Microvast Holdings Inc.

08/10/2026 | Press release | Distributed by Public on 08/10/2026 15:26

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

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.
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.
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.
Construction and equipment installation for our U.S. facility was suspended in the second quarter of 2024 due to funding constraints. We have since pivoted the site's strategic focus from nickel manganese cobalt production to LFP batteries. Towards the end of 2025, we made a targeted investment in our Clarksville facility to establish a pack assembly line, expanding our domestic capabilities and supporting anticipated customer demand. We financed this investment through cash generated from our operating activities. Resumption of full-scale construction is contingent upon securing additional financing or strategic partnerships. Once completed, Clarksville is intended to be a vertically integrated hub for LFP cell and ESS container assembly, satisfying domestic content preferences for the U.S. market.
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.
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 market in those regions. As we continue to expand our geographic focus to Europe and the U.S., we believe sales of our products in Europe and the U.S. will have the potential to generate higher gross margins because average sales prices for customers in the U.S. and Europe are typically significantly higher than the average sales prices in China. It has been our experience that buyers in Europe and the U.S. are more motivated by application-specific performance requirements, certification, system integration, warranty expectations, and total cost of ownership, whereas in China we are faced with intense price competition from local battery manufacturers. Therefore, the geographic sources of our revenue will have an impact on our revenue and gross margins.
Manufacturing Costs
Our profitability may also be affected by our ability to effectively manage our manufacturing costs. Our manufacturing costs are affected by fluctuations in the price of raw materials. If raw material prices increase, we will have to offset these higher costs either through price increases to our customers or through productivity improvements. Our ability to control our raw materials costs is also dependent on our ability to negotiate with our suppliers for a better price and our ability to source raw materials from reliable suppliers in a cost-efficient manner. In addition, we expect that an increase in our sales volume will enable us to lower our manufacturing costs through economies of scale.
Regulatory Landscape
The battery industry is subject to stringent and evolving environmental regulations, particularly concerning hazardous waste management, pollution control, and sustainability requirements. Over time, these regulations have become increasingly strict, impacting both product costs and gross margins. In the U.S., newly proposed RCRA universal waste regulations for lithium batteries are expected to be finalized by the EPA as early as August 2027, which would create a new waste category specifically for lithium batteries and establish new requirements for transportation, handling, and storage.
Compliance with these standards requires continuous investment in manufacturing processes, material sourcing, and waste disposal practices to ensure adherence to environmental mandates across multiple jurisdictions.
Additionally, government policies and economic incentives play a critical role in shaping demand for the EV and ESS markets. Incentives such as EV purchase subsidies, tax credits for battery manufacturers, and renewable energy project grants have historically supported market growth. Similarly, carbon emission penalties and fleet-wide regulatory requirements for automakers further drive the adoption of zero-emission transportation and clean energy solutions. These policies expand our total addressable market, creating opportunities for increased sales and broader adoption of our battery technologies. However, changes in these incentives-such as reductions or eliminations of subsidies-could negatively affect demand for our products.
As a global company with operations and sales in China, the Asia-Pacific region, Europe, and the U.S., we are also exposed to trade policies, tariffs, and regulatory shifts that could impact our ability to meet projected sales and maintain profit margins. Any significant changes in international trade agreements, supply chain restrictions, or geopolitical tensions may influence production costs, material sourcing, and cross-border sales strategies. Changes in tariff policy in particular, whether threatened or implemented, may raise costs for consumers which could lead to softened consumer demand. For example, on July 23, 2026, the current presidential administration of the United States announced the imposition of 10% - 12.5% tariffs on imports from sixty economies under Section 301 of the Trade Act of 1974. The current situation with respect to tariff policy is dynamic, and the ultimate effect will be dependent on the magnitude and duration of the tariffs, the outcome of litigation, and the countries implicated, as well as our ability to mitigate their impact.
In addition, because our manufacturing center is located in China, ongoing trade developments between the United States and China, such as import and export controls, may complicate our ability to rely on those manufacturing centers for continued production. Navigating these regulatory complexities is essential to sustaining our competitive position and long-term growth trajectory.
