Washington, D.C. 20549
Peter Z. Wang
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
Indicate the number of outstanding shares of each of the issuer’s
classes of capital or common stock as of the close of the period
covered by the annual report.
At December, 31 2021, 261,256,254 of the issuer’s ordinary shares
were issued and outstanding.
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check
mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or an emerging growth company. See definition of “large accelerated
filer,” “accelerated filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares its financial
statements in accordance with U.S. GAAP, indicate by check mark if
the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark which basis of accounting the registrant has
used to prepare the financial statements included in this
filing:
U.S. GAAP ☒
If “Other” has been checked in response to the previous question,
indicate by check mark which financial statement item the
registrant has elected to follow.
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Explanatory Note
Cenntro Electric
Group Co., Ltd. is filing this Amendment No. 1 (the
“Amendment No. 1”) to our annual report on Form 20-F for the year
ended December 31, 2021, filed with the Securities and Exchange
Commission on April 25, 2022 (the “Original Filings”), to update
information regarding the Company’s unique risks with operations
conducted by our subsidiaries based in China, describe the cash
flows and transfers of other assets by type that have occurred
between the holding company and its subsidiaries, and amend our key
factors affecting operating results and key operating metrics. As
required by Rule 12b-15 under the Securities Exchange Act of 1934,
as amended, new certifications by our chief executive officer and
chief financial officer are being filed as exhibits to this
Amendment No. 1.
This Amendment
No. 1 speaks as of the filing date of the Original Filings. Other
than as set forth above, this Amendment No. 1 does not, and does
not purport to, amend, update or restate any other information or
disclosure included in the Original Filings, or reflect any events
that have occurred since the date thereof.
CENNTRO
ELECTRIC GROUP LIMITED
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Conventions Used in this Annual Report
In this annual report on Form 20-F, including any subsequent
amendments (this “Annual Report”), unless the context otherwise
requires, all references to the “Company,” “we,” “our,” “us,” or
similar terms refer to
Cenntro Electric
Group Limited ACN 619 054 938 (formerly known as Naked Brand Group
Limited) and its subsidiaries, giving effect to the consummation of
the Combination (as defined in the Introduction).
Cenntro Electric
Group, Inc., a Delaware corporation (“CEG”).
Cenntro
Automotive Group Limited, a Hong Kong private company limited by
shares (“CAG HK”).
Cenntro
Automotive Corporation, a Delaware corporation (“CAC”), on a
combined basis, prior to the consummation of the Combination as
“Cenntro.”
Hangzhou Cenntro
Autotech Co., Ltd., a PRC limited liability company (“Autotech”), a
wholly owned subsidiary of CAG.
Hangzhou
Hengzhong Tech Co., Ltd., a PRC limited liability company
(“Hengzhong Tech”), a wholly owned subsidiary of Autotech.
Hangzhou Ronda
Tech Co., Ltd., a PRC limited liability company (“Ronda”), a wholly
owneds subsidiary of CAG.
Naked Brand
Group, Inc., a Nevada corporation, is a wholly owned
subsidiary of Cenntro Electric Group Limited.
Naked, Inc., a
Nevada corporation, is a wholly owned subsidiaryof Naked
Brand Group, Inc.
Shengzhou Cenntro
Machinery Co., Ltd., a PRC limited liability company (“Shengzhou
Machinery”), a wholly owned subsidiary of Autotech.
Simachinery
Equipment Limited, a Hong Kong private company limited by shares
(“Simachinery Equipment”), a wholly owned subsidiary of CAG.
Tropos Motors
Europe GmbH (TME), a German limited liability company, is an
operating company in which the CEG acquired a 65% equity interest
in March 2022.
Zhejiang
Sinomachinery Co., Ltd., a PRC limited liability company (“Zhejiang
Sinomachinery”), is a wholly owned subsidiary of Sinamachinery
Equipment.
Zhejiang Cenntro
Machinery Co., Ltd., a PRC limited liability company (“Zhejiang
Machinery”), is a wholly owned subsidiary of CAG.
Zhejiang Tooniu
Tech Co., Ltd., a PRC limited liability company (“Tooniu”), is a
wholly owned subsidiary of CAG.
Zhejiang Xbean
Tech Co. Ltd. is a PRC limited liability company (“Zhejiang Xbean”)
is a wholly owned subsidiary of Zhejiang Sinomachinery.
References to
“NBG” refer to Naked Brand Group Limited ACN 619 054 938 prior to
the completion of the Combination. References to “CAG” refer to
Cenntro Automotive Group Limited, a Cayman Islands exempted company
with limited liability, the former parent company of Cenntro prior
to the completion of the Combination.
This Annual Report contains our audited consolidated and combined
financial statements and related notes as of December 31, 2021 and
2020 and for the fiscal years ended December 31, 2021, 2020 and
2019 (“Audited Financial Statements”). Our Audited Financial
Statements have been prepared in accordance with United States
generally accepted accounting principles (“U.S. GAAP”). The Company
is subject to the Australian Corporations Act 2001 (Cth)
(“Corporations Act”), which requires financial statements be
prepared and audited in accordance with Australian Accounting
Standards (“AAS”) and International Financial Reporting Standards
(“IFRS”). The financial information in this Annual Report
(including the information in the Audited Financial Statements) are
not financial statements for the purposes of the Corporations Act
and is considered “non-IFRS financial information” under the
Australian Securities and Investment Commission’s Regulatory Guide
230: ‘Disclosing non-IFRS financial information.’ Such non-IFRS
financial information may not be comparable to similarly titled
information presented by other entities and should not be construed
as an alternative to other financial information prepared in
accordance with AAS or IFRS. Our combined financial statements as
of December 31, 2020 and for the years ended December 31, 2021,
2020 and 2019, included in this Annual Report, are the combined
financial statements of Cenntro and present periods prior to the
closing of the Combination (as defined below). We refer to such
financial statement as Cenntro’s “combined financial statements.”
References to “dollars,” “$,” “U.S. dollars” and “USD” refer to
United States dollars.
Except as otherwise provided, all share and per share information
included in this Annual Report gives retroactive effect to NBG’s
reverse share split, at a ratio of 1-for-15, of the issued and
outstanding ordinary shares, no par value (the “Ordinary Shares”)
which became effective on December 22, 2021 (the “Reverse Share
Split”).
On November 5,
2021, NBG entered into a Stock Purchase Agreement (the “Acquisition
Agreement”) with CAG, CAG HK, CAC and CEG, each a wholly owned
subsidiary of CAG, setting forth the terms of the Combination.
Pursuant to the Acquisition Agreement, NBG purchased from CAG (i)
all of the issued and outstanding ordinary shares of CAG HK (the
“CAG HK Shares”), (ii) all of the issued and outstanding shares of
common stock, par value US$0.001 per share, of CAC (the “CAC
Shares”), and (iii) all of the issued and outstanding shares of
common stock, par value US$0.01 per share, of CEG (the “CEG Shares”
and, together with the CAG HK Shares and the CAC Shares, the
“Cenntro Shares,” and such acquisition of the Cenntro Shares, the
“Combination”). On December 22, 2021, NBG effected the Reverse
Share Split of its Ordinary Shares, at a ratio of 1-for-15. The
closing of the Combination occurred on December 30, 2021 (the
“Closing”). The aggregate purchase price for the Cenntro Shares was
174,853,546 Ordinary Shares (the “Acquisition Shares”) (as
determined in accordance with the Acquisition Agreement and as
described below and taking into account the Reverse Share Split)
and the assumption of options to purchase an aggregate of 9,225,271
Ordinary Shares under our Cenntro Electric Group Limited Amended
and Restated 2016 Incentive Stock Option Plan (the “2016
Plan”).
Immediately after the Closing of the Combination, we changed our
name from “Naked Brand Group Limited” to “Cenntro Electric Group
Limited,” and the business conducted by Cenntro became the business
conducted by the Company. The transaction was accounted for as a
reverse recapitalization in which Cenntro was determined to be the
accounting acquirer.
Promptly
following the Closing, CAG distributed the Acquisition Shares to
the holders of its capital stock in accordance with (i) the
distribution described in the Acquisition Agreement and (ii) CAG’s
Third Amended and Restated Memorandum and Articles of Association
(the “Distribution”). Pursuant to the Acquisition Agreement, at the
closing of the Combination, NBG assumed the 2016 Plan and each CAG
employee stock option outstanding immediately prior to the Closing
under the 2016 Plan was converted into an option to purchase a
number of Ordinary Shares equal to the aggregate number of CAG
shares for which such stock option was exercisable immediately
prior to the Closing multiplied by the Exchange Ratio of 0.71536,
as determined in accordance with the Acquisition Agreement, at an
option exercise price equal to the exercise price per share of such
stock option immediately prior to the Closing divided by the
Exchange Ratio. As a result, options to purchase an aggregate of
9,225,271 Ordinary Shares are outstanding under the 2016 Plan as of
the date of this Annual Report.
On December 30,
2021, simultaneously with the closing of the Combination, NBG
divested itself of its business conducted through FOH Online Corp.
(“FOH”), formerly a subsidiary of NBG (the “Divestiture”), pursuant
to a binding term sheet of the same date (the “Term Sheet”), by and
among NBG, Bendon Limited (“Bendon”) and FOH. Bendon is controlled
by Justin Davis-Rice, a member of the Company’s board of directors
(the “Board”) and formerly NBG’s Executive Chairman and Chief
Executive Officer. From June 2018 until April 2021, Bendon was an
operating subsidiary of NBG. FOH is a designer and e-commerce
retailer of women’s intimate apparel, sleepwear and swimwear. It is
the exclusive licensee of the Frederick’s of Hollywood global
online license, under which it sells Frederick’s of Hollywood
intimate products, sleepwear and loungewear products, swimwear and
swimwear accessories products, and costume products.
