Microvast Holdings Inc.
11/09/2026 | Press release | Distributed by Public on 11/09/2026 16:04
Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
References in this Quarterly Report on Form 10-Q (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. Our guiding principle is to innovate lithium-ion battery designs from the ground up without relying on legacy technologies. We believe that this approach should allow 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 investment in our research and development and operations, differentiates us from competitors.
We employ a vertically integrated approach, with our proprietary technology stack spanning 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 advancements in ultra-fast charging, high energy density, long cycle life, and safety, all critical factors for commercial transportation and ESS applications. With in-house capabilities in design, testing, and R&D, we strive to build an industry-leading body of knowledge in battery chemistry and performance.
Our Strategy
Short-Term Strategy
Our near-term strategy is focused on preserving liquidity, addressing our significant near-term debt maturities and stabilizing our operations in response to the significant decline in revenue and gross margin that we experienced during the third quarter of 2026. As described under "Going Concern" below and in "Liquidity and Capital Resources," substantial doubt exists about our ability to continue as a going concern, and management's plans to alleviate that substantial doubt cannot be deemed probable. Based on our current cash flow forecasts, absent additional financing, the refinancing, extension or restructuring of our debt obligations, or significant further reductions in costs, we expect our available cash to be insufficient to meet our obligation as they come due over the next twelve months. Our near-term priorities include the following items.
Cost reduction, capital discipline and liquidity initiative
We are implementing operating cost reduction initiatives across all areas of the business and are reducing or deferring certain discretionary capital expenditures, in addition to implementing a targeted reduction in workforce in certain of our operations. Additionally, we are exploring all potential options to address our liquidity position, including potential asset sales. However, there can be no assurance that any asset sale will be completed. As of the date of this Quarterly Report, our liquidity initiative and cost-reduction program have not been fully implemented, and the cash costs associated with any such actions have and may continue to strain our near-term liquidity.
Refinancing and extension of near-term debt obligations
Our ability to meet our near-term debt obligations depends on our ability to refinance or extend them. These obligations include $41.7 million (RMB285 million) of convertible bonds issued by MPS to Huzhou Saiyuan due, together with accrued interest, on or before January 31, 2027, $84.0 million of short-term bank loans of our PRC subsidiaries maturing at various dates during the next twelve months and $14.5 million principal installments due within the next twelve months under MPS's long-term working capital loans. We do not expect to be able to repay the convertible bonds on or before January 31, 2027 unless we are able to refinance or extend them. If we fail to repay the bonds when due, the applicable interest rate will increase to 12%, and Huzhou Saiyuan will have the right, within 60 days after the maturity date, to dispose of our pledged 12.39% equity interest in MPS in proportion to the amount of matured bonds or to convert the outstanding bonds into equity interests of MPS based on an entity value of MPS of $950.0 million. Either outcome would reduce our ownership interest in MPS, our principal operating subsidiary. A failure to repay the bonds when due will also constitute an event of default and trigger cross-defaults under our other debt arrangements.
We are negotiating extensions or restructurings of debt obligations within our China operating entities and pursuing the refinancing of short-term bank borrowings as they mature, and while negotiations remain ongoing with our lenders regarding the refinancing or extension of our debt obligations, there can be no assurance that such negotiation will be successful. During the nine months ended September 30, 2026, we secured $95.8 million of bank borrowings, of which $59.8 million represented refinanced debt. However, it cannot be deemed probable that any refinancing or extension will be available on acceptable terms, or at all, and a failure to make any of these payments when due will result in an event of default and could result in the acceleration of substantially all of our bank borrowings and bonds payable and the enforcement of security over MPS's assets and our equity interest in MPS. See Note 6 - Bank Borrowings and Note 8 - Bonds Payable to the consolidated financial statements.
Long-Term Strategy
Assuming we are able to address our near-term liquidity requirements and alleviate the substantial doubt about our ability to continue as a going concern, our long-term objective is to drive 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. 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 may 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. Over time, we are working towards a balanced global strategy throughout Europe and North America. We have expanded our capabilities to serve customers in Europe and the U.S. while maintaining operations in Asia-Pacific. Further investment will depend on customer demand, product qualification, manufacturing utilization, and available capital. We seek to maintain relationships with original equipment manufacturers ("OEMs") in our target markets. We have primarily supplied our battery solutions to OEMs for use in electric commercial and specialty vehicles.
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 these 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 these 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 these 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 Operating Factors Affecting Our Performance
Assuming we are able to alleviate our going concern status, 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 draw on our R&D capabilities in the U.S. and our overseas locations, including China. R&D expenditures affect our operating expenses, while the timing and success of product development, validation, and commercialization may affect our ability to secure customer orders and generate revenue.
We have developed the 290Ah lithium iron phosphate ("LFP") cell-based battery packs as modular battery solutions designed for a range of commercial and heavy-duty industrial applications. These packs use our LFP cell technology to provide scalable configurations and safety features for the operating environments required by fleets.
We have also explored the possibility of introducing the KAF™ electric powertrain platform concept, based on the 290Ah LFP platform and targeted at the U.S. school bus market. The platform is designed to combine high-voltage battery packs, a nitrogen purging design, and selected traction drive components. It is intended to simplify OEM integration and reduce deployment cost. The effectiveness of the nitrogen purging design and other safety measures must be evaluated in the target battery pack configuration. Commercialization of the KAF™ platform and associated 290Ah LFP products remains subject to significant testing, product prototype development and final product validation, vehicle-level integration with OEM partners, customer qualification, and the availability of domestic manufacturing capacity and capital. We plan to work with suppliers for selected traction drive components and the final supply scope and interfaces will be determined for individual OEM programs.
We also continue to work towards advancement of our proprietary all-solid-state battery ("ASSB") technologies, combining a liquid-electrolyte-free architecture with a non-porous, polyaramid-based solid electrolyte membrane. This platform is designed to support ionic transport and structural stability, with the potential to improve energy density and safety. Our bipolar architecture enables internal series connections within an integrated stack, offering flexible voltage configurations while potentially reducing external interconnections and simplifying battery system design. Recent laboratory studies have demonstrated progress in specific energy, cycle life, and bipolar integration. Selected prototypes showed no visible fire or smoke under the reported laboratory abuse-test conditions. We are also exploring silicon-sulfur chemistry for its potential to increase specific energy and provide partial compensation for electrode dimensional changes. Our solid-state and silicon sulfur batteries are currently at the early-stage prototype stage. The results described above are preliminary research and development data from separate prototypes, obtained under limited laboratory or test conditions. They are not commercial qualification results and remain subject to further validation, repeat testing, scale-up, customer qualification, manufacturing readiness and capital availability.
