptable to us, our business, financial condition and results of operations could be adversely affected. There are no material off-balance sheet arrangements other than those described below.

Lease Commitments

We lease certain facilities and equipment under non-cancellable lease agreements that expire at various dates through 2036. For additional information, see Note 17 – Leases, in the notes to the audited condensed consolidated financial statements in Part II, Item 8 of this Report on Form 10-K.

66

Table of Contents

Purchase Commitments

We regularly enter into non-cancelable contractual obligations primarily related to purchases of inventory. As of December 31, 2024, such purchase commitments, which do not qualify for recognition on our consolidated balance sheets, amount to $48.2 million, most of which is short-term.

Cash Flows

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["Amount in thousands"],["Net cash generated from (used in) operating activities","2,814","","","(75,303)"],["Net cash used in investing activities","(12,152)","","","(165,605)"],["Net cash provided by financing activities","37,589","","","33,041"]]
[[/GREPCENT_TABLE]]

Cash Flows from Operating Activities

During the year ended December 31, 2024, our operating activities generated $2.8 million in cash, compared to a cash outflow of $75.3 million in 2023 . The positive operating cash flow in 2024 was primarily driven by non-cash adjustments and changes in working capital, offsetting the net loss for the year.

In 2024, our net loss totaled $195.5 million, offset by $251.0 million in non-cash charges, including $30.1 million in depreciation of property, plant, and equipment, $30.8 million in non-cash share-based compensation, $93.2 million in impairment losses from property, plant and equipment, and $80.0 million in fair value changes related to warrants and convertible loans. However, operating assets and liabilities resulted in a $52.7 million cash outflow, mainly due to a $0.5 million increase in inventories, a $13.2 million decrease in accrued liabilities and prepaid expenses, and a $54.4 million reduction in accounts payable and notes payable, partially offset by a $15.3 million net decrease in accounts receivable and notes receivable and a $0.1 million increase in other operating assets and liabilities.

In 2023, operating activities used $75.3 million in cash, driven by a net loss of $106.4 million and $109.6 million in non-cash adjustments, including $22.1 million in depreciation and $65.0 million in share-based compensation. A $78.5 million decrease in cash flows from operating assets and liabilities contributed to the cash outflow, primarily due to a $47.1 million increase in accounts receivable and notes receivable, a $74.4 million increase in inventories, and a $7.7 million decrease in accrued liabilities and prepaid expenses, partially offset by a $65.1 million increase in accounts payable and notes payable.

Cash Flows from Investing Activities

During the year ended December 31, 2024, cash used in investing activities totaled $12.2 million, a significant reduction compared to previous years. This outflow was primarily driven by $27.7 million in capital expenditures related to the expansion of our manufacturing facilities and the acquisition of property and equipment for existing manufacturing and R&D operations. These outflows were partially offset by $5.5 million in proceeds from the maturity of short-term investments and $10.0 million from the disposal of property, plant, and equipment.

During the year ended December 31, 2023, cash used in investing activities totaled $165.6 million, primarily due to $186.8 million in capital expenditures for manufacturing expansion and R&D infrastructure, along with $5.9 million in short-term investment purchases. These were partially offset by $25.5 million in proceeds from the maturity of short-term investments and $1.6 million from the disposal of property, plant, and equipment.

The significant reduction in investing cash outflows in 2024 reflects a measured approach to capital expenditures, as we continue to align investment decisions with available funding and strategic growth priorities.

67

Table of Contents

Cash Flows from Financing Activities

During the year ended December 31, 2024, cash generated by financing activities totaled $37.6 million. This inflow was primarily driven by $101.5 million in proceeds from bank borrowings and $25.0 million in proceeds from a convertible loan. These were partially offset by $66.2 million in repayments on bank borrowings, $0.5 million in debt costs related to the convertible loan, and $22.2 million in deferred payments for property, plant, and equipment purchases.

During the year ended December 31, 2023, cash generated by financing activities totaled $33.0 million. This was primarily attributable to $47.8 million in proceeds from bank borrowings, partially offset by $14.1 million in repayments on bank borrowings and a $0.7 million partial repayment on outstanding bonds.