Components of Results of Operations
Revenues
We derive revenue from the sales of our electric battery products and components to the commercial vehicle market. While historically concentrated in the Asia-Pacific region, our revenue mix has shifted significantly toward Europe which accounted for the largest portion of our revenue mix for the six months ended June 30, 2026 and 2025. This shift reflects our strategy to capture higher-margin opportunities in the European commercial vehicle sectors.
We issued $2.7 million tariff refunds to U.S. customers in May 2026. Before the tariff refunds were recorded as a reduction to our revenue in the current period, a total of $931 thousand and $1.2 million in revenue was realized in the United States for the three months and six months ended June 30, 2026, respectively. The following table sets forth a breakdown of our net revenue by major geographic regions, based on the locations of our customers, for the periods indicated (in thousands, except percentages):
Three Months Ended June 30,
2026
2025
Amount
%
Amount
%
China $ 33,332 38 % $ 34,843 38 %
Other Asia & Pacific countries 3,274 3 % 12,815 14 %
Asia & Pacific 36,606 41 % 47,658 52 %
Italy 39,807 46 % 16,088 18 %
France 11,817 14 % 9,339 10 %
Other European countries 765 1 % 13,458 15 %
Europe 52,389 61 % 38,885 43 %
United States (1,733) (2) % 4,796 5 %
Total $ 87,262 100 % $ 91,339 100 %
Six Months Ended June 30,
2026
2025
Amount % Amount %
China $ 48,209 33 % $ 78,969 38 %
Other Asia & Pacific countries 5,539 3 % 18,740 9 %
Asia & Pacific 53,748 36 % 97,709 47 %
Italy 71,120 48 % 52,675 25 %
France 23,497 16 % 27,702 13 %
Other European countries 1,008 1 % 18,558 10 %
Europe 95,625 65 % 98,935 48 %
United States (1,499) (1) % 11,186 5 %
Total $ 147,874 100 % $ 207,830 100 %
Customer Concentration
We have historically received a significant portion of our revenue in a given reporting period from a limited number of key customers, which vary from period to period. The following table summarizes net revenues from the three largest customers that each accounted for over 10% of our net revenues for the periods indicated:
Three Months Ended June 30,
2026
2025
Customer A 46 % 18 %
Customer B 11 % *
Customer C 10 % *
Six Months Ended June 30,
2026
2025
Customer A 48 % 25 %
Customer B 14 % 13 %
Our revenues for the three and six months ended June 30, 2026 were materially concentrated with a small number of customers. The composition of our largest customers has historically varied from period to period, and the level of revenue concentration with any individual customer has fluctuated, in some cases significantly, between reporting periods.
Our orders from customers are generally placed pursuant to non-exclusive purchase orders or framework supply agreements that are subject to adjustment, cancellation, deferral, or suspension by our customers, and our customers are generally not contractually obligated to purchase any minimum volume of products from us. A termination of these relationships could have a material adverse effect on our financial results.
Cost of Revenues and Gross Profit
Cost of revenues includes direct and indirect materials, manufacturing overhead (including depreciation, freight and logistics), warranty reserves and expenses, and provision for obsolete inventories. These costs also include labor costs and personnel expenses, including share-based compensation and other related expenses that are directly attributable to the manufacturing of products.
Gross profit is equal to revenues less cost of revenues. Gross profit margin is equal to gross profit divided by revenues.
Operating Expenses
Our operating expenses consist of general and administrative expenses ("G&A"), research and development expenses ("R&D"), selling and marketing expenses ("S&M"), and impairment loss of long-lived assets.
General and Administrative Expenses. G&A expenses primarily comprise personnel-related costs for our executive, legal, finance, human resources, and IT teams, along with professional service fees, depreciation, amortization, and insurance costs. As we scale operations, we anticipate additional expenditures for personnel hiring, infrastructure development, and compliance-related activities. These investments are necessary to support our anticipated growth and ensure operational efficiency.