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, such as the phase-out of certain regional clean energy subsidies previously received by our Chinese subsidiary. 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 has and could continue to adversely affect demand for our products and our financial performance.
During the third quarter of 2026, we experienced a significant reduction in demand for our products, and our revenue for the three months ended September 30, 2026 decreased by 62.8% compared with the corresponding prior-year period. Our customers have continued to reduce their sales estimates and order volumes, and we currently have limited visibility into our revenue for the next several quarters. Our revenues are materially concentrated with a small number of customers, and there is significant uncertainty regarding the level of future orders from our largest customer after 2026. In addition, one of our significant European customers was recently acquired by a third party, which creates additional uncertainty regarding its future purchases from us. Any further reduction in demand, any loss of or reduction in orders from a significant customer or any failure to collect our significant amount of outstanding accounts receivable would further adversely affect our revenue, cash flows, and liquidity.
Manufacturing Capacity
Our ability to scale our business and meet customer demand depends on the effective utilization of our existing manufacturing capacity and on the timely expansion of our manufacturing footprint. As of September 30, 2026, our order backlog was primarily composed of long-term transit and logistics partners in Europe. The timing of revenue recognition from this backlog depends on production readiness, customer delivery schedules, product qualification, and other contractual requirements. If production volumes are below levels needed to absorb fixed manufacturing overhead, unit costs may increase and gross margins may be adversely affected.
In 2023, we completed the 2 GWh cell, module, and pack production line (Phase 3.1) at our Huzhou, China facility for our 53.5Ah cell technology. This Phase 3.1 line also supports the production of our 48Ah and 55Ah cells. In addition, we have pilot production lines used for prototyping and testing, and our Germany facility produces VDA modules. Actual production depends on production mix, customer demand, equipment availability, and manufacturing yield.
Installation and commissioning of the Phase 3.2 production equipment at our Huzhou, China facility have been completed. This Phase 3.2 line is designed to accommodate 48Ah, 53.5Ah, 55Ah, and 120Ah variants. Manufacturing process and product validation for the 120Ah cell have been completed. Production ramp-up remains ongoing and depends on customer demand, production yields, product qualification, operating efficiency, and working capital availability. Unless production volumes increase sufficiently, the Phase 3.2 line will operate below its designed capacity, and the associated costs of commissioning, ramp-up and underutilization may adversely affect our operating results and gross margin.
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. The pack assembly line is substantially completed. Resumption of full-scale construction remains contingent upon securing additional financing or strategic partnerships. Unless additional funding is secured and construction resumes, our ability to establish the planned cell manufacturing capacity and vertically integrated ESS container assembly operations at the site will remain limited. If the project is delayed further or additional financing cannot be obtained on acceptable terms, we may be unable to realize the expected operational benefits of the facility, and additional capital investment may be required before the planned operations can commence.
Future capacity expansions will require significant capital expenditures and corresponding investments in supporting infrastructure, working capital, sales and marketing, customer development, and quality control. We plan to assess expansion in light of medium- and long-term demand, customer commitments, available financing and expected returns. The financial benefit of additional capacity will depend on our ability to generate sufficient orders and shipments and operate facilities at efficient utilization levels.
Sales Geographic Mix
Historically, our sales were primarily concentrated in the Asia & Pacific ("APAC") regions. We have been expanding our presence in Europe and the U.S. to diversify our geographic sales mix and pursue opportunities in the electric vehicle and energy storage markets. We believe that sales in these markets may offer opportunities for higher average selling prices and gross margins compared with sales in China, as customers in these markets may place greater emphasis on application-specific performance requirements, certification, system integration, warranty expectations, and total cost of ownership, whereas the Chinese market is characterized by intense price competition among local battery manufacturers. However, higher average selling prices in these markets do not necessarily result in higher total revenue or gross margins; results also depend on sales volumes, product mix, pricing, customer requirements and the costs of serving each market. For the three months ended September 30, 2026, revenue decreased by more than 60% compared with the corresponding prior-year period, reflecting a decline in sales across markets. Our geographic expansion did not offset the overall decrease in sales during the period.
Manufacturing Costs
Our profitability may also be affected by our ability to effectively manage our manufacturing costs, maintain efficient production operations and achieve sufficient capacity utilization. Manufacturing costs are affected by fluctuations in raw material prices, supplier pricing, production volumes, manufacturing efficiency and the utilization of our production
facilities. Increases in raw material and other production costs may adversely affect our gross margins if we are unable to pass these increases on to customers through higher selling prices or offset them through cost reductions and productivity improvements. Our ability to manage raw material costs also depends on our ability to negotiate favorable terms with suppliers and obtain reliable supplies at competitive prices.
Our manufacturing cost structure is also affected by changes in sales demand and production volumes. Higher production volumes may enable us to achieve economies of scale and improve the absorption of fixed manufacturing overhead costs. Conversely, lower-than-expected demand, reduced production volumes or underutilization of manufacturing capacity may increase fixed manufacturing overhead costs per unit, delay the realization of expected operating efficiencies and adversely affect our gross margins. In addition, competitive pricing pressures may limit our ability to pass increased costs on to customers.