Under the Term
Sheet, Bendon purchased all the outstanding shares of common stock
of FOH for a purchase price of AUS$1.00. In connection with such
purchase, NBG recapitalized FOH with USD$12.6 million in order to
cover liabilities of FOH assumed by Bendon and forgave USD$9.5
million of intercompany loans made by NBG to FOH. The Term Sheet
includes certain fundamental representations and warranties of NBG,
which terminated as of the closing of the Divestiture. Under the
Term Sheet, the Company has no liability to Bendon or FOH following
the closing.
MARKET,
INDUSTRY AND OTHER DATA
This Annual Report contains statistical data, estimates and
forecasts relating to our industry. While we believe the industry
and market data included in this Annual Report are reliable and
that any estimates or forecasts are based on reasonable
assumptions, the data may involve many assumptions and limitations,
and you are cautioned not to give undue weight to such data. We
have not independently verified the accuracy or completeness of the
market and industry data contained in this Annual Report. The
industry in which we operate is subject to a high degree of
uncertainty and risk due to a variety of factors, including those
risk factors described under the heading “Risk Factors” beginning
on page 4 of this Annual Report.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements about us and
our industry that involve substantial risks and uncertainties. All
statements other than statements of historical facts contained
herein, including statements regarding our future results of
operations or financial condition, business strategy and plans and
objectives of management for future operations, are forward-looking
statements. In some cases, you can identify forward-looking
statements because they contain words such as “anticipate,”
“believe,” “contemplate,” “continue,” “could,” “estimate,”
“expect,” “intend,” “may,” “plan,” “potential,” “predict,”
“project,” “should,” “target,” “will” or “would” or the negative of
these words or other similar terms or expressions. These
forward-looking statements include, but are not limited to,
statements concerning the following:
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our future financial performance,
including expectations regarding our revenue, expenses and other
operating results;
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our ability to establish new channel
partners and successfully retain existing channel partners;
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our ability to anticipate market needs
and develop and introduce new and enhanced vehicles to adapt to
changes in our industry;
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our ability to achieve or sustain
profitability;
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our ability to successfully enter new
geographic markets and manage our international expansion;
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future investments in our business,
our anticipated capital expenditures and our estimates regarding
our capital requirements;
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our expectations concerning
relationships with our supply chain providers;
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our ability to promote our
brand;
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our reliance on key personnel and our
ability to identify, recruit and retain skilled personnel;
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our ability to protect our
intellectual property rights and any costs associated
therewith;
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the inherent risks related to the
electric commercial vehicle industry;
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our ability to compete effectively
with existing and new competitors; and
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our compliance with applicable
regulations and our ability to adjust to regulatory developments
that become applicable to our business.
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You should not
rely on forward-looking statements as predictions of future events.
We have based the forward-looking statements contained herein
primarily on our current expectations and projections about future
events and trends that we believe may affect our business,
financial condition and operating results. The outcome of the
events described in these forward-looking statements is subject to
risks, uncertainties and other factors described in the section
titled “Risk Factors.” Moreover, we operate in a very competitive
and rapidly changing environment. New risks and uncertainties
emerge from time to time, and it is not possible for us to predict
all risks and uncertainties that could have an impact on the
forward-looking statements contained herein. The results, events
and circumstances reflected in the forward-looking statements may
not be achieved or occur, and actual results, performance, events
or circumstances could differ materially from those described in
the forward-looking statements.
In addition, statements that “we believe” and similar statements
reflect our beliefs and opinions on the relevant subject. These
statements are based on information available to us as of the date
of this Annual Report, and while we believe that information
provides a reasonable basis for these statements, that information
may be limited or incomplete. Our statements should not be read to
indicate that we have conducted an exhaustive inquiry into, or
review of, all relevant information. These statements are
inherently uncertain, and investors are cautioned not to unduly
rely on these statements.
The
forward-looking statements made in herein relate only to events as
of the date on which the statements are made. We undertake no
obligation to update any forward-looking statements made herein to
reflect events or circumstances after the date hereof or to reflect
new information or the occurrence of unanticipated events, except
as required by law. We may not actually achieve the plans,
intentions or expectations disclosed in our forward-looking
statements, and you should not place undue reliance on our
forward-looking statements. Our forward-looking statements do not
reflect the potential impact of any future acquisitions, mergers,
dispositions, joint ventures or investments.
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ITEM
1.
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IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.
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Not
applicable.
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ITEM
2.
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OFFER
STATISTICS AND EXPECTED TIME TABLE.
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Not
applicable.
Our Corporate
Structure and Operations in China
Cenntro Electric Group Limited ACN 619 054 938 is a holding company
incorporated in Australia and headquartered in New Jersey.
Investors are purchasing an interest solely in the Australian
holding company. As a holding company with no material operations
of its own, Cenntro Electric Group Limited ACN 619 054 938 conducts
operations through its subsidiaries in the United States, Germany
and in the People’s Republic of China, which we refer to as the PRC
or China. While a significant portion of our business functions are
located in the United States, including executive management,
corporate finance and sales, our operations in China through our
PRC subsidiaries subject us and our investors to unique risks due
to uncertainty regarding the interpretation and application of
currently enacted PRC laws and regulations and any future actions
of the PRC government relating to the foreign listing of companies
with significant PRC operations, and the possibility of sanctions
imposed by PRC regulatory agencies, including the China Securities
Regulatory Commission, if we fail to comply with their rules and
regulations. As a U.S.-listed public company with operations in
China, we may face heightened scrutiny and negative publicity,
which could materially affect our operations or significantly limit
our ability to offer or continue to offer securities to investors
and cause the value of such securities to significantly decline.
For a description of some of the China-related risks to this
offering, see “Risk Factors—Risks Related to Doing Business in
China.”
Holding Foreign
Companies Accountable Act
Pursuant
to the Holding Foreign Companies Accountable Act (the “HFCAA”), if
the Public Company Accounting Oversight Board (the “PCAOB”), is
unable to inspect an issuer’s auditors for three consecutive years,
the issuer’s securities are prohibited to trade on a U.S. stock
exchange. The PCAOB issued a Determination Report on December 16,
2021 (the “Determination Report”) which found that the PCAOB is
unable to inspect or investigate completely registered public
accounting firms headquartered in: (1) mainland China of the
People’s Republic of China because of a position taken by one or
more authorities in mainland China; and (2) Hong Kong, a Special
Administrative Region and dependency of the PRC, because of a
position taken by one or more authorities in Hong Kong.
Furthermore, the Determination Report identified the specific
registered public accounting firms which are subject to these
determinations. On June 22, 2021, United States Senate passed the
Accelerating Holding Foreign Companies Accountable Act (the
“AHFCAA”), which, if enacted, would decrease the number of
“non-inspection years” from three years to two years, and thus,
would reduce the time before our securities may be prohibited from
trading or delisted if the PCAOB determines that it cannot inspect
or investigate completely our auditor.
Our
current auditor, Marcum Bernstein & Pinchuk LLP (“MBP”), the
independent registered public accounting firm that issues the audit
report included in this annual report on Form 20-F, as an auditor
of companies that are traded publicly in the United States and a
firm registered with the PCAOB, is subject to laws in the U.S.
pursuant to which the PCAOB conducts regular inspections to assess
its compliance with the applicable professional standards. MBP,
whose audit report is included in this prospectus, is headquartered
in New York, New York, and, as of the date of this annual report,
was not included in the list of PCAOB Identified Firms in the
Determination Report. MBP has been inspected by the PCAOB on a
regular basis with the last inspection in 2020. However, as noted
above, recent developments create uncertainty as to the PCAOB’s
continued ability to conduct inspections of our independent
accounting firm MBP.
Our ability to retain an auditor subject to the PCAOB inspection
and investigation, including but not limited to inspection of the
audit working papers related to us, may depend on the relevant
positions of U.S. and Chinese regulators. With respect to audits of
companies with operations in China, such as the Company, there are
uncertainties about the ability of our auditor to fully cooperate
with a request by the PCAOB for audit working papers in China
without the approval of Chinese authorities. If the PCAOB is unable
to inspect or investigate completely the Company’s auditor because
of a position taken by an authority in a foreign jurisdiction, then
such lack of inspection could cause trading in the Company’s
securities to be prohibited under the HFCAA, and ultimately result
in a determination by a securities exchange to delist the Company’s
securities. Accordingly, the HFCAA calls for additional and more
stringent criteria to be applied to emerging market companies upon
assessing the qualification of their auditors, especially the
non-U.S. auditors who are not inspected by the PCAOB. For more
information see “Risk Factors – Risks Related to Our Ordinary
Shares - Our ordinary shares may be delisted under the Holding
Foreign Companies Accountable Act if the PCAOB is unable to inspect
our auditors. The delisting of our ordinary shares, or the threat
of their being delisted, may materially and adversely affect the
value of your investment.”
Transfers of Cash Between our Company and Our Subsidiaries
Cash transfers through the Company since inception are primarily
attributed to: 1) capital contribution from the Cenntro Electric
Group Limited (“CEGL”) to its subsidiaries; 2) shareholder loans
from CEGL to its subsidiaries; or 3) payment from one group company
to another through intercompany transactions. During the year ended
December 31, 2021, the total material cash transfer of other assets
within the organization was USD 30 million. The transfer consisted
of a $19.2 million loan from Naked Brand Group Limited (“NBGL”),
the predecessor to CEGL, to Cenntro Automotive Group Limited, a
wholly owned Hong Kong subsidiary (“CAGHK"), and a $10.8
million loan to Cenntro Automotive Corporation, a wholly owned
Delaware subsidiary (“CAC”). The $19.2 million loan was later
injected by CAGHK into subsidiaries wholly owned by CAGHK as
registered capital. The loan to CAGHK loan was forgiven after
the closing of the acquisition of CAGHK and CAC by NBGL (which
subsequently became CEGL via a name change) on December 30, 2021.