Research and Development Expenses. R&D expenses primarily include salaries and share-based compensation for our engineers and scientists, as well as raw material costs for experimental development, utility expenses, and depreciation costs related to R&D activities. As we continue to invest in new product development, advanced battery technologies, enhanced product functionality, testing, and process improvement, we expect R&D expenditures to increase in absolute dollar terms. These R&D investments are critical to maintaining technological leadership and delivering next-generation battery solutions to the market.
Selling and Marketing Expenses. S&M expenses include personnel-related costs for our sales and marketing teams, including salaries, share-based compensation, and commission-based incentives. These expenses also cover advertising, promotional activities, and customer engagement efforts to drive product awareness and sales growth.
Subsidy Income
Government subsidies represent government grants received from local government authorities. The amounts of and conditions attached to each subsidy were determined at the sole discretion of the relevant governmental authorities. Our subsidy income is non-recurring in nature.
Other Income and Expenses
Other income and expenses consist primarily of fair value changes of the warrant liability and the convertible loan described in Note 14 to the Financial Statements included herein (the "Convertible Loan"), these instruments are highly sensitive to fluctuations in our stock price. This section also includes interest expense associated with our debt financing arrangements, interest income earned on our cash balances, and foreign currency gains and losses.
Results of Operations
Comparison of the Three Months Ended June 30, 2026 to the Three Months Ended June 30, 2025
The following table sets forth our historical operating results for the periods indicated (in thousands, except percentages):
Three Months Ended June 30,
$
Change 		%
Change
2026
2025
Revenues $ 87,262 $ 91,339 $ (4,077) (4.5) %
Cost of revenues (61,484) (59,616) (1,868) 3.1 %
Gross profit 25,778 31,723 (5,945) (18.7) %
29.5 % 34.7 %
Operating expenses:
General and administrative expenses (13,886) (11,184) (2,702) 24.2 %
Research and development expenses (8,860) (7,719) (1,141) 14.8 %
Selling and marketing expenses (4,743) (3,424) (1,319) 38.5 %
Impairment loss of long-lived assets (24) (1,364) 1,340 (98.2) %
Total operating expenses (27,513) (23,691) (3,822) 16.1 %
Subsidy income 15 995 (980) (98.5) %
(Loss) profit from operations (1,720) 9,027 (10,747) (119.1) %
Other income and expenses:
Interest income 733 198 535 270.2 %
Interest expense (1,328) (1,252) (76) 6.1 %
Changes in fair value of warrant liability and convertible loan (5,837) (121,521) 115,684 (95.2) %
Foreign exchange (loss) gain (4,705) 7,187 (11,892) (165.5) %
Other income, net 869 523 346 66.2 %
(Loss) profit before provision for income taxes (11,988) (105,838) 93,850 (88.7) %
Income tax expense - (220) 220 (100.0) %
Net (loss) profit $ (11,988) $ (106,058) $ 94,070 (88.7) %
Revenues
Our revenues for the three months ended June 30, 2026 decreased by $4.1 million, or 4.5%, compared to the same period in 2025. The decrease was primarily driven by a $2.7 million tariff refund issued to a U.S. customer, which was recorded as a reduction to our revenue in the current period.
During the three months ended June 30, 2026, the Company observed a moderation in global electric vehicle demand growth, primarily driven by the expiration of government incentive programs and shifting regulatory frameworks in key regions. Our revenue and delivery schedules were also impacted by broader macroeconomic headwinds, including geopolitical instability and evolving tariff structures, which contributed to market volatility and influenced customer procurement cycles.
Cost of Revenues and Gross Profit
Our cost of revenues for the three months ended June 30, 2026 increased by $1.9 million, or 3.1%, compared to the same period in 2025, primarily driven by higher raw material prices during the first half year of 2026, partially offset by a one-time $4.3 million recognition of tariff refunds.
Our gross profit margin was 29.5% for the three months ended June 30, 2026 compared to 34.7% in 2025. The decrease in gross margin was primarily due to higher raw material prices and lower production utilization, which reduced fixed cost absorption, slightly offset by the one-time recognition of the tariff refunds.