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., the EPA intends to propose RCRA universal waste regulations for lithium batteries, which are expected to be finalized by the EPA as early as August 2027, and would create a new waste category specifically for lithium batteries and establish new requirements for transportation, handling, and storage. Also in the U.S., legislation known as the BRACE Act, which would require the EPA to establish a universal waste category for lithium batteries and would modify and modernize the recycling of spent lithium-ion batteries, passed the House in September 2026. It has not been signed into law. In Europe, Regulation 2023/1542 imposes requirements across the battery life cycle. Beginning February 18, 2027, EV and industrial batteries above 2 kWh placed on the European market must carry a digital battery passport, and batteries without one may not lawfully be placed on the market. Supply chain due diligence obligations apply from August 18, 2027, and carbon footprint declarations will be required for each battery model and manufacturing plant once the European Commission adopts a calculation methodology. Failure to timely comply could delay deliveries, increase compliance costs or adversely affect demand for our products. 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 the reduction of the subsidies received by our Chinese subsidiary and elimination of certain battery products export value-added tax rebate effective January 1, 2027 in China-has and could continue to adversely 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, as of July 24, 2026, the current presidential administration of the United States imposed 10% - 12.5% tariffs on imports from sixty economies under Section 301 of the Trade Act of 1974. Products of China are subject to the 12.5% rate, which applies in addition to existing Section 301 tariffs on Chinese-origin goods. The tariffs are currently being challenged in an ongoing court case before the U.S. Court of International Trade. 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. During the three and nine months ended September 30, 2026 and 2025, our revenue was generated across multiple geographic regions, including Europe, which accounted for the largest portion of our revenue mix, Asia-Pacific, and the U.S.
We issued $2.7 million in tariff refunds to U.S. customers, which were recorded as reductions to our revenue. Before the tariff refund reductions, a total of $5.7 million in revenue was realized in the United States for the nine months ended September 30, 2026. 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 September 30,
|
||||||||||||||||||||||||||
|
2026
|
2025
|
|||||||||||||||||||||||||
|
Amount
|
% |
Amount
|
% | |||||||||||||||||||||||
| China | $ | 12,166 | 27 | % | $ | 27,458 | 22 | % | ||||||||||||||||||
| Other Asia & Pacific countries | 1,288 | 3 | % | 11,352 | 9 | % | ||||||||||||||||||||
| Asia & Pacific | 13,454 | 30 | % | 38,810 | 31 | % | ||||||||||||||||||||
| Italy | 17,585 | 38 | % | 29,134 | 24 | % | ||||||||||||||||||||
| France | 9,755 | 21 | % | 33,247 | 27 | % | ||||||||||||||||||||
| Other European countries | 503 | 1 | % | 15,526 | 13 | % | ||||||||||||||||||||
| Europe | 27,843 | 60 | % | 77,907 | 64 | % | ||||||||||||||||||||
| United States | 4,508 | 10 | % | 6,570 | 5 | % | ||||||||||||||||||||
| Total | $ | 45,805 | 100 | % | $ | 123,287 | 100 | % | ||||||||||||||||||
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||||
|
2026
|
2025
|
|||||||||||||||||||||||||
| Amount | % | Amount | % | |||||||||||||||||||||||
| China | $ | 60,375 | 31 | % | $ | 106,427 | 32 | % | ||||||||||||||||||
| Other Asia & Pacific countries | 6,827 | 3 | % | 30,092 | 10 | % | ||||||||||||||||||||
| Asia & Pacific | 67,202 | 34 | % | 136,519 | 42 | % | ||||||||||||||||||||
| Italy | 88,705 | 46 | % | 81,809 | 25 | % | ||||||||||||||||||||
| France | 33,252 | 17 | % | 60,948 | 18 | % | ||||||||||||||||||||
| Other European countries | 1,511 | 1 | % | 34,085 | 10 | % | ||||||||||||||||||||
| Europe | 123,468 | 64 | % | 176,842 | 53 | % | ||||||||||||||||||||
| United States | 3,009 | 2 | % | 17,756 | 5 | % | ||||||||||||||||||||
| Total | $ | 193,679 | 100 | % | $ | 331,117 | 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 September 30, | |||||||||||
|
2026
|
2025
|
||||||||||
| Customer A | 19 | % | 24 | % | |||||||
| Customer B | 38 | % | 24 | % | |||||||
| Customer C | 12 | % | * | ||||||||
| Nine Months Ended September 30, | |||||||||||
|
2026
|
2025
|
||||||||||
| Customer A | 16 | % | 17 | % | |||||||
| Customer B | 46 | % | 25 | % | |||||||
Our revenues for the three and nine months ended September 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, litigation expenses, depreciation, amortization, and insurance costs.
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.
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.
Impairment Loss of Long-lived Assets. Impairment losses represent non-cash charges recognized under ASC 360 when the carrying amount of a long-lived asset group is not recoverable and exceeds its fair value. We evaluate property, plant and equipment for impairment when facts and circumstances indicate that the carrying values of such assets may not be recoverable. When evaluating for impairment, we first compare the carrying value of the asset group to the asset's estimated future undiscounted cash flows. Potential impairment exists if the estimated undiscounted future net cash flows for a given asset group is less than the carrying amount of the asset group. The impairment is determined by comparing the estimated fair value with the carrying value of the related asset group, and any excess amount by which the carrying value exceeds the fair value is recorded as an impairment in that period. The fair value of the asset group is estimated using a discounted cash flow model based on internal projections or a market value from the independent third-party appraisal. Property, plant and equipment assets are grouped at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
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 and foreign exchange (loss) gain. Fair value changes were primarily attributable to the convertible loan described in Note 14 to the unaudited consolidated financial statements included herein (the "Convertible Loan"), as these instruments are highly sensitive to fluctuations in our stock price. Foreign exchange (loss) gain consists of losses and gains from remeasurement of the foreign-currency-denominated functional currency. This section also includes interest expense associated with our debt financing arrangements, and interest income earned on our cash balances.
Income Tax Expense
We are subject to income taxes in the U.S. and the foreign jurisdictions in which we do business, namely China, Germany and the U.K. These foreign jurisdictions have statutory tax rates different from those in the U.S. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the absorption of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. We regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the U.S. Internal Revenue Service and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our current expectations, charges or credits to our income tax expense may become necessary. Any such adjustments could have a significant impact on our results of operations.
Income tax in China is generally calculated at 25% of the estimated assessable profit of our subsidiaries in China, except that two of our subsidiaries in China are qualified as "High and New Tech Enterprises" and thus enjoy a preferential income tax rate of 15%. The federal corporate income tax rate of 21% is applied for our U.S. entities. Our income tax in the U.K. is calculated at an average tax rate of 19% of the estimated assessable profit of our subsidiary in the U.K. The German enterprise income tax, which is a combination of corporate income tax and trade tax, is calculated at 29.1% of the estimated assessable profit of our subsidiary in Germany.