There was no cash amount transferred from the operating
subsidiaries to the holding companies during the year 2021 in the
form of loans, advances, or dividends. As of the date of this
filing, the Company has not yet been profitable and none of our
operating subsidiaries have made any dividend or distributions to
the holding company or through the intermediate holding companies,
or to investors including U.S. investors.
Our
subsidiaries are permitted to pay dividends to us only out of their
accumulated profits. Additionally, each of our subsidiaries in the
PRC must make appropriations from after-tax profit to a statutory
surplus reserve fund. The reserve fund requires an annual
appropriation of 10% of after-tax profit (determined under
accounting principles generally accepted in the PRC at each
year-end) after offsetting accumulated losses from prior years
until such reserve reaches 50% of the subsidiary’s registered
capital. The reserve fund can only be used to increase the
registered capital and eliminate further losses of the respective
companies under PRC regulations. These reserves are not
distributable as cash dividends, loans or advances. A PRC company
cannot distribute any profits until any losses from prior fiscal
years have been offset. Profits retained from prior fiscal years
may be distributed together with distributable profits from the
current fiscal year. Total restrictions placed on the distribution
of the Company’s PRC subsidiaries’ net assets were $37,383,696, or
14% of the Company’s total consolidated net assets as of December
31, 2021.
In
addition, under the regulations of the State Administration of
Foreign Exchange of the PRC (“SAFE”), Renminbi is not convertible
into foreign currencies for capital account items, such as loans,
repatriation of investments, and investments outside of China,
unless the prior approval of the SAFE is obtained and prior
registration with the SAFE is made.
D. Risk Factors
Risks
Related to Our Business and Financial Results
We have a limited operating history and face significant challenges
in an emerging industry.
We began
pilot production of our first-generation, U.S. Class 1 (0 - 6,000
lbs.), electric light-duty commercial vehicle, the Metro®, in 2018,
and, as of December 31, 2021, we have sold approximately 2,440
Metro® units throughout Europe, North America and Asia and deployed
approximately 1,300 additional Metro® units in China through
affiliated parties. Our revenues were approximately $8.6 million
for the year ended December 31, 2021. To date, we have derived our
revenues principally from sales of the Metro®. We have a limited
operating history on which you can base an evaluation of our
business and prospects. You should consider our business and
prospects in light of the risks and challenges we face in an
emerging industry with limited experience to date in high volume
manufacturing of electric commercial vehicles (“ECVs”), including
challenges related to our ability to:
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design and manufacture safe, reliable
and quality ECVs on an ongoing basis;
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establish and ramp up assembly
facilities in the United States and European Union;
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maintain and expand our network of
local assembly facilities, manufacturing partners, channel partners
and suppliers;
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execute on our growth plan to
regionalize supply chains, manufacturing and assembly of our
ECVs;
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maintain and improve our operational
efficiency;
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maintain a reliable, high quality,
high-performance and scalable manufacturing and assembly
infrastructure;
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attract, retain and motivate talented
employees including our production workforce in existing and
planned facilities, including the challenges we face with COVID-19
and the impact on our workforce stability;
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anticipate and adapt to changing
market conditions, including technological developments and changes
in the competitive landscape;
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protect our intellectual property;
and
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navigate an evolving and complex
regulatory environment.
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If we
fail to address any or all of these risks and challenges, our
business, financial condition, operating results and prospects may
be materially and adversely affected. As we continue to grow our
business, we cannot assure you that we will be able to develop
effective and cost-efficient manufacturing capabilities and
processes, and maintain reliable sources of component supplies,
that will enable us to meet the production demands required to
successfully sell our ECVs.
We have historically incurred losses from our operations and may
not be profitable in the future.
We
incurred losses from operations of approximately $16.5 million,
$10.6 million and $17.8 million for the years ended December 31,
2021, 2020 and 2019, respectively. We have made significant
up-front investments in research and development, supply chain
establishment, establishment of local assembly facilities and
capacity, and channel partner development to develop and expand our
business. We have spent approximately $75.1 million in research and
development activities related to our operations from our inception
through December 31, 2021. We expect to continue to invest
significantly in research and development, manufacturing and supply
chain operations to expand our business, and these investments may
not result in profitability within our expected timeframe or at
all.
We may
not generate sufficient revenues to be profitable in the future and
we may incur substantial losses for a number of reasons, including
lack of demand for our ECVs and increasing competition. In
addition, we may incur unforeseen expenses, or encounter
difficulties, complications and delays in market penetration or
delivery for our products, generating revenue or achieving
profitability. If we are unable to achieve profitability, we may
have to reduce the scale of our operations, which may impact our
planned growth and adversely affect our business, financial
condition, operating results and prospects.
Our ability to develop and manufacture ECVs of sufficient quality,
on schedule and on a large scale is still evolving.
Our
business depends in large part on our ability to execute on our
plans to develop, manufacture and sell our ECVs to our channel
partners. We began pilot production of the Metro® in 2018 and, as
of December 31, 2021, we have sold approximately 2,440 units in
North America, Europe, Asia and other markets and put into service
approximately 1,300 units. We plan to manufacture ECVs in higher
volumes than we have historically and our production capabilities,
including our facilities and those of our manufacturing partners,
may not be able to handle the anticipated volumes in our business
plan. Development and manufacturing of our current and future ECVs,
such as the Metro®, Logistar™, Teemak™, Neibor® series, are and
will be subject to risks, including:
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accurately manufacturing or procure
components within appropriate design tolerances;
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establishing additional manufacturing
and local assembly facilities in our various target markets;
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compliance with environmental,
workplace safety and similar regulations;
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securing necessary high-quality
components and materials from our supply chain on acceptable terms
and in a timely manner;
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our ability to execute on our growth
plan to regionalize our supply chain and manufacturing;
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delays or disruptions in the supply
chain, including as a result of pandemics such as COVID-19;
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delays or disruptions in ocean transit
or transportation between our suppliers, our manufacturing
facilities (or manufacturing partners’ facilities) and our local
assembly facilities and our customers;
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our ability to establish, maintain and
rely upon relationships with our suppliers, channel partners and
manufacturing partners; and
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other delays, backlog in manufacturing
and research and development of new models, and cost
overruns.
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Any of
the foregoing could materially and adversely affect our business,
financial condition, operating results and prospects.
Our future success depends on our ability to introduce new models
and we may experience delays in launching and ramping up production
of our new ECV models.
Beginning
in the fourth quarter of 2021, we introduced into the market the
Neibor® and Logistar™ series of ECVs as well as the Teemak™
off-road ECV. In order to introduce new ECV models, we have to
coordinate with our suppliers, manufacturing partners, channel
partners and other third parties in order to ensure timely
execution of the manufacturing and assembly processes. If we fail
to coordinate these efforts and achieve market introduction and
acceptance of our new ECV model in a timely manner, our business,
financial condition, operating results and prospects could be
adversely affected. In addition, we have limited experience to date
in manufacturing and assembling each of our new ECV series, as well
as limited experience building and ramping up multiple vehicle
production lines across multiple factories (including those of our
manufacturing partners) in different geographies. In order to be
successful, we will need to implement, maintain and ramp-up
efficient and cost-effective manufacturing capabilities between our
manufacturing partners, our own facility in Changxing and our local
assembly facilities. Manufacturing bottlenecks and other unexpected
challenges may arise during our production ramp-up, and we must
address them promptly. We may face delays in establishing and/or
sustaining production and timely delivery of our new ECV models.
Any delay or other complication in ramping up the production of our
current or future ECV models may harm our business, financial
condition, operating results and prospects.
Our operating results may be more volatile due to a high
concentration of sales in relatively few channel partners.
For the
years ended December 31, 2021, 2020 and 2019, our three largest
channel partners accounted for approximately 74.7%, 81.9% and 72.0%
of our sales, respectively. Due to the concentration of sales in
relatively few channel partners, the loss of one or more of these
channel partners will have a significant and adverse effect on our
operating results. In the event that any relationship with a
channel partner changes negatively, our operating results could be
materially adversely affected. During the year ended December 31,
2020, we ceased doing business with one of our channel partners
that had previously accounted for a significant portion of our
revenues in prior periods.
Our reliance on our channel partners to market, sell and service
(and in certain cases, assemble and/or homologate) our vehicles is
subject to substantial risks.
Our
channel partners are responsible for the sale, marketing and
servicing (and in certain cases, assembly and/or homologation) of
the ECV products we sell to them in the countries in which they
operate. We do not control the actions of our channel partners. For
example, we do not control how our channel partners market or sell
assembled ECVs or the quality of their service on our ECVs and,
with respect to the private label channel partners, we do not
oversee their assembly of our ECVs.
Our
channel partners are not subject to any minimum annual purchase
requirements. In the event our channel partners are not successful
in the markets in which they operate or fail to satisfy sales
targets, meet customer service objectives or experience adverse
regulatory actions or other operational challenges, we could
experience a reduction in sales. Furthermore, if any of our channel
partners fail to successfully operate their business or lack
liquidity to support their operations, they may be unable to
continue to purchase and sell our ECVs in the countries in which
they operate, which could limit our sales to such market for an
extended period and adversely affect our business.
In
addition, our ECVs are highly technical products that require
maintenance and support, which we rely on our channel partners to
provide to their customers. If our channel partners were to cease
or cut back operations at any time in the future, end-user
customers of our ECVs may encounter difficulties in maintaining
their vehicles and obtaining satisfactory support, which may
negatively impact our reputation.