Our gross margin profile remains subject to external pressures, including inflationary trends in raw material pricing, duties and tariffs, and elevated logistics and freight expenses resulting from ongoing global supply chain disruptions and geopolitical conflicts. While we continue to implement cost-mitigation strategies, these macroeconomic factors, combined with a phase-out of regional subsidies for electric vehicle adoption, have contributed to a challenging environment for near-term profitability across the battery manufacturing sector.
Operating Expenses
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2026 increased by $2.7 million, or 24.2%, compared to the same period in 2025. This increase was primarily due to a $2.6 million increase in legal and other professional service fees.
Research and Development Expenses
Research and development expenses for the three months ended June 30, 2026 increased by $1.1 million, or 14.8%, compared to the same period in 2025. The increase was primarily due to an increase in labor costs as we expanded our investment in new product development.
Selling and Marketing Expenses
Selling and marketing expenses for the three months ended June 30, 2026 increased by $1.3 million, or 38.5%, compared to the same period in 2025. This increase was primarily due to a $1.5 million increase in service fees associated with customer retention initiatives, partially offset by a decrease in personnel costs.
Subsidy Income
Subsidy income decreased from $995 thousand for the three months ended June 30, 2025 to $15 thousand in the current-year period. The amounts are the one-time awards granted by the Chinese government in 2025 and 2026.
Foreign Exchange (Loss) Gain
Foreign exchange gain decreased from a gain of $7.2 million for the three months ended June 30, 2025 to a loss of $4.7 million for the three months ended June 30, 2026. The foreign exchange loss for the three months ended June 30, 2026 was primarily due to unfavorable changes in the U.S. dollar and Euro exchange rates relative to the changes in RMB exchange rates.
Changes in Fair Value of Convertible Loan
For the three months ended June 30, 2026, we recorded a loss of $5.8 million due to the change of the fair value of the Convertible Loan before it was settled on May 28, 2026, see Note 14 - Convertible Loan measured at fair value.
Provision for Income Taxes
Provision for income taxes for the three months ended June 30, 2026 was nil as compared to a provision of $220 thousand for the comparable prior year period. No provision for income taxes in the current quarter was mainly due to the absence of taxable income and changes in deferred tax balances resulted in no material income tax expense or benefit.
Comparison of the Six Months Ended June 30, 2026 to the Six Months Ended June 30, 2025
The following table sets forth our historical operating results for the periods indicated (in thousands, except percentages):
Six Months Ended June 30,
$
Change 		%
Change
2026
2025
Revenues $ 147,874 $ 207,830 $ (59,956) (28.8) %
Cost of revenues (102,940) (133,091) 30,151 (22.7) %
Gross profit 44,934 74,739 (29,805) (39.9) %
30.4 % 36.0 %
Operating expenses:
General and administrative expenses (26,827) (25,304) (1,523) 6.0 %
Research and development expenses (17,670) (15,967) (1,703) 10.7 %
Selling and marketing expenses (10,085) (10,223) 138 (1.3) %
Impairment loss of long-lived assets (24) (1,364) 1,340 (98.2) %
Total operating expenses (54,606) (52,858) (1,748) 3.3 %
Subsidy income 18 2,411 (2,393) (99.3) %
(Loss) profit from operations (9,654) 24,292 (33,946) (139.7) %
Other income and expenses:
Interest income 1,115 375 740 197.3 %
Interest expense (2,555) (2,440) (115) 4.7 %
Changes in fair value of warrant liability and convertible loan 58,001 (78,361) 136,362 (174.0) %
Foreign exchange (loss) gain (11,605) 10,854 (22,459) (206.9) %
Other income, net 921 1,232 (311) (25.2) %
(Loss) profit before provision for income taxes 36,223 (44,048) 80,271 (182.2) %
Income tax expense - (220) 220 (100.0) %
Net (loss) profit $ 36,223 $ (44,268) $ 80,491 (181.8) %
Revenues
Our revenues for the six months ended June 30, 2026 decreased by $60.0 million, or 28.8%, compared to the same period in 2025. The decrease was primarily driven by a 24.3% reduction in sales volume from approximately 947.2 MWh for the six months ended June 30, 2025 to approximately 717.2 MWh for the same period in 2026, and a $2.7 million tariff refund issued to a U.S. customer recorded as a reduction to our revenue in the current period.