Results of Operations
Comparison of the Three Months Ended September 30, 2026 to the Three Months Ended September 30, 2025
The following table sets forth our historical operating results for the periods indicated (in thousands, except percentages):
|
Three Months Ended September 30,
|
$ Change |
% Change |
|||||||||||||||||||||
|
2026
|
2025
|
||||||||||||||||||||||
| Revenues | $ | 45,805 | $ | 123,287 | $ | (77,482) | (62.8) | % | |||||||||||||||
| Cost of revenues | (34,092) | (72,151) | 38,059 | (52.7) | % | ||||||||||||||||||
| Write-down for obsolete inventories | (9,346) | (4,724) | (4,622) | 97.8 | % | ||||||||||||||||||
| Gross profit | 2,367 | 46,412 | (44,045) | (94.9) | % | ||||||||||||||||||
| 5.2 | % | 37.6 | % | ||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| General and administrative expenses | (20,371) | (17,760) | (2,611) | 14.7 | % | ||||||||||||||||||
| Research and development expenses | (8,362) | (7,757) | (605) | 7.8 | % | ||||||||||||||||||
| Selling and marketing expenses | (4,569) | (6,006) | 1,437 | (23.9) | % | ||||||||||||||||||
| Impairment loss of long-lived assets | (35,741) | (36) | (35,705) | 99,180.6 | % | ||||||||||||||||||
| Total operating expenses | (69,043) | (31,559) | (37,484) | 118.8 | % | ||||||||||||||||||
| Subsidy income | 9 | 44 | (35) | (79.5) | % | ||||||||||||||||||
| (Loss) profit from operations | (66,667) | 14,897 | (81,564) | (547.5) | % | ||||||||||||||||||
| Other income and expenses: | |||||||||||||||||||||||
| Interest income | 364 | 236 | 128 | 54.2 | % | ||||||||||||||||||
| Interest expense | (1,358) | (1,255) | (103) | 8.2 | % | ||||||||||||||||||
| Changes in fair value of warrant liability and convertible loan | - | (12,641) | 12,641 | (100.0) | % | ||||||||||||||||||
| Foreign exchange loss | (3,772) | (1,903) | (1,869) | 98.2 | % | ||||||||||||||||||
| Other income (expense), net | 62 | (84) | 146 | (173.8) | % | ||||||||||||||||||
| Loss before provision for income taxes | (71,371) | (750) | (70,621) | 9,416.1 | % | ||||||||||||||||||
| Income tax expense | (5,429) | (739) | (4,690) | 634.6 | % | ||||||||||||||||||
| Net loss | $ | (76,800) | $ | (1,489) | $ | (75,311) | 5,057.8 | % | |||||||||||||||
Revenues
Our revenues for the three months ended September 30, 2026 decreased by $77.5 million, or 62.8%, compared to the same period in 2025. The decrease was primarily driven by a 62.2% reduction in sales volume from approximately 501.7 MWh for the three months ended September 30, 2025 to approximately 189.6 MWh for the same period in 2026. The decline reflected weaker sales across Europe and APAC as the result of softer end-market demand for heavy-duty trucks, port equipment, and heavy mining equipment, which led to reduced orders from several of our long-standing customers across Europe and APAC. Demand continued to be adversely affected by evolving commercial vehicle regulatory and geopolitical dynamics, including the Indian and Korean markets, and demand shifts towards lower cost products in India. The decrease in U.S. sales versus the prior year period was primarily due to our largest customer bringing product into 2025 as a result of uncertainty around tariff outcomes.
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, Write-Down for Obsolete Inventories, and Gross Profit
Our cost of revenues for the three months ended September 30, 2026 decreased by $38.1 million, or 52.7%, compared to the same period in 2025, primarily due to the decrease in sales volumes.
Our gross profit margin was 5.2% for the three months ended September 30, 2026 compared to 37.6% in 2025. This change was primarily attributable to a $9.3 million write-down for obsolete inventories related to specialized ESS components and other inventories, which negatively impacted our gross margin by 20.4 percentage points. Excluding the impact of this non-cash charge, the decreased gross margin reflected the significant reduction in sales volume, and continued pricing pressure in the lithium battery industry. The decrease in revenue also reduced the absorption of fixed manufacturing and operating costs, further compressing gross margin.
Our gross margin profile is subject to external pressures, including inflationary trends in raw material pricing, duties, taxes, and tariffs, and elevated logistics and freight expenses resulting from ongoing global supply chain disruptions and geopolitical conflicts. China has imposed a 2% consumption tax on lithium battery products sold in China effective September 1, 2026 and will increase the tax to 4% effective September 1, 2027. China also reduced the value added tax export rebate rate for specified lithium battery products from 9% to 6%, effective April 1, 2026 and will eliminate the export rebate effective January 1, 2027. 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 September 30, 2026 increased by $2.6 million, or 14.7%, compared to the same period in 2025. This increase was primarily due to a provision of $5.1 million for a litigation settlement in connection with the Schelling Action, which the Company agreed to settle in principle. Under the Company's insurance policy, the Company's total retention is capped at $10.0 million, representing its self-insured retention, and the remaining costs and fees including any proposed settlement is covered by insurance. As of September 30, 2026, the Company had paid $4.9 million toward its self-insured retention and accrued the remaining $5.1 million. See Note 16 - Commitments and Contingencies for additional information.
Research and Development Expenses
Research and development expenses for the three months ended September 30, 2026 increased by $605 thousand, or 7.8%, 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 September 30, 2026 decreased by $1.4 million, or 23.9%, compared to the same period in 2025. This decrease was primarily due to lower personnel costs.
Impairment Loss of Long-lived Assets
The non-cash impairment charges of long-lived assets were $35.7 million for the three months ended September 30, 2026, primarily driven by a $15.0 million, $4.4 million, and $16.3 million impairment loss for our operations in China, Germany, and the U.S., respectively. The impairment amount was a result of impairment testing for all the production line assets and construction-in-progress assets, triggered by a material decline in sales, gross margin, and operating performance during Q3 2026.