Disputes
may occur between us and our channel partners or our channel
partners and their customers, and we could be affected by adverse
publicity related to such disputes, whether or not such publicity
is related to their collaboration with us. Our ability to
successfully build and maintain our brand can be adversely impacted
by perceptions about the quality of our channel partners’ servicing
(and in some cases, assembly) processes. Our arrangements with our
channel partners typically specify general quality standards that
the partners may meet, but do not provide us with any direct
control or oversight over marketing and selling (and in some cases,
assembly) behavior of such channel partners. We rely on our channel
partners to meet quality standards, but we cannot assure you that
they will successfully maintain quality standards, which could
adversely affect our reputation.
We may be
unable to enter into new agreements or extend existing agreements
with channel partners on terms and conditions acceptable to us or
at all. In addition, even if we are able to expand our channel
partner network, it on average takes up to six months from the time
we enter into an agreement with a new channel partner for them to
be operational and selling our ECVs, depending on their familiarity
with ECVs and the types of services they will provide to us. As of
December 31, 2021, only two of our 20 channel partners are “private
label” channel partners that assemble and sell our Metro® under
their own brand names. In addition, if we were to lose one or more
of our channel partners, there is no assurance that we would be
able to find a suitable replacement channel partner to take up the
role of marketing and distributing our ECVs in the relevant market
in the necessary timeframe or at all. The expense and time required
to complete the channel partner onboarding process, and to confirm
that our channel partners will be able to meet our quality
standards and regulatory requirements, may be greater than
anticipated, or we may never complete the onboarding process after
having invested significant resources on such channel partner. Any
of the foregoing could adversely affect our business, financial
condition, operating results and prospects.
Our channel partners may reduce or cancel their orders at any time,
which could adversely affect our business.
Our
relationships with our channel partners are typically subject to
definitive agreements we have with them. Under these agreements,
our channel partners do not have any minimum or binding purchase
obligations. Because our sales are made pursuant to standard
purchase orders, orders may be cancelled, reduced, or rescheduled
with little or no notice. Our ECVs may not meet the expectations of
our channel partners, the end-users or market requirements. In the
future, our channel partners or their customers may decide to
purchase fewer ECVs than they have in the past, may alter their
purchasing patterns at any time with limited or no notice, or may
decide not to continue to purchase our ECVs at all. Cancellations
of, reductions in, or rescheduling of orders could also result in
the loss of anticipated sales without allowing us sufficient time
to reduce our inventory and operating expenses, as a substantial
portion of our expenses are fixed at least in the short term. In
addition, changes in forecasts or the timing of orders expose us to
the risks of inventory shortages or excess inventory. Any of the
foregoing events could materially and adversely affect our
business, financial condition, operating results and
prospects.
Our channel partner network may not grow or develop as we currently
expect, and if we fail to establish new channel partners in current
markets in which we sell ECVs or penetrate new markets, our revenue
and financial condition would be adversely affected.
Substantially all of our revenue for the years ended December 31,
2021 and 2020 was derived from sales of our ECVs in North America,
Europe and Asia. As of December 31, 2021, we have established
relationships with 20 channel partners, two that assemble our
vehicle kits and sell them in their respective markets, two that
upfit our vehicles and sell them in Korea and the United States and
the remainder that sell fully assembled vehicles that are designed
and manufactured and assembled by us (or our manufacturing
partners). We aim to increase the size of our channel partner
network in our target markets, which is necessary for our expansion
in both existing and new markets. If we fail to successfully
establish new channel partners in these key markets, our expected
expansion could be materially impacted, which could adversely
affect our business, financial condition, operating results and
prospects. Furthermore, our future revenue growth will depend in
part on our ability to penetrate new geographic markets by
establishing new channel partners in those markets. Each new
geographic market presents distinct and substantial challenges and
risks and, in many cases, requires us to develop new customized
solutions to address the particular technical and regulatory
requirements of that market. Meeting the technical and regulatory
requirements in any of these new markets will require a substantial
investment of our time and resources. We cannot assure you that we
will be able to establish new channel partners in these new
markets, or that we will achieve meaningful revenue from sales in
these markets. If any of these markets do not develop as we
currently anticipate, our business, financial condition, operating
results and prospects could be adversely affected.
We do not provide charging solutions for our channel partners or
their customers.
Our ECVs
have two ways to charge - slow charging from a regular power outlet
and fast charging from a public electric vehicle (“EV”) charging
station. However, we do not intend to install charging stations in
the markets in which our ECVs are sold through our channel
partners. As such, we rely on our channel partners in such markets
to ensure charging solutions are available for end-user customers.
If a market in which our ECVs are sold has few options for
charging, the customers of our channel partners may need to rely on
their own power outlets for charging, which may make our vehicles
less attractive in such markets.
The battery capacity of our ECVs will decline over time, which may
negatively influence purchasing decisions by our channel partners
and end-users.
Our ECVs
can experience battery capacity and performance loss over time
depending on the use of the battery. We anticipate the battery
capacity in our ECVs will decline over time as the battery
deteriorates. We currently expect up to a 5% decline in the energy
capacity retention per year, which will decrease the capacity of
our ECVs over five years by up to 25% under normal use. Other
factors such as usage, time and stress patterns may also impact the
battery’s ability to hold a charge, which would decrease our ECVs
range before needing to recharge. Such battery deterioration and
the related decrease in range may negatively influence purchase
decisions by channel partners and end-users.
Our business is subject to the risk of disruption in our supply
chain.
We depend
on suppliers for the sourcing of ECV components and principal raw
materials. Our suppliers (and those they depend upon for materials
and services) are subject to risks, including labor disputes or
constraints, financial liquidity, inclement weather, natural
disasters, significant public health and safety events, supply
constraints or shortages, and general economic and political
conditions that could limit their ability to provide us with
components and raw materials. Our business and operations would be
adversely affected if any of our key suppliers were to experience
significant disruption affecting the price, quality, availability
or timely delivery of parts they supply to us or if any one or more
or our key suppliers discontinued operations. Furthermore, if we
experience significant increased demand, or need to replace our
existing suppliers, there can be no assurance that additional
suppliers of component parts will be available when required on
terms that are favorable to us, or at all, or that any supplier
would allocate sufficient supplies to us in order to meet our
requirements or fill our orders in a timely manner. The partial or
complete loss of these suppliers, or a significant adverse change
in the sourcing of ECV components, could result in lost revenue,
added costs and distribution delays that could harm our business
and channel partner relationships. In addition, concentration in
our supply chain can exacerbate our exposure to risks associated
with the termination by key suppliers of our supply-chain
arrangements or any adverse change in the terms of such
arrangements, which could adversely affect our business, financial
condition, operating results and prospects.
We may be
unsuccessful in our continuous efforts to source less expensive
suppliers for certain parts, redesign certain parts to make them
less expensive to produce and negotiate with existing suppliers to
obtain cost reductions and avoid unfavorable changes to terms. Any
of these occurrences may harm our business, prospects, financial
condition and operating results. We cannot assure you that we will
be able to maintain our existing relationships with our suppliers
and continue to be able to source key components we use in our ECVs
on a stable basis and at reasonable prices or at all. For example,
our suppliers may increase the prices for the components we
purchase and/or experience disruptions in their production of the
components.
We are dependent on our suppliers, certain of which are
single-source suppliers, and the inability of these suppliers to
continue to deliver, or their refusal to deliver, necessary
components of our ECVs at prices and volumes acceptable to us could
have a material adverse effect on our business, prospects and
operating results.
Historically, we have generally obtained components from multiple
sources whenever possible, similar to other automotive
manufacturers. However, a small number of our components used in
our ECVs are purchased from a single source. We refer to these
component suppliers as our single-source suppliers. For example,
while several sources for the airbag module for the Metro® are
available, we currently have only one supplier for these
components.
We
generally do not maintain long-term agreements with our
single-source suppliers. Any disruption in the supply of airbag
modules from our single-source supplier, for instance, could
temporarily disrupt production of our ECVs. While we believe that
we may be able to establish alternate supply relationships for our
single-source components and can obtain or engineer replacement
components, we may be unable to do so in the short term or at all
at prices or costs that are favorable to us. The loss of any single
or limited source supplier or the disruption in the supply of
components from these suppliers could lead to delays in vehicle
deliveries to our channel partners, which could hurt our
relationships with them and their end-user customers and also
materially adversely affect our business, prospects and operating
results.
In the
long-term, we intend to establish supply chain relationships in
North America and the European Union to support our manufacturing
and assembly needs in these markets, thereby reducing the time in
transit and potentially the duties associated with importing our
components and spare parts from China. We believe that our deep
supply chain development know-how will provide us significant
advantages; however, substantially all of our supply chain
experience is limited to China. If we are unable to effectively
manage the sourcing of our components and the responsiveness of our
supply chain in areas outside of China, our business and results of
operations may be harmed. It is also likely that in the early
stages of our supply chain expansion, we can expect most component
sources will be single-source suppliers.
We rely on third parties to manufacture substantially all of our
components and vehicle kits for each of our new series of ECV
models. Our qualified suppliers and manufacturing partners may fail
to deliver components and vehicle kits, respectively, according to
schedules, prices, quality and volumes that are acceptable to
us.
We have
shifted substantially all component manufacturing processes for our
new vehicles to qualified suppliers. The continuous and stable
supply of components needed in the manufacture and assembly of our
ECVs that meet our standards will be crucial to our operations and
production. Unexpected changes in business conditions, materials
pricing, labor issues, wars, governmental changes, tariffs, natural
disasters, health epidemics such as the global COVID-19 pandemic,
trade and shipping disruptions and other factors beyond our or our
suppliers’ control could affect their ability to deliver components
to us and expose us to component shortages.