The increase in financing activities in 2024 reflects our efforts to secure additional funding through bank borrowings and convertible loans, supporting ongoing operational and strategic initiatives.

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. 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. Therefore, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.

Impairment of Long-Lived Assets

In accordance with ASC 360, Property, Plant and Equipment ("ASC 360"), we review long-lived assets such as property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets, and an impairment loss is recorded as a component of operating expenses. Fair value is estimated based on various valuation techniques. For assets held for sales, the amount of potential impairment may be based upon appraisal of the asset, estimated market value of similar assets or estimated cash flow from the disposition of the asset. The evaluation of asset impairment requires us to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.

Convertible loan with shareholder

We elected the fair value option to account for the convertible loan with shareholder and records changes in fair value in the consolidated statements of operations, with the exception of changes in fair value due to instrument-specific credit risk which, if present, will be recorded as a component of other comprehensive income. Interest expense related to the convertible loan is included in the changes in fair value. The fair value of the convertible loan with shareholder was determined by using a discounted cash flow model for the bond component and a Black-Scholes-Merton model for the conversion option, which is considered a Level 3 fair value measurement.

Inventories

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. Inventory levels are analyzed periodically and written down to their net realizable value if they have become obsolete, have a cost basis in excess of expected net realizable value or are in excess of expected demand. We analyze current and future product demand relative to the remaining product life to identify potential excess inventories. These forecasts of future demand are based upon historical trends and analysis as adjusted for overall market conditions. Inventory write-downs are measured as the difference between the cost of the inventory and its net realizable value, and charged to inventory reserves, which is a component of cost of revenue. 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 $3.3 million and

68

Table of Contents

$3.6 million during the years ended December 31, 2024 and 2023, respectively. 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. Deferred tax assets and liabilities reflect the estimated future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax expense or benefit is the result of changes in the deferred tax asset and liability. Valuation allowances are established when necessary to reduce deferred tax assets where it is more likely than not that the deferred tax assets will not be realized. We make estimates, assumptions and judgments to determine its provision for its income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we established a valuation allowance.

We account for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Tax benefits are recognized from uncertain tax positions when we believe that it is more-likely-than-not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Stock-Based Compensation

We recognize compensation expense on a straight-line basis over the service period that awards are expected to vest, based on the estimated fair value of the awards on the date of the grant. We recognize forfeitures as they occur. Fair value excludes the effect of non-market based vesting conditions. The fair value of RSUs with service conditions is based on the grant date share price. We estimate the fair value of options utilizing the Binomial-Lattice Model. The fair value of non-vested shares that vest based on market conditions are estimated using the Monte Carlo valuation method. These fair value estimates of stock related awards and assumptions inherent therein are estimates and, as a result, may not be reflective of future results or amounts ultimately realized by recipients of the grants. For these awards with performance conditions, we recognize compensation expense when the performance goals are achieved, or when it becomes probable that the performance goals will be achieved. Management performs the probability assessment on a quarterly basis by reviewing external factors, such as macroeconomic conditions and the analog industry revenue forecasts, and internal factors, such as our business and operational objectives and revenue forecasts. Changes in the probability assessment of achievement of the performance conditions are accounted for in the period of change by recording a cumulative catch-up adjustment as if the new estimate had been applied since the service inception date. As a result, our stock-based compensation expense is subject to volatility and may fluctuate significantly each quarter due to changes in our probability assessment of achievement of the performance conditions or actual results being different from projections made by management. Liability-classified awards are remeasured at lower of capped value or fair value as of each report date during settlement.

Loss of Emerging Growth Company Status

Under Section 102(b)(1) of the JOBS Act, emerging growth companies are exempt from complying with new or revised financial accounting standards until private companies are required to do so. The JOBS Act also allows companies to opt out of this extended transition period and follow the same reporting requirements as non-emerging growth companies, an election that is irrevocable once made.

As of December 31, 2024, the Company no longer qualifies as an emerging growth company. Consequently, we are now required to comply with new or revised accounting standards on the same timeline as public companies and are subject to the full regulatory and reporting requirements applicable to non-emerging growth companies under the JOBS Act.