Subsidy Income
Subsidy income decreased from $44 thousand for the three months ended September 30, 2025 to $9 thousand in the current-year period. The amounts are the one-time awards granted by the local governments in 2025 and 2026.
Other Income and Expenses
Foreign Exchange (Loss) Gain
Foreign exchange loss increased from a loss of $1.9 million for the three months ended September 30, 2025 to a loss of $3.8 million for the three months ended September 30, 2026. The foreign exchange loss for the three months ended September 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.
Income Tax Expense
For the three months ended September 30, 2026, we recorded income tax expenses of $5.4 million, compared to $739 thousand in the same prior year period. The increase was mainly due to a full valuation allowance against the $5.4 million deferred income tax assets, as it has been determined that it is no longer more likely than not that the deferred income tax assets will be utilized in the near future due to the material decline in sales, gross margin and increase in the operating loss and net loss in the current quarter.
Comparison of the Nine Months Ended September 30, 2026 to the Nine Months Ended September 30, 2025
The following table sets forth our historical operating results for the periods indicated (in thousands, except percentages):
|
Nine Months Ended September 30,
|
$ Change |
% Change |
|||||||||||||||||||||
|
2026
|
2025
|
||||||||||||||||||||||
| Revenues | $ | 193,679 | $ | 331,117 | $ | (137,438) | (41.5) | % | |||||||||||||||
| Cost of revenues | (135,311) | (205,242) | 69,931 | (34.1) | % | ||||||||||||||||||
| Write-down for obsolete inventories | (11,067) | (4,724) | (6,343) | 134.3 | % | ||||||||||||||||||
| Gross profit | 47,301 | 121,151 | (73,850) | (61.0) | % | ||||||||||||||||||
| 24.4 | % | 36.6 | % | ||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| General and administrative expenses | (47,198) | (43,064) | (4,134) | 9.6 | % | ||||||||||||||||||
| Research and development expenses | (26,032) | (23,724) | (2,308) | 9.7 | % | ||||||||||||||||||
| Selling and marketing expenses | (14,654) | (16,229) | 1,575 | (9.7) | % | ||||||||||||||||||
| Impairment loss of long-lived assets | (35,765) | (1,400) | (34,365) | 2,454.6 | % | ||||||||||||||||||
| Total operating expenses | (123,649) | (84,417) | (39,232) | 46.5 | % | ||||||||||||||||||
| Subsidy income | 27 | 2,455 | (2,428) | (98.9) | % | ||||||||||||||||||
| (Loss) profit from operations | (76,321) | 39,189 | (115,510) | (294.8) | % | ||||||||||||||||||
| Other income and expenses: | |||||||||||||||||||||||
| Interest income | 1,479 | 611 | 868 | 142.1 | % | ||||||||||||||||||
| Interest expense | (3,913) | (3,695) | (218) | 5.9 | % | ||||||||||||||||||
| Changes in fair value of warrant liability and convertible loan | 58,001 | (91,002) | 149,003 | (163.7) | % | ||||||||||||||||||
| Foreign exchange (loss) gain | (15,377) | 8,951 | (24,328) | (271.8) | % | ||||||||||||||||||
| Other income, net | 983 | 1,148 | (165) | (14.4) | % | ||||||||||||||||||
| Loss before provision for income taxes | (35,148) | (44,798) | 9,650 | (21.5) | % | ||||||||||||||||||
| Income tax expense | (5,429) | (959) | (4,470) | 466.1 | % | ||||||||||||||||||
| Net loss | $ | (40,577) | $ | (45,757) | $ | 5,180 | (11.3) | % | |||||||||||||||
Revenues
Our revenues for the nine months ended September 30, 2026 decreased by $137.4 million, or 41.5%, compared to the same period in 2025. The decrease was primarily driven by a 37.4% reduction in sales volume from approximately 1,448.9 MWh for the nine months ended September 30, 2025 to approximately 906.8 MWh for the same period in 2026,
and $2.7 million in tariff refunds were issued to U.S. customers recorded as a reduction to our revenue in the current period.
During the nine months ended September 30, 2026, the decrease in sales volume reflected weaker sales across Europe and APAC as the result of softer end-market demand for heavy-duty trucks, port equipment, and heavy mining equipment, which led to reduced orders from several of our long-standing customers, across Europe and APAC. Demand continued to be adversely affected by the commercial vehicles evolving regulatory and geopolitical dynamics, including the Indian and Korean markets, demand shift towards lower cost products in India. The decrease in U.S. sales versus the prior year period was primarily due to our largest customer bringing product into 2025 as a result of uncertainty around tariff outcomes.
Our revenue and delivery schedules were also impacted by broader macroeconomic headwinds, including geopolitical instability and evolving taxes and tariff structures, which contributed to market volatility and influenced customer procurement cycles.
Cost of Revenues, Write-Down for Obsolete Inventories, and Gross Profit
Our cost of revenues for the nine months ended September 30, 2026 decreased by $69.9 million, or 34.1%, compared to the same period in 2025, primarily due to the decrease in sales volumes and the one-time $4.4 million recognition of tariff refunds which is partially offset by higher raw material prices.
Our gross profit margin was 24.4% for the nine months ended September 30, 2026 compared to 36.6% in 2025. This change was primarily attributable to an $11.1 million write-down for obsolete inventories related to specialized ESS components and other inventories, which negatively impacted our gross margin by 5.7 percentage points. Excluding the impact of this non-cash charge, the decreased gross margin reflected the significant reduction in sales volume, changes in geographic markets, and continued pricing pressure in the lithium battery industry. The substantial decrease in revenue also reduced the absorption of fixed manufacturing and operating costs, further compressing gross margin.