The
unavailability of any component or supplier could result in
production delays, idle manufacturing facilities, product design
changes and loss of access to important technology and tools for
producing and supporting our products. Moreover, significant
increases in our production or product design changes by us may
require us to procure additional components in a short amount of
time. Our suppliers may not be willing or able to sustainably meet
our timelines or our cost, quality and volume needs, or to do so
may cost us more, which may require us to replace them with other
sources. While we believe that we will be able to secure additional
or alternate sources or develop our own replacements for most of
our components, there is no assurance that we will be able to do so
quickly or at all.
As part
of our light-asset distributed manufacturing business model and
methodology, vehicle kits (and in some instances, fully-assembled
vehicles) for our new ECV series are manufactured by third-party
manufacturing partners. From time to time, these manufacturing
partners may experience production problems or delays and may not
be able to meet our demand for vehicles. We may be required to
retain additional third-party manufacturing partners to assure
continuity in production, but finding additional manufacturing
partners in a timely and cost-effective manner may be difficult.
Any delays in the manufacture of our vehicle kits could cause the
loss of sales, and harm our brand, all of which could adversely
affect our business, financial condition, operating results or
prospects.
If our suppliers, channel partners or manufacturing partners fail
to use ethical business practices and comply with applicable laws
and regulations, our brand image and business could be harmed due
to negative publicity.
Our core
values, which include developing high quality ECVs while operating
with integrity, are an important component of our brand image,
which makes our reputation sensitive to allegations of unethical
business practices. We do not control our independent suppliers,
channel partners or manufacturing partners or their respective
business practices. Accordingly, we cannot guarantee their
compliance with ethical business practices, such as environmental
responsibilities, fair wage practices, and compliance with child
labor laws, among others. A failure in compliance could lead us to
seek alternative suppliers, channel partners or manufacturing
partners, which could increase our costs or result in delayed
delivery of our products, product shortages or other disruptions of
our operations.
Violation
of labor or other laws by our suppliers, channel partners or
manufacturing partners or the divergence of an independent
supplier’s labor or other practices from those generally accepted
as ethical in the markets in which we do business could also
attract negative publicity for us and our brand. This could
diminish the value of our brand image and reduce demand for our
ECVs if, as a result of such violation, we were to attract negative
publicity. Any negative publicity that results from unethical
practices by third parties could harm our brand image, business,
financial condition, operating results or prospects. If other
manufacturers in our industry encounter similar problems with their
third-party partners, any negative publicity with respect to the
ECV industry could negatively impact us.
If disruptions in our transportation network continue to occur or
our shipping costs continue to increase, we may be unable to sell
or timely deliver our products, and our gross margin could
decrease.
Our
success is dependent on our ability to transport our ECVs (whether
as vehicles kits or fully assembled vehicles) from China to markets
in the North America, Europe and Asia in a timely and
cost-effective manner. We rely heavily on third parties, including
ocean carriers and truckers, in that process. The global
transportation industry is experiencing ocean shipping disruptions,
trucking shortages, increased ocean shipping rates and increased
trucking and fuel costs, and we cannot predict when these
disruptions will end.
The
global transportation industry is also experiencing unprecedented
increases in shipping rates from the trans-Pacific Ocean carriers
due to various factors, including limited availability of shipping
capacity. As a result, our ability to deliver our ECV units to our
channel partners may be disrupted or delayed. Additionally, the
cost of shipping from China to local markets in North America and
Europe have each increased substantially between March 2020 and
December 2021. Such factors have had, and will continue to have, a
negative impact on vehicle production, gross profit margin, product
delivery time and revenue recognition. Our operating results for
the year ended December 31, 2021 have been significantly impacted
by such shortages and we expect such shortages to continue for the
foreseeable future.
The
shipping industry is also experiencing issues with port congestion
and pandemic-related port closures and ship diversions. Labor
disputes among freight carriers and at ports of entry are common,
and we expect labor unrest and its effects on shipping our products
to be a challenge for us. Any port worker strike, work slow-down or
other transportation disruption as a result of the issues currently
facing the industry could significantly disrupt our business. We
are currently experiencing such disruption due to multiple factors
brought about by the COVID-19 pandemic, such as supply and demand
imbalance, a shortage of warehouse workers, truck drivers,
transport equipment (tractors and trailers) and other causes, which
have resulted in heightened congestion, bottleneck and gridlock,
leading to abnormally high transportation delays. Additionally, if
increases in fuel prices occur, our transportation costs would
likely further increase. Similarly, supply chain disruptions such
as those described in the preceding paragraphs may lead to an
increase in transportation costs. This has materially and adversely
affected our business and could continue to materially and
adversely affect our business and financial results. If significant
disruptions along these lines continue, this could lead to further
significant disruptions in our business, delays in shipments, and
revenue and profitability shortfalls, which could adversely affect
our business, prospects, financial condition and operating
results.
The commercial viability of our Cenntro iChassis relies on
third-party hardware and software that may not be available, which
could render our product less marketable and negatively impact our
business, prospects and operating results.
The
commercial viability of our Cenntro iChassis depends in large part
on third-party developers utilizing hardware and software that is
required for autonomous driving. The Cenntro iChassis is an
open-platform and programmable chassis product, designed to act as
a basic and core execution unit of an automated or autonomous
driving vehicle. An automated system typically runs within a
well-defined set of parameters and is restricted in what tasks can
be performed. In contrast, an autonomous system learns and adapts
to dynamic environments, and evolves as the environment around it
changes. To be driven autonomously, the Cenntro iChassis requires
hardware and software that we do not produce, such as detection
devices and decision-making software. The Cenntro iChassis can only
be utilized if such hardware and software is otherwise available
and third parties are willing to integrate such technology with the
Cenntro iChassis. To the extent our competitors develop and market
a fully integrated autonomous EV, we may be at a commercial
disadvantage. The marketability of the Cenntro iChassis is
dependent on the willingness of third-party autonomous driving
vehicle producers to adopt our programmable chassis technology
rather than adopting other similar technologies or developing their
own proprietary programmable chassis, as well as the willingness of
end-users to purchase autonomous driving vehicles from such third
parties. If any of these factors is not present then the
marketability of our Cenntro iChassis will suffer, which could
negatively impact our business, prospects and operating results.
Furthermore, there are many uncertainties relating to the
homologation of autonomous driving vehicles, and we are unable to
predict when the market for autonomous driving vehicles will
develop more fully.
Our business depends substantially on the continuing efforts of our
executive officers, and our business may be severely disrupted if
we lose their services.
Our
future success depends substantially on the continued services of
our executive officers, especially our CEO and Chairman, Mr. Peter
Z. Wang. We do not currently maintain key man life insurance on any
of our executive officers. If any of our executive officers are
unable or unwilling to continue in their present positions, we may
not be able to replace them readily, if at all. Therefore, our
business may be severely disrupted, and we may incur additional
expenses to recruit and retain new officers. In addition, if any of
our executive officers joins a competitor or forms a competing
company, our business, financial condition, operating results or
prospects could be harmed.
Our facilities or operations could be damaged or adversely affected
as a result of disasters or unpredictable events.
We have
manufacturing and research facilities currently located in
Changxing, China. During 2021, we began utilizing one of our two
facilities in Freehold, New Jersey for the trial production of our
Logistar™ 400 model. In January 2022, we established a European
Operations Center in Dusseldorf, Germany, which provides marketing
support, after-market support and spare-parts warehousing for the
European market. We are in the process of establishing a local
assembly facility in Jacksonville, Florida to assemble the
Logistar™ 400 and Teemak™ models for distribution to our channel
partners for sales in the North American market. As of December 31,
2021, we worked with two “private label” channel partners with
local assembly facilities in the United States and in the European
Union. We also rely on our relationships with various manufacturing
partners in China who manufacture our new ECV series. If major
disasters such as earthquakes, fires, floods, hurricanes, wars,
terrorist attacks, computer viruses, pandemics (such as COVID-19)
or other unpredictable events, such as cyber-attacks, occur that
impact our facilities or the facilities of our channel and
manufacturing partners, we may have to stop or delay production and
shipment of our ECVs, and our operations may be seriously damaged.
We may incur expenses relating to such delays or damages, which
could materially and adversely affect our business, financial
condition, operating results and prospects.
The COVID-19 pandemic has harmed and may continue to harm our
business, financial condition, operating results and
prospects.
The
COVID-19 pandemic and associated containment measures have caused
economic and financial disruptions globally, affecting regions in
which we sell our ECVs and conduct our business operations. We are
unable to predict the full impact the pandemic may have on our
results of operations, financial condition, liquidity, and cash
flows due to numerous uncertainties, including the progression of
the pandemic, governmental and other responses, as well as the
resulting supply shortages and macroeconomic impacts, including
price inflation. In addition, new variant strains of COVID-19 have
emerged in different locations around the world, including the
Omicron variant and its new subvariants. The impact of the Omicron
subvariants and other COVID variants cannot be predicted at this
time and could depend on numerous factors, including vaccination
rates among the population, the effectiveness of COVID-19 vaccines
against new variants and the response by governmental bodies and
regulators.