The decrease in sales volume was primarily the result of evolving regulatory and geopolitical dynamics, including the Indian and Korean markets, demand shift towards lower cost products in India, and OEM-caused platform delays in the transportation and mining sectors in Europe and APAC, respectively. The decrease in U.S. sales versus the prior year period were primarily due to our largest customer bringing product into 2025 as a result of uncertainty around tariff outcomes.
During the six months ended June 30, 2026, the Company observed a moderation in global electric vehicle demand growth, primarily driven by the expiration of government incentive programs and shifting regulatory frameworks in key regions. Our revenue and delivery schedules were also impacted by broader macroeconomic headwinds, including geopolitical instability and evolving tariff structures, which contributed to market volatility and influenced customer procurement cycles.
Cost of Revenues and Gross Profit
Our cost of revenues for the six months ended June 30, 2026 decreased by $30.2 million, or 22.7%, compared to the same period in 2025, primarily due to the decrease in sales volumes and the one-time $4.3 million recognition of tariff refunds which is partially offset by higher raw material prices.
Our gross profit margin was 30.4% for the six months ended June 30, 2026 compared to 36.0% in 2025. The decrease in gross margin was primarily due to higher raw material prices, and lower production utilization, which reduced fixed cost absorption, slightly offset by recognition of the tariff refunds.
Our gross margin profile remains subject to external pressures, including inflationary trends in raw material pricing, duties and tariffs, and elevated logistics and freight expenses resulting from ongoing global supply chain disruptions and geopolitical conflicts. While we continue to implement cost-mitigation strategies, these macroeconomic factors, combined with a phase-out of regional subsidies for electric vehicle adoption, have contributed to a challenging environment for near-term profitability across the battery manufacturing sector.
Operating Expenses
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2026 increased by $1.5 million, or 6.0%, compared to the same period in 2025. This increase was primarily due to a $4.0 million increase in legal and other professional service fees, partially offset by a $3.1 million decrease in allowance for credit loss due to improved credit management.
Research and Development Expenses
Research and development expenses for the six months ended June 30, 2026 increased by $1.7 million, or 10.7%, compared to the same period in 2025. The increase was primarily due to a $1.4 million increase in labor costs as we expanded our investment in new product development.
Selling and Marketing Expenses
Selling and marketing expenses for the six months ended June 30, 2026 decreased by $138 thousand, which was stable compared to the same period in 2025.
Subsidy Income
Subsidy income decreased from $2.4 million for the six months ended June 30, 2025 to $18 thousand in the current-year period. The amounts are the one-time awards granted by the Chinese government in 2025 and 2026.
Foreign Exchange (Loss) Gain
Foreign exchange gain decreased from $10.9 million for the six months ended June 30, 2025 to a loss of $11.6 million for the six months ended June 30, 2026. The foreign exchange loss for the six months ended June 30, 2026 was primarily due to unfavorable changes in the U.S. dollar and Euro exchange rates relative to the changes in RMB exchange rates.
Changes in Fair Value of Warrant and Convertible Loan
For the six months ended June 30, 2026, we recorded a gain of $58.0 million. The gain was primarily due to the change of the fair value of the Convertible Loan before it was settled on May 28, 2026, see Note 14 - Convertible Loan measured at fair value.
Provision for Income Taxes
Provision for income taxes for the six months ended June 30, 2026 was nil as compared to a provision of $220 thousand for the comparable prior year period. The Company did not general taxable income and there was no material deferred tax expenses or benefit in the first half year of 2026.
Liquidity and Capital Resources
Overview
Since inception, we have financed our operations primarily from capital contributions from equity holders, the issuance of convertible notes and bank borrowings. As of June 30, 2026, our principal sources of liquidity were our cash and cash equivalents and restricted cash totaling $143.1 million, of which $127.8 million was comprised of cash and cash equivalents.