Our gross margin profile is subject to external pressures, including inflationary trends in raw material pricing, duties, taxes, and tariffs, and elevated logistics and freight expenses resulting from ongoing global supply chain disruptions and geopolitical conflicts. China has imposed a 2% consumption tax on lithium battery products sold in China effective September 1, 2026 and will increase the tax to 4% effective September 1, 2027. China also reduced the value added tax export rebate rate for specified lithium battery products from 9% to 6%, effective April 1, 2026 and will eliminate the export rebate effective January 1, 2027. 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 nine months ended September 30, 2026 increased by $4.1 million, or 9.6%, compared to the same period in 2025. This increase was primarily due to a provision of $5.1 million for a litigation settlement, a $684 thousand increase in share-based compensation expenses and a $976 thousand increase in insurance fees, partially offset by a $1.3 million decrease in labor costs and a $2.7 million decrease in allowance for credit loss due to improved credit management. The litigation provision was incurred in connection with the Schelling Action, which the Company agreed to settle in principle. Under the Company's insurance policy, the Company's total responsibility for the litigation is capped at $10.0 million, representing its self-insured retention, and the remainder is covered by insurance. As of September 30, 2026, the Company had paid $4.9 million toward its self-insured retention and accrued the remaining $5.1 million.
Research and Development Expenses
Research and development expenses for the nine months ended September 30, 2026 increased by $2.3 million, or 9.7%, compared to the same period in 2025. The increase was primarily due to a $2.0 million increase in labor costs as we expanded our investment in new product development.
Selling and Marketing Expenses
Selling and marketing expenses for the nine months ended September 30, 2026 decreased by $1.6 million, or 9.7%, compared to the same period in 2025. The decrease was primarily due to a $1.4 million decrease in labor costs.
Impairment Loss of Long-lived Assets
The non-cash impairment charges of long-lived assets were $35.8 million for the nine months ended September 30, 2026, primarily driven by a $15.1 million, $4.4 million, and $16.3 million impairment loss for our operations in China, Germany, and the U.S., respectively. The impairment amount was a result of impairment testing for all the production line assets and construction-in-progress assets, triggered by the material decline in sales, gross margin, and operating performance during Q3 2026.
Subsidy Income
Subsidy income decreased from $2.5 million for the nine months ended September 30, 2025 to $27 thousand in the current-year period. The amounts are the one-time awards granted by the local governments in 2025 and 2026.
Other Income and Expenses
Foreign Exchange (Loss) Gain
Foreign exchange gain decreased from $9.0 million for the nine months ended September 30, 2025 to a loss of $15.4 million for the nine months ended September 30, 2026. The foreign exchange loss for the nine months ended September 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 nine months ended September 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.
Income Tax Expense
For the nine months ended September 30, 2026, we recorded income tax expenses of $5.4 million, compared to $959 thousand in the same prior year period. The increase was mainly due to a full valuation allowance against the $5.4 million deferred income tax assets as it has been determined that it is no longer more likely than not that the deferred income tax asset would be utilized in the near future due to the material decline in sales, gross margin and increase in the operating loss and net loss during the quarter ended September 30, 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 September 30, 2026, our principal sources of liquidity were our cash and cash equivalents and restricted cash totaling $124.4 million, of which $84.8 million was comprised of cash and cash equivalents.
Of the cash and cash equivalents as of September 30, 2026, $30.4 million is held by our Chinese subsidiaries and $14.4 million is held by our European subsidiaries. These funds are generally intended to support local operations. Due to foreign regulatory restrictions, adverse tax consequences and localized working capital needs, we are currently unable to repatriate cash from China and Europe to fund our U.S. operations. We currently intend to retain available funds and any future earnings to satisfy our debt obligations and support ongoing operations in China, Europe and the U.S.
Going Concern Evaluation
As of September 30, 2026, we evaluated and concluded that the financial condition and operating results raised substantial doubt about our ability to continue as a going concern. We experienced a significant decline in revenue and gross margin during the third quarter of 2026, incurred a substantial operating loss, and continued to generate negative cashflow in operating activities. In addition, we had limited working capital and significant current debt obligations, including obligations that require refinancing or repayment during the assessment period. Based on our current cash flow forecasts, absent additional financing, the refinancing, extension or restructuring of our debt obligations, or significant
further reductions in costs, we expect our available cash to be insufficient to meet our obligations as they come due over the next twelve months.
Our near-term debt obligations include: (i) $22.4 million (RMB149.9 million) of principal under the 2022 Facility Agreement entered into by MPS, our principal operating subsidiary in China, which was fully paid and retired subsequent to September 30, 2026; (ii) $41.7 million (RMB285 million) of convertible bonds issued by MPS to Huzhou Saiyuan, due, together with accrued interest, on or before January 31, 2027; (iii) $84.0 million of short-term bank loans of our PRC subsidiaries, each with an original maturity of 12 months or less, which mature at various dates during the next twelve months; and (iv) $373 thousand, $149 thousand, $13.8 million and $149 thousand of principal under MPS's long-term working capital loans, due December 19, 2026, March 18, 2027, June 19, 2027 and September 18, 2027, respectively. Our ability to make these payments depends on our ability to refinance or extend these obligations, and while negotiation remain ongoing with our lenders regarding the refinancing or extension of our debt obligations, there can be no assurance that such negotiations will be successful. In particular, we do not expect to be able to repay the convertible bonds on or before January 31, 2027 unless we are able to refinance or extend them. If we fail to repay the bonds when due, the applicable interest rate will increase to 12%, and Huzhou Saiyuan will have the right, within 60 days after the maturity date, to dispose of our pledged 12.39% equity interest in MPS in proportion to the amount of matured bonds or to convert the outstanding bonds into equity interests of MPS based on an entity value of MPS of $950.0 million. Either outcome would reduce our ownership interest in MPS, our principal operating subsidiary. A failure to make any of these payments will result in an event of default under the relevant debt arrangement and in the acceleration of substantially all of our bank borrowings and bonds payable and the enforcement of security over MPS's assets and our equity interest in MPS. See Note 6 - Bank Borrowings and Note 8 - Bonds Payable.