We are
also unable to predict the extent of the impact of the pandemic on
our customers, suppliers, and other partners, which could
materially adversely affect demand for our ECVs and our results of
operations and financial condition. For the years ended December
31, 2021 and 2020, the COVID-19 pandemic contributed to uncertainty
in the demand environment for our ECVs. Our business was adversely
affected by supply constraints resulting from the pandemic that
affected the timing of shipments of certain components and ECVs in
desired quantities or configurations. During the early stages of
the pandemic, our facilities were completely closed for more than
one month, our ability to ship into the European Union was halted
and we had no new orders for our ECVs between March 2020 through
October 2020. Additionally, the pandemic negatively impacted our
channel partner network, including opportunities to grow the
network, and most of our channel partners at least temporarily shut
down their businesses. During the year ended December 31, 2021, our
business was negatively impacted by the resurgence of COVID-19. Our
supply chains and manufacturing were impacted by lock-downs and
containment measures implemented by local governments. As a result,
production lead times for our existing models as well as the
release dates of our new models were extended. Additional
COVID-related precautionary measures taken at ports have resulted
in delays in customs clearing. Finally, shortages of shipping
containers, indirectly as a result of the COVID-19 pandemic, have
resulted in increased transportation costs, inefficient order
fulfillment and significant order backlog during the year ended
December 31, 2021. This challenge has impacted the timing of sales
to some of our customers as we work to manage product availability
and in certain cases adjust orders and shipping with our suppliers,
manufacturing partners and customers.
Measures
taken to contain the COVID-19 pandemic, such as travel
restrictions, quarantines, shelter-in-place, and shutdowns, have
affected and may continue to affect our workforce and operations,
and those of our vendors, suppliers, and channel and manufacturing
partners. Restrictions on our operations or workforce, or similar
limitations for others, may affect our ability to meet customer
demand. We have taken and will continue to take risk mitigation
actions that we believe are in the best interests of our employees,
customers, suppliers, and other partners. Work-from-home and other
measures may create additional operational risks, including
heightened cybersecurity risks. These measures may not be
sufficient to mitigate the risks posed by the virus, and illness
and workforce disruptions could lead to unavailability of key
personnel and impair our ability to perform critical
functions.
We are
closely monitoring the development of the COVID-19 pandemic. The
COVID-19 pandemic may continue to cause disruption and volatility
in the global debt and capital markets, which may increase our cost
of capital and adversely affect our access to capital. The COVID-19
pandemic may adversely affect our business, results of operations,
and financial condition and it also may have the effect of
exacerbating the other risks discussed in this “Risk Factors”
section. Developments related to the COVID-19 pandemic have been
unpredictable, and additional impacts and risks may arise that we
are not aware of or are not able to respond to in an effective
manner.
Global economic conditions could materially and adversely affect
our business, financial condition, operating results and
prospects.
The
global macroeconomic environment is facing challenges, and the
uncertain state of the global economy continues to impact
businesses around the world, including as a result of COVID-19. If
global economic and financial market conditions do not improve or
further deteriorate, our business, financial condition, operating
results and prospects may be materially and adversely affected.
Some of the factors that could materially and adversely affect us
include:
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Slower spending may result in reduced
demand for our ECVs, reduced orders from our channel partners,
order cancellations, lower revenues, higher discounts, increased
inventories and lower gross margins.
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Continued volatility in the markets
and exchange rates for foreign currencies and contracts in foreign
currencies could have a significant impact on our reported
operating results and financial condition. We conduct transactions
in various currencies, which increases our exposure to fluctuations
in foreign currency exchange rates relative to the U.S.
Dollar.
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Volatility in the availability and
prices for commodities and raw materials we use in our ECVs from
our supply chain could have a material adverse effect on our costs,
gross margins and profitability.
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Instability in global financial and
capital markets may impair our ability to raise additional equity
or debt financing on reasonable terms or at all in order to grow
our business.
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Our financial results may vary significantly from period-to-period
due to the seasonality of our business and fluctuations in our
operating costs.
Our
operating results may vary significantly from period-to-period due
to many factors, including seasonal factors that may have an effect
on the demand for our ECVs. Demand for vehicles in the automotive
industry in general typically decline over the winter season, while
sales are generally higher during the spring and summer months. Our
limited operating history makes it difficult for us to judge the
exact nature or extent of the seasonality of our business. Also,
any unusually severe weather conditions in some markets may impact
demand for our vehicles. Our operating results could also suffer if
we do not achieve revenue consistent with our expectations for this
seasonal demand.
We also
expect our period-to-period operating results to vary based on our
operating costs which we anticipate will increase significantly in
future periods as we, among other things, design and develop
additional ECVs and components, establish new channel partners
relationships, establish new local assembly facilities and
technology support and research and developments centers, and
increase our general and administrative functions to support our
growing operations. In addition, our channel partner network
includes companies that have in the past, and may in the future,
experience financial difficulty and, in some instance, have been
unable to pay amounts owed to us on a timely basis, or at all. This
has led us to from time to time recognize provision for doubtful
accounts that vary from period to period and are difficult to
anticipate. As a result of these factors, we believe that
period-to-period comparisons of our operating results are not
necessarily meaningful and that these comparisons cannot be relied
upon as indicators of future performance.
Our distributed manufacturing methodology and channel partner
network model is different from the predominant current
distribution model for automotive manufacturers, which makes
evaluating our business, financial condition, operating results and
prospects difficult.
Our
distributed manufacturing model allows us to focus our efforts on
the design of ECV models and related technologies while outsourcing
various portions of the manufacturing, assembly and marketing of
our vehicles to qualified third parties, allowing the Company to
operate with lower capital investment than traditional vertically
integrated automotive companies. For the last several years, we
relied substantially on “private label” channel partners to
assemble the Metro® from vehicle kits that we manufactured in our
facilities. With the introduction of our new ECV models, we have
begun the process of shifting the manufacturing of our vehicle
kits, and in some cases fully assembled vehicles, to third party
OEM manufacturing partners and, in the case of vehicle kits,
assembling in our own facilities in North America and Europe. This
model of vehicle distribution is relatively new and unproven and
subjects us to substantial risk. For example, our success depends
in large part on our ability to effectively establish and maintain
successful relationships with manufacturing partners and channel
partners and for them to implement successful processes for
manufacturing our vehicles or marketing, sales, and servicing,
respectively.
Our
business model is subject to numerous significant challenges and
uncertainties, some of which are outside of our control, and we may
not be successful in addressing these challenges. For instance, we
have limited control or oversight over our manufacturing partners
and channel partners. To the extent a manufacturing partner or
channel partner is not conducting its business in an ethical manner
or is not performing to the required standards, we have limited
recourse. Our manufacturing partner and channel partner networks
are based solely on contractual arrangements and such contractual
arrangements do not currently, and may not into the future, provide
us with adequate oversight over our channel partners to protect our
reputation.
Additionally, in certain markets we intend to increase direct sales
to dealers, upfitters, enterprises and government organizations,
which will require that we add overhead and business structures to
service a direct sales business model that we do not currently have
in place.
Our business plans require will additional capital in the future,
which may not be available to us on acceptable terms or at
all.
Our
business plans will require additional capital in the future,
including to open new facilities (including assembly facilities),
grow the number of our channel partners and markets in which we
operate and support the production of our new ECV series. We
expect that our level of capital expenditures may be significantly
affected by channel partners’ customer demand for our ECVs. The
fact that we have a limited operating history means we have limited
historical data regarding the demand for our products and services
and our future capital requirements. As a result, our future actual
capital requirements may be uncertain and actual capital
requirements may be materially different from those we currently
anticipate.
We may
seek equity or debt financing to finance a portion of our capital
requirements in the future. Such financing might not be available
to us in a timely manner or on terms that are acceptable, or at
all. Our ability to obtain the necessary financing to carry out our
business plans is subject to a number of factors, including general
market conditions and investor acceptance of our business plans.
These factors may make the timing, amount, terms and conditions of
such financing unattractive or unavailable to us. If we are unable
to raise sufficient funds, we will have to significantly reduce our
spending, and delay or cancel our planned activities.
As we shift component and vehicle kit manufacturing to qualified
suppliers and manufacturing partners, we may have to shorten the
useful lives of any equipment to be retired as a result, and the
resulting acceleration in our depreciation could adversely affect
our financial results
We have
invested in what we believe is state of the art tooling, machinery
and other manufacturing equipment, and we depreciate the cost of
such equipment over their expected useful lives. However, during
the year ended December 31, 2021, we began shifting component
manufacturing to qualified suppliers. We have also outsourced
vehicle kit manufacturing (and, in some instances, vehicle
assembly) for our new ECV series to manufacturing partners to
reduce our capital expenditure requirements. As we shift component
and vehicle kit manufacturing of our new ECV series to our
qualified suppliers and manufacturing partners, respectively, we
may have to shorten the useful life of any equipment we retire as a
result, which would require that we accelerate the depreciation on
such equipment. Any such accelerated depreciation on our equipment,
to the extent we own such equipment, could adversely affect our
results of operations.
We may not be able to accurately estimate the supply and demand for
our vehicles, which could result in a variety of inefficiencies in
our business and hinder our ability to generate revenue. If we fail
to accurately predict our manufacturing requirements, we could
incur additional costs or experience delays.
We may
have limited insight into trends that may emerge and affect our
business. This may result in our inability to accurately estimate
the supply and demand for our vehicles. Beginning in the fourth
quarter of 2021, we introduced into the market the Neibor® and
Logistar™ series of ECVs as well as the Teemak™ off-road ECV. We
cannot predict whether these new ECV models will be readily adopted
by channel partners and end-users in their respective markets. We
may need to provide forecasts of our demand to our suppliers
several months prior to the scheduled delivery of products to our
channel partners. Currently, there is no or limited historical
basis for making judgments on the demand for our planned or
existing vehicles or our ability to develop, manufacture, and
deliver vehicles, or our profitability in the future. If we
underestimate our requirements, our suppliers may have inadequate
inventory, which could interrupt manufacturing of our products and
result in delays in shipments and revenues. In addition, lead times
for materials and components that our suppliers order may vary
significantly and depend on factors such as the specific supplier,
contract terms and demand for each component at a given time. If we
fail to order sufficient quantities of product components in a
timely manner, the delivery of vehicles to our channel partners
could be delayed, which would harm our business, financial
condition and operating results.