Of the cash and cash equivalents as of June 30, 2026, $39.7 million is held by our Chinese subsidiaries and $23.5 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 withholding taxes. We currently intend to retain available funds and any future earnings to support ongoing operation and expansion efforts in China, Europe and the U.S.
Going Concern Evaluation
We evaluated 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 consolidated financial statements are issued. Based on our revised business plan, our projected cash flow may not be sufficient to fund operations and meet debt obligations over the next twelve months. Additionally, recent equity market conditions and business performance have rendered our equity funding unfavorable as a primary liquidity mechanism. These conditions and events raise substantial doubt about the Company's ability to continue as a going concern.
As of June 30, 2026 and through the issuance date of these financial statements, our forecast has been significantly
impacted by developments including: (1) the 28.8% decrease in revenue and the 24.3% reduction in sales volume from approximately 947.2 MWh to approximately 717.2 MWh, driven by evolving regulatory and geopolitical dynamics including in the Indian and Korean markets, a demand shift toward lower-cost products in India, and OEM platform ramp-up delays in Europe and APAC; (2) the decline in gross margin from 36.0% to 30.4% due to higher raw material prices and lower production utilization, and a moderation in global electric vehicle demand growth driven by the expiration of government incentive programs and shifting regulatory frameworks; (3) the change from $44.3 million of cash generated by operating activities in the prior-year period to $33.3 million used in operating activities, an unfavorable change of $77.6 million; (4) the concentration of near-term maturities, with $104.2 million of our $118.6 million of borrowings due within the next 12 months; and (5) constrained access to capital, including that equity market conditions and business performance have rendered equity funding unfavorable as a primary liquidity mechanism and that cash held by our Chinese and European subsidiaries cannot currently be repatriated to fund our U.S. operations due to foreign regulatory restrictions and adverse tax consequences. As a result, we expect to continue to incur operating losses and negative operating cash flows, further reducing liquidity and increasing reliance on external sources of capital. These 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 that these consolidated financial statements are issued.
Management is evaluating and pursuing several initiatives intended to improve the Company's liquidity position, including:
•Implementing operating cost reduction initiatives and reducing or deferring certain discretionary capital expenditures;
•Negotiating extensions or restructurings of debt obligations within the Company's China operating entities;
•Pursuing refinancing of short-term bank borrowings as they mature; and
•Evaluating additional financing alternatives, including potential capital raising transactions and strategic opportunities.
We have evaluated whether the plans described above are sufficient to alleviate the substantial doubt about our ability to continue as a going concern. Under this evaluation, we assessed whether 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 conditions and events that raise substantial doubt. We have determined that, while the plans described above are intended to improve our liquidity position, certain elements of the plans have not been fully
implemented and are dependent upon factors outside our control, and therefore cannot be deemed probable. As a result, substantial doubt about our ability to continue as a going concern has not been alleviated. There can be no assurance that we will be able to reduce operating expenses or generate the level of revenue necessary to achieve profitability and generate cash, refinance or extend our maturing borrowings, obtain any needed waivers or amendments from our lenders, or source additional financing on acceptable terms, if at all. Without additional sources of financing, our ability to continue as a going concern would be materially and adversely impacted, and we may be required to significantly reduce, restructure or, cease operations.
Additional Liquidity Initiatives
We secured $69.4 million in bank loans during the six months ended June 30, 2026 (see Note 6 - Bank Borrowings), of which $48.2 million represented refinanced debt. We anticipate that we will continue to be able to refinance the maturing short-term bank borrowing for the next twelve months. However, there can be no assurances that such refinancing or extension will be available on acceptable terms, or at all, and this refinancing plan cannot be deemed to be probable. As of June 30, 2026, we were in compliance with all material terms and covenants under our loan agreements, credit agreements, and bonds.
Financings
As of June 30, 2026, our debt obligations consisted of:
•Bank borrowings of $118.6 million, the terms range from 2 to 21 months. The interest rates on our bank borrowings ranged from 2.40% to 4.85% per annum.
•Bonds payable outstanding of $41.7 million, with interest rates ranging from 3% to 4%. The convertible bonds are all due in 2027.