As of September 30, 2026, we had stockholders' equity of $472.8 million, including an accumulated deficit of $1,162.8 million, cash and cash equivalents of $84.8 million, of which $30.4 million was held by our Chinese subsidiaries and $14.4 million was held by our European subsidiaries, restricted cash of $39.6 million, total current assets of $352.7 million, and total current liabilities of $355.8 million, resulting in a working capital deficit of $3.1 million. Due to foreign regulatory restrictions, adverse tax consequences and localized working capital needs, we are currently unable to repatriate cash from China and Europe to fund our U.S. operations. We had current bank borrowings, notes payable and current bonds payable totaled approximately $196.0 million. Additionally, as of September 30, 2026, we had $34.7 million in purchase commitments primarily related to inventory, and $6.5 million in capital commitments with $5.6 million due within the next 12 months. Certain current assets, including restricted cash, accounts receivable and inventory, are not expected to be available to satisfy obligations as they become due.
For the three months ended September 30, 2026, we generated revenue of $45.8 million and a gross profit of $2.4 million, a significant decrease compared to $123.3 million revenue and $46.4 million gross profit in the same quarter last year. For the nine months ended September 30, 2026, net cash used in operating activities was $65.4 million, and cash, cash equivalents and restricted cash decreased by $44.8 million.
Furthermore, we currently have limited visibility into our revenue for the next several quarters and into cash collections in the near term, and our first quarter has historically reflected nominal reductions in activity related to the Chinese New Year holiday. Our revenues are also materially concentrated with a small number of customers, and there is significant uncertainty regarding the level of future orders from certain of our largest customers. There can be no assurance that we will collect these receivables when expected, or at all, or that our significant customers will maintain their current order levels.
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 the consolidated financial statements are issued. Based on our revised business plan and current cash flow forecasts, our projected cash flow is not expected to be sufficient to fund operations and meet debt obligations as they come due. Absent additional financing, the refinancing, extension or restructuring of our debt obligations, or significant further reductions in costs, we expect our available cash to be insufficient to meet our obligations as they come due over the next twelve months. Additionally, recent equity market conditions and business performance have rendered equity funding unfavorable as a primary liquidity mechanism. These conditions and events 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;
•Implementing a focused commercial recovery plan to rebuild order intake and revenue visibility;
•Establishing an integrated sales-and-operations plan linking confirmed demand to production schedules, material purchases, labor, capacity utilization, and cash requirements;
•Negotiating extensions or restructurings of debt obligations within the Company's China operating entities;
•Pursuing refinancing of short-term bank borrowings as they mature. The Company secured $95.8 million from bank borrowing during the nine months ended September 30, 2026, of which $59.8 million represented refinanced debt. There can be no assurances that the Company will continue to be able to refinance the maturing short-term bank borrowing for the next twelve months on acceptable terms, or at all, and a refinancing plan cannot be deemed to be probable. As of September 30, 2026, the Company was in compliance with all material terms and covenants under its loan agreements, credit agreements, and bonds;
•Exploring potential asset sales;
•Implementing a targeted reduction in workforce in certain of our operations; and
•Evaluating other financing alternatives. Financing sources available to the Company have been limited, and any financing that may be available in the near term is expected to be short-term in nature or subject to significant restrictions.
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 these financial statements are issued, and (2) when implemented, the plans will mitigate the conditions and events that raise substantial doubt. The effectiveness of management plans to address liquidity risks depends in part on factors outside the Company's control, including customer demand, customer order commitments, operating performance, lender decisions and capital market conditions. As of the date of this assessment, the cost-reduction program had not been fully implemented, and future refinancing or additional financing sufficient to meet the Company's liquidity requirements cannot be deemed probable.
After considering our financial condition, operating results, cash flow forecasts, debt obligations and management's plans, we concluded that substantial doubt about our ability to continue as a going concern is not alleviated. The consolidated financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary in the event the Company can no longer continue as a going concern. It cannot be deemed probable 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 borrowing, 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 will be materially and adversely impacted, and we will be required to significantly reduce, restructure, or cease operation or liquidate our assets, or if necessary, seek relief under applicable reorganization laws. In addition, if MPS fails to settle its debts as and when they fall due, MPS may become subject to a voluntary or involuntary bankruptcy or liquidation proceeding under the Enterprise Bankruptcy Law of the PRC, in which event unrelated third-party creditors may claim rights to some or all of MPS's assets, which would materially and adversely affect our business, financial condition and results of operations.
Short-Term Liquidity Requirements and Sources of Funds
Our short-term liquidity requirements consist of the cash needed to fund our day-to-day operations and to satisfy our material commitments coming due over the next 12 months. Our operating cash needs consist principally of raw material and component purchases, labor and personnel costs, manufacturing overhead, warranty obligations, and general and administrative, research and development and selling and marketing expenses. During the three and nine months ended September 30, 2026, our general and administrative, research and development and selling and marketing expenses totaled $33.3 million and $87.9 million, respectively, and net cash used in operating activities for the nine months ended September 30, 2026 was $65.4 million. We expect operating cash requirements to decrease as our cost reduction initiatives are implemented, although the timing and amount of any such decrease are uncertain.
In addition to our operating cash needs, our material commitments include debt obligations of approximately $162.5 million in the aggregate due within the next 12 months. We may also be required to make payments in connection with pending legal proceedings, including the proposed settlement of the Schelling Action, in connection with which we recorded an accrued liability of $16.5 million, of which $11.4 million is expected to be funded by our insurers, during the three months ended September 30, 2026. We expect to pay our portion of the settlement amount by using our existing cash on hand. See Note 6 - Bank Borrowings, Note 8 - Bonds Payable, and Note 16 - Commitments and Contingencies to the consolidated financial statements.
Our existing cash and cash equivalents and expected cash flows from operations are not sufficient to satisfy our operating requirements and the debt obligations coming due over the next 12 months. As of October 31, 2026, our total usable cash across all of our entities was approximately $71.3 million. Based on our current forecasts, absent additional financing, the refinancing or extension of our debt obligations, or further cost reductions, we expect our available cash to be insufficient to meet our obligations as they come due over the next twelve months. Cash at our European operations is limited to a minimum safety balance. Our ability to meet these requirements depends on our ability to refinance or extend substantially all of our maturing bank borrowings and bonds payable, implement our cost reduction initiatives and, if necessary, obtain additional financing. Management has concluded that these plans cannot be deemed probable. If we are unable to refinance or extend these obligations or obtain additional financing, we will not be able to make the relevant payments when due, which would result in events of default and could result in the acceleration of substantially all of our bank borrowings and bonds payable and the enforcement of security over MPS's assets and our equity interest in MPS. In that event, we may be required to significantly reduce, restructure or cease operations, liquidate our assets or seek relief under applicable reorganization laws.