Our ECVs use lithium-ion battery cells, which have the potential to
catch fire or vent smoke and flame and may lead to additional
concerns about batteries used in automotive applications.
The
battery packs in our ECVs use lithium-ion cells, and we intend to
use lithium-ion cells in our future ECV products. On rare
occasions, lithium-ion cells can rapidly release the energy they
contain by venting smoke and flames in a manner that can ignite
nearby materials as well as other lithium-ion cells. Extremely rare
incidents of laptop computers, cell phones and EV battery packs
catching fire have focused consumer attention on the safety of
these cells.
These
events have raised concerns about batteries used in automotive
applications. To address these questions and concerns, a number of
battery cell manufacturers are pursuing alternative lithium-ion
battery cell chemistries to improve safety. The battery packs used
in our ECVs may need to be redesigned, which would be
time-consuming and expensive. Also, negative public perceptions
regarding the suitability of lithium-ion cells for automotive
applications or any future incident involving lithium-ion cells
such as a vehicle or other fire, even if such incident does not
involve us, could seriously harm our business.
The
majority of the battery packs we use in our ECVs are shipped in a
“just in time” fashion so that we are generally not housing them
for a long period of time. Nonetheless, we may in the future store
lithium-ion cells at our facilities from time to time. Any incident
involving battery cells may cause disruption to the operation of
our facilities. While we have implemented safety procedures related
to the handling of the cells, we cannot assure you that a safety
issue or fire related to the cells would not disrupt our
operations. Such damage or injury could lead to adverse publicity
and potentially a safety recall. Moreover, any type of battery
failure in relation to a competitor’s ECV may cause indirect
adverse publicity for us and our ECVs. Such adverse publicity could
negatively affect our brand and harm our business, financial
condition, operating results and prospects.
We have identified a material weakness in our internal control over
financial reporting that could materially harm our company. If we
fail to remediate the material weakness, or if we experience
material weaknesses in the future, we may not be able to accurately
and timely report our financial condition or results of operations,
which may adversely affect investor confidence in us.
Prior to
the closing of the Combination, Cenntro was a private company with
limited accounting personnel and other resources with which to
address its internal control over financial reporting in accordance
with requirements applicable to public companies. As a private
company, historically Cenntro had not retained a sufficient number
of professionals with an appropriate level of accounting knowledge,
training and experience to appropriately analyze, record and
disclose accounting matters under U.S. GAAP.
A
material weakness is a deficiency, or a combination of control
deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material misstatement
of the company’s annual or interim financial statements will not be
prevented or detected on a timely basis. During the preparation of
its 2019 and 2020 financial statements, Cenntro’s management
identified a material weakness in its internal control over
financial reporting. Specifically, Cenntro did not historically
have adequate accounting staff generally in its finance and
accounting department, particularly with respect to (i) the
preparation of financial statements prepared in accordance with
U.S. GAAP and the inclusion of proper disclosures in the related
footnotes, and (ii) the design, documentation and implementation of
internal controls surrounding risk management and financial
reporting processes. During the preparation of the Company’s
consolidated and combined financial statements for the year ended
December 31, 2021, management reassessed the Company’s internal
control over financial reporting. Although controls and supervision
over risk management and financial reporting processes have
improved, management has concluded that the Company continues to
have this material weakness in its internal control over financial
reporting.
Management has taken and is continuing to take actions to remediate
this material weakness and is taking steps to strengthen our
internal control over financial reporting and risk management. In
April 2021, we hired an experienced Chief Financial Officer, Mr.
Edmond Cheng and, as a result of the Combination, internal control
over financial reporting and risk management is now overseen by an
audit committee with significant experience in overseeing the
preparation of financial statements in accordance with U.S. GAAP
and compliance with the reporting requirements of the Securities
and Exchange Commission (the “SEC”). In addition, we intend to hire
additional personnel with greater familiarity with U.S. GAAP and
SEC reporting requirements. With the assistance of outside
consultants, we plan to (i) further develop and implement formal
policies, processes and documentation procedures relating to our
financial reporting as well as (ii) address the accounting
function’s staffing needs and training and strengthen our internal
control processes. This material weakness will not be considered
remediated until management completes the design and implementation
of the measures described above and the controls operate for a
sufficient period of time and management has concluded that these
controls are effective.
To the
extent we are unable to remediate this material weakness or
identify future material weaknesses in our internal control over
financial reporting, such material weakness could severely inhibit
our ability to accurately report our financial condition or results
of operations and could cause future investors to lose confidence
in the accuracy and completeness of our financial reports, we could
become subject to litigation from investors and shareholders, and
we could be subject to sanctions or investigations by the SEC or
other regulatory authorities. Failure to remedy any material
weakness in our internal control over financial reporting, or to
implement or maintain other effective control systems required of
public companies, could also restrict our future access to the
capital markets.
Risks
Related to Our Industry
The unavailability or reduction of government and economic
incentives or the elimination of regulatory policies which are
favorable for ECVs could materially and adversely affect our
business, financial condition, operating results and
prospects.
Our
business depends significantly on government subsidies, economic
incentives and government policies that support the growth of new
energy vehicles generally and ECVs specifically. Any reduction,
elimination or discriminatory application of government subsidies
and economic incentives because of policy changes, the reduced need
for such subsidies and incentives due to the perceived success of
ECVs, fiscal tightening or other factors may result in the
diminished competitiveness of the alternative fuel vehicle industry
generally or our ECVs in particular. Any of the foregoing could
materially and adversely affect our business, financial condition,
operating results and prospects.
Our future growth is dependent upon end-users’ willingness to adopt
ECVs.
Our
growth is highly dependent upon the adoption by national and local
governments and the commercial vehicle market of, and we are
subject to a risk of any reduced demand for, alternative fuel
vehicles in general and ECVs in particular. The market for
alternative fuel vehicles (including ECVs) is relatively new and
rapidly evolving, characterized by rapidly changing technologies,
price competition, additional competitors, evolving government
regulation and industry standards, frequent new vehicle
announcements and changing consumer demands and behaviors. If the
market for ECVs in North America, Europe, Asia or elsewhere does
not develop as we expect, or develops more slowly than we expect,
our business, financial condition, operating results and prospects
will be harmed. Other factors that may influence the adoption of
alternative fuel vehicles, and specifically ECVs, include:
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perceptions about electric vehicle
quality, safety, design, performance and cost, especially if
adverse events or accidents occur that are linked to the quality or
safety of electric vehicles, whether or not such vehicles are
produced by us or other manufacturers;
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perceptions about vehicle safety in
general, in particular safety issues that may be attributed to the
use of advanced technology, including electric vehicle
systems;
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the limited range over which electric
vehicles may be driven on a single battery charge and the speed at
which batteries can be recharged;
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the decline of an electric vehicle’s
range resulting from deterioration over time in the battery’s
ability to hold a charge;
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concerns about electric grid capacity
and reliability;
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the availability of new energy
vehicles, including plug-in hybrid electric vehicles and vehicles
powered by hydrogen fuel;
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improvements in the fuel economy of
the internal combustion engine;
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the availability of service for
electric vehicles;
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the environmental consciousness of
end-users;
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access to charging stations,
standardization of electric vehicle charging systems and
perceptions about convenience and cost to charge an electric
commercial vehicle;
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the availability of tax and other
governmental incentives to purchase and operate electric vehicles
or future regulation requiring increased use of nonpolluting
vehicles;
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perceptions about and the actual cost
of alternative fuel; and
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Any of
the factors described above may cause our channel partners and
their customers not to purchase our ECVs. If the market for ECVs
does not develop as we expect or develops more slowly than we
expect, our business, financial condition, operating results and
prospects will be adversely affected.
Continued elevated levels of inflation could adversely impact our
business and results of operations.
Adverse
and uncertain economic conditions and, in particular, the impact of
global general price inflation, may negatively impact our business
and operating results. We have experienced, and expect to continue
to experience, price increases from, among other things, our
component suppliers. Sustained inflation, combined with key
component shortages, may require us to raise the prices of our ECVs
in order to offset cost increases, which may negatively impact the
demand for our vehicles. As a result, our channel partners may
become more conservative in response to such conditions and seek to
reduce their inventories. Conversely, to the extent inflation or
other factors increase our business costs, it may not be feasible
to pass price increases on to our channel partners, which will
adversely affect our profitability. Our results of operations
depend upon, among other things, our ability to maintain and
increase sales volume with our channel partners, our ability to
attract new channel partners, the financial condition of
end-consumers in the commercial ECV market and our ability to
provide ECVs that appeal to our channel partners and other direct
customers at a competitive upfront cost. Unfavorable macroeconomic
conditions may lead our channel partners to reduce, delay, curtail
or cancel proposed or existing contracts, decrease the overall
demand for our ECVs or otherwise adversely affect our results of
operations. The duration and severity of the current inflationary
period cannot be estimated with precision.
We could experience cost increases or disruptions in the supply of
raw materials or components used in our vehicles, and a shortage of
key components, such as semiconductors, can disrupt our production
of ECVs.
We incur
significant costs related to the procuring of raw materials and
components required to manufacture our vehicles. Our ECVs use
various raw materials including aluminum, steel, carbon fiber,
non-ferrous metals such as copper, lithium, nickel and cobalt, as
well as key component inputs such as semiconductors. The prices for
these raw materials fluctuate depending on factors beyond our
control, including market conditions and global demand for these
materials, and could adversely affect our business and operating
results. In particular, the automotive industry is currently facing
a significant shortage of semiconductors. The global semiconductor
supply shortage is having wide-ranging effects across multiple
industries, particularly the automotive industry, and it has
impacted multiple suppliers that incorporate semiconductors into
the parts they supply to us. As a result, the semiconductor supply
shortage has had, and will continue to have, a negative impact on
our vehicle production. To date, we have experienced price
increases and delays that have impacted a variety of our key
components, including, for example, our motor controls, battery
management system and charging.
Due to
shortages related to the impact of COVID-19 and other factors, our
vendors are also experiencing substantial increases in the price of
commodities such as steel and lithium, which are key raw materials
in the manufacture of our chassis and batteries, respectively. Such
shortages have had, and will continue to have, a negative impact on
vehicle production, gross profit margin, product delivery time and
revenue recognition. Our operating results for the year ended
December 31, 2021 have been significantly impacted by such
shortages and we expect such shortages to continue for the
foreseeable future.
Increases in the cost, disruptions of supply or shortages of
lithium-ion batteries could harm our business.
Our
business depends on the continued supply of battery cells for our
vehicles. Battery cell manufacturers may refuse to supply battery
cells to electric vehicle manufacturers to the extent they
determine that the vehicles are not sufficiently safe. We are
exposed to multiple risks relating to availability and pricing of
quality lithium-ion battery cells. These risks include:
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the inability or unwillingness of
current battery cell manufacturers to build or operate battery cell
manufacturing plants to supply the numbers of lithium-ion cells
required to support the growth of the electric vehicle industry as
demand for such cells increases;
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disruption in the supply of cells due
to quality issues or recalls by the battery cell manufacturers;
and
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an increase in the cost or shortages
of raw materials, such as lithium, nickel and cobalt, used in
lithium-ion cells.
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Any
disruption in the supply of battery cells could temporarily disrupt
the planned production of our ECVs until such time as a different
supplier is fully qualified. Furthermore, strong growth in sales of
our ECVs may in some instances outpace the production and
availability of lithium-ion batteries, which could result in
substantial increases in the price of batteries used in our
vehicles. Substantial increases in the prices for lithium-ion
batteries would increase our operating costs, and could reduce our
gross margins if we cannot recoup the increased costs through
increased ECV prices. Over the past two years, beginning with the
COVID-19 crisis in early 2020, lithium-ion battery shortages have
increased lead times for procurement and caused significant price
increases over such period. Such shortages have had, and will
continue to have, a negative impact on vehicle production, gross
profit margin, product delivery time and revenue recognition. Our
operating results for the year ended December 31, 2021 have been
significantly impacted by such shortages and we expect such
shortages to continue for the foreseeable future.
Developments in alternative technologies or improvements in the
internal combustion engine may materially and adversely affect the
demand for our ECVs.
Significant developments in alternative technologies, such as
advanced diesel, ethanol, hydrogen fuel cells or compressed natural
gas, or improvements in the fuel economy of the internal combustion
engine, may materially and adversely affect our business, financial
condition, operating results and prospects in ways we do not
currently anticipate. Any failure by us to develop new or enhanced
technologies or processes, or to react to changes in existing
technologies, could materially delay the development and
introduction of new and enhanced EVs, which could result in the
loss of competitiveness of our vehicles, decreased revenue and a
loss of market share to competitors.
The automotive market is highly competitive, and we may not be
successful in competing in this industry.
Both the
automotive industry generally, and the ECV segment in particular,
are highly competitive, and we will be competing for sales with
both ICE commercial vehicles and other ECVs. Many of our current
and potential competitors have significantly greater financial,
technical, manufacturing, marketing and other resources than we do
and may be able to devote greater resources to the design,
development, manufacturing, distribution, promotion, sale and
support of ECVs. We expect competition for ECVs to intensify due to
increased demand and a regulatory push for alternative fuel
vehicles and consolidation in the worldwide automotive industry.
Factors affecting competition include product quality and features,
innovation and development time, pricing, reliability, safety, fuel
economy, customer service, and financing terms. Increased
competition may lead to lower vehicle unit sales and increased
inventory, which may result in downward price pressure and
adversely affect our business, financial condition, operating
results, and prospects.
If we are unable to keep up with advances in electric vehicle
technology, we may suffer a decline in our competitive
position.
We may be
unable to keep up with changes in ECV technology, and we may suffer
a resulting decline in our competitive position, which would
materially and adversely affect our business, financial condition,
operating results and prospects. Our research and development
efforts, as well as our manufacturing and supply chain capacity,
may not be sufficient to adapt to changes in ECV technology. As
technologies change, we plan to upgrade or adapt our ECVs and
introduce new models in order to continue to provide our ECVs with
the latest technology, including battery cell technology. However,
our ECVs may not compete effectively with ECVs manufactured and
marketed by our competitors if we are not able to develop and
integrate the latest technology into our ECVs.
Risks
Related to Legal and Regulatory Matters
Our business is subject to substantial regulations, which are
evolving, and unfavorable changes or the failure by us or our
channel partners to comply with these regulations could materially
and adversely affect our business, financial condition, operating
results and prospects.
Motor
vehicles are subject to substantial regulation under U.S. federal,
state and local laws as well as the laws of each of our target
markets. We incur significant costs to comply with these
regulations, including obtaining required vehicle certifications in
the jurisdictions in which our ECVs are sold, and we may be
required to incur additional costs related to any changes to such
regulations. Any failures by us or our channel partners to comply
with existing or future regulations could result in significant
expenses, vehicle recalls, delays or fines. We and our channel
partners are subject to laws and regulations applicable to the
supply, manufacture, import, sale and service of automobiles
internationally. For example, in countries outside of the United
States, we or our channel partners are required to meet standards
relating to vehicle safety and testing, fuel economy, battery
safety, transportation, testing and recycling and greenhouse gas
emissions, among other things, that are often materially different
from requirements in the United States, thus resulting in
additional investment into the vehicles and systems to ensure
regulatory compliance in those countries. This process may include
official review and certification of our vehicles by foreign
regulatory agencies prior to market entry, as well as compliance
with foreign reporting and recall management systems requirements.
See “Business-Governmental Regulations.”
Compliance with various regulations pertaining to ECVs in our
various target markets may limit our ability to sell certain of our
ECV models in such markets. For example, under the Small Series
Type Approval for N1 qualification in the European Union, the
Metro® is limited to annual sales of only 1,500 units in the EU
market.
To the
extent U.S. or international laws change, some or all of our
vehicles may not comply with any new applicable international,
federal, state or local laws, which would have an adverse effect on
our business. Compliance with changing regulations could be
burdensome, time consuming, and expensive. To the extent compliance
with new regulations is cost prohibitive, our business, prospects,
financial condition and operating results will be adversely
affected.
Our ECVs may be subject to product liability claims or recalls
which could cause us to incur expenses, damage our reputation or
result in a diversion of management resources.
As
manufacturer of record of our ECVs (except in the case of vehicles
assembled by our private label channel partners), we may be
responsible for product liability claims or costs associated with
product recalls. We may be subject to lawsuits resulting from
injuries associated with the use of the ECVs that we design,
manufacture and sell to our channel partners. We may incur losses
relating to these claims or the defense of these claims. Our ECVs
may also be subject to recalls if any of our ECV designs prove to
be defective, or our channel partners may voluntarily initiate a
recall or make payments related to such claims as a result of
various industry or business practices or the need to maintain good
customer relationships. Such a recall would result in a diversion
of resources and could damage our reputation with both our channel
partners and their customers. Any claims or recalls associated with
our ECVs could exceed our insurance coverage and materially and
adversely affect our business, financial condition, operating
results and prospects.
We face risks associated with our global operations and expansion,
including unfavorable regulatory, political, legal, economic, tax
and labor conditions, and with establishing ourselves in new
markets, all of which could harm our business.
We
currently have international operations and subsidiaries in various
countries and jurisdictions, and we expect to expand and optimize
our channel partner network internationally and to invest in new
manufacturing and assembly facilities in various jurisdictions as
part of our growth plan. Accordingly, we and our products are
subject to a variety of legal, political and regulatory
requirements and social and economic conditions over which we have
little control. For example, we may be impacted by trade policies,
political uncertainty and economic cycles involving geographic
regions where we have significant sales or operate.
We are
subject to a number of risks associated with international business
activities that may increase our costs, impact our ability to sell
our ECVs and require significant management attention. These risks
include:
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conforming our products to various
international regulatory and safety requirements in establishing,
staffing and managing foreign operations;
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challenges in attracting channel
partners;
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compliance with foreign government
taxes, regulations and permit requirements;
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our ability to enforce our contractual
rights and intellectual property rights;
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compliance with trade restrictions and
customs regulations as well as tariffs and price or exchange
controls;
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fluctuations in freight rates and
transportation disruptions;
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fluctuations in the values of foreign
currencies;
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compliance with certification and
homologation requirements; and
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preferences of foreign nations for
domestically manufactured products.
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In many
of these markets, long-standing relationships between potential
customers and their local partners and protective regulations and
disparate networks and systems used by each country will create
barriers to entry.
We are
currently selling our ECVs in North America, Europe and Asia, and,
as a result, we are subject to laws and regulations in those
jurisdictions that are applicable to the import and/or sale of
electric vehicles. For example, we are required to meet
vehicle-specific safety standards that are often materially
different across markets, thus resulting in additional investment
into the vehicles and systems to ensure regulatory compliance. For
each of the markets in which we sell our ECVs, we must obtain
advanced approval from regulatory agencies regarding the proper
certification or homologation of our vehicles to enter into these
markets. This process necessitates