As of June 30, 2026, we were in compliance with all material terms and covenants of our loan agreements, credit agreements and bonds. However, as discussed in Note 1 - Background and Basis of Presentation, this compliance does not alleviate the substantial doubt about our ability to continue as a going concern. Future non-compliance with financial covenants may limit our access to existing credit facilities or result in an acceleration of debt obligations, which would further adversely impact liquidity.
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.
Capital Expenditures and Other Contractual Obligations
Our capital expenditures amounted to $15.5 million and $14.0 million for the six months ended June 30, 2026 and 2025, respectively. Our capital expenditures for the periods were primarily related to (i) the purchase of our office building in the U.S., primarily funded by the proceeds from the sale of our held for sale assets and (ii) our Huzhou facility expansion, primarily funded by localized borrowings and cash flow from our China operations.
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 2023. To support our expanding product portfolio and growing customer demand, we initiated our Huzhou Phase 3.2 capacity expansion in the fourth quarter of 2024 with total anticipated additional production capacity of 2 GWh annually.
Because of delays in securing additional financing, in the fourth quarter of 2023 we began experiencing slow progress in continuing construction of our Clarksville expansion, slowing down certain construction work streams due to the need for additional financing. The proceeds from the Business Combination alone were not sufficient to complete the Clarksville expansion and meet our general working capital needs. Due to foreign regulatory restrictions, adverse tax consequences and localized working capital needs, we are currently unable to repatriate cash from China to fund the U.S. operations or the Clarksville expansion. We are seeking alternative sources of capital to complete the Clarksville battery production and manufacturing plant to satisfy domestic content requirements for our U.S. customers. Towards the end of 2025, we made a targeted investment in our Clarksville facility to establish a pack assembly line, expanding our domestic capabilities and supporting anticipated customer demand. We financed this investment through cash generated from our operating activities.
Our future capital requirements will depend on many factors, including, but not limited to funding planned production capacity expansions, customer demand, 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 11 - Leases, in the notes to the consolidated financial statements.
Purchase Commitments
We regularly enter into non-cancelable contractual obligations primarily related to purchases of inventory. As of June 30, 2026, such purchase commitments, which do not qualify for recognition on our consolidated balance sheets, amount to $37.5 million, most of which is short-term.
There have not been any other material changes during the three and six months ended June 30, 2026 to our contractual obligations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Cash Flows
The following table provides a summary of our cash flow data for the periods indicated (in thousands):
Six Months Ended June 30,
2026
2025
Net cash (used in) generated from operating activities $ (33,309) $ 44,323
Net cash used in investing activities (3,306) (5,078)
Net cash generated from (used in) financing activities 8,180 (6,799)
Cash Flows from Operating Activities
Net cash used in our operating activities was $33.3 million for the six months ended June 30, 2026, a decrease of $77.6 million compared to $44.3 million generated by operating activities in the same period in 2025. This change was primarily due to a $60.6 million reduction in net income after adjusting for non-cash items and a $17.0 million net change in operating assets and liabilities. The changes in our operating assets and liabilities were primarily driven by the decreases in notes payable and an increase in inventory balances, partially offset by a decrease in accounts receivable due to improved credit management.
Cash Flows from Investing Activities
Net cash used in investing activities was $3.3 million for the six months ended June 30, 2026, compared to $5.1 million in the same period of 2025. This cash outflow primarily consisted of the purchase of our office building in the U.S. and capital expenditures related to the expansion of our Huzhou Phase 3.2 manufacturing facility, partially offset by the proceeds from the sale of our held for sale assets.
Cash Flows from Financing Activities
Net cash generated by financing activities was $8.2 million for the six months ended June 30, 2026, an increase of $15.0 million compared to $6.8 million used in the same period of 2025. The increase was primarily due to a $9.8 million increase in proceeds from bank borrowings, $7.4 million decrease in deferred payment related to the purchases of property, plant and equipment as majority of them were settled during the first quarter of 2026, partially offset by a $4.6 million increase in repayments of bank borrowings.
Critical Accounting Estimates
The preparation of these consolidated financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
There have been no significant changes to our critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025.
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