Additional Liquidity Initiatives
We secured $95.8 million in bank loans during the nine months ended September 30, 2026 (see Note 6 - Bank Borrowings), of which $59.8 million represented refinanced debt. There can be no assurances that the Company will be able to refinance the maturing short-term bank borrowing for the next twelve months on acceptable terms, or at all, and any refinancing plan cannot be deemed to be probable. As of September 30, 2026, we were in compliance with all material terms and covenants under our loan agreements, credit agreements, and bonds.
Financings
As of September 30, 2026, our debt obligations consisted of:
•Bank borrowings of $135.3 million, consisting of (i) $22.4 million under the 2022 Facility Agreement, which was fully paid and retired subsequent to September 30, 2026; (ii) $84.0 million of short-term bank loans of our PRC subsidiaries, each with an original maturity of 12 months or less, maturing at various dates during the next twelve months; and (iii) $28.9 million under MPS's long-term working capital loans, of which $373 thousand is due December 19, 2026, $149 thousand is due March 18, 2027, $13.8 million is due June 19, 2027, $149 thousand is due September 18, 2027 and $14.5 million is due March 18, 2028. The interest rates on our bank borrowings ranged from 2.40% to 4.85% per annum.
•Bonds payable outstanding of $41.7 million (RMB285 million), with interest rates ranging from 3% to 4%, all of which, together with accrued interest, is due on or before January 31, 2027.
Our ability to repay these obligations as they become due depends on our ability to refinance or extend them. If we are unable to refinance or extend these obligations, we will not be able to make the relevant payments, which would result in events of default, the potential acceleration of substantially all of our bank borrowings and bonds payable and the potential enforcement of security over MPS's assets and our equity interest in MPS, as described in Note 6 - Bank Borrowings and Note 8 - Bonds Payable to the consolidated financial statements.
As of September 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.
Financing sources available to the Company have been limited, and any financing that may be available to the Company in the near term is expected to be short-term in nature or subject to significant restrictions and may not be
sufficient to address the Company's liquidity needs. Future capital requirements may change based on business developments, market conditions and liquidity needs.
Capital Expenditures and Other Contractual Obligations
Our capital expenditures amounted to $17.9 million and $31.4 million for the nine months ended September 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, 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 and Europe 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. The pack assembly line is substantially completed. Resumption of full-scale construction remains contingent upon securing additional financing or strategic partnerships. Unless additional funding is secured and construction resumes, our ability to establish the planned cell manufacturing capacity and vertically integrated ESS container assembly operations at the site will remain limited.
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 September 30, 2026, such purchase commitments, which do not qualify for recognition on our consolidated balance sheets, amount to $34.7 million, most of which is short-term.
There have not been any other material changes during the three and nine months ended September 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):
|
Nine Months Ended September 30,
|
|||||||||||
|
2026
|
2025
|
||||||||||
| Net cash (used in) generated from operating activities | $ | (65,441) | $ | 59,486 | |||||||
| Net cash used in investing activities | (5,637) | (15,455) | |||||||||
| Net cash generated from (used in) financing activities | 23,312 | (9,544) | |||||||||
Cash Flows used in Operating Activities
Net cash used in our operating activities was $65.4 million for the nine months ended September 30, 2026, compared to $59.5 million in cash generated by operating activities in the same period in 2025. This change was primarily due to a $105.1 million reduction in net income after adjusting for non-cash items and a $19.8 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, the decreases in accrued expenses and other liabilities and an increase in inventory balances, partially offset by a decrease in accounts receivable due to improved credit management.
Cash Flows used in Investing Activities
Net cash used in investing activities was $5.6 million for the nine months ended September 30, 2026, compared to $15.5 million in the same period of 2025. This cash outflow primarily consisted of $9.2 million for the purchase of an office building in Houston, $7.3 million for the acquisition of machinery and equipment, and other capital expenditures related to the expansion of our Huzhou Phase 3.2 manufacturing facility, partially offset by $10.8 million proceeds from the sale of our facility in Lake Mary, Florida, which was classified as held for sale assets before the disposal.
Cash Flows from Financing Activities
Net cash generated by financing activities was $23.3 million for the nine months ended September 30, 2026, an increase of $32.8 million compared to $9.5 million used in the same period of 2025. The increase was primarily due to a $25.7 million increase in proceeds from bank borrowings, $10.9 million decrease in deferred payment related to the purchases of property, plant and equipment as a majority of them were settled during the first quarter of 2026, partially offset by a $6.1 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.
During the nine months ended September 30, 2026, we recognized an impairment loss of $35.8 million related to certain long-lived assets.
The assessment of the recoverability and impairment of long-lived assets represents a critical accounting estimate because it requires management to exercise significant judgment in evaluating the recoverability of asset carrying values and estimating their fair values.In evaluating whether an impairment loss exists, management considers events and changes in circumstances that may indicate that the carrying amount of an asset group may not be recoverable. Such indicators include, among others, significant changes in market conditions, production capacity utilization, adverse changes in the manner in which assets are used, and changes in the expected timing or extent of future cash flows.
When an impairment indicator is identified, management estimates the undiscounted future cash flows expected to result from the use and eventual disposition of the asset group. If the carrying amount is not recoverable, an impairment loss is measured as the excess of the carrying amount over the estimated fair value of the asset group.
The determination of fair value requires significant management judgment and estimates, including assumptions regarding future production, commodity prices, operating costs, capital expenditures, the timing of future operations, and applicable discount rates, as appropriate. Changes in these assumptions could result in materially different estimates of fair value and impairment losses.
The impairment loss recognized during 2026 reflects management's assessment of the circumstances and assumptions applicable to the affected assets as of the measurement date. The impairment assessment and the assumptions used in determining the impairment loss are subject to uncertainty, and changes in underlying assumptions or future economic and operating conditions could result in additional impairment losses in future periods.
Except for the impairment assessment described above, 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.
Microvast Holdings Inc. published this content on November 09, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 09, 2026 at 22:04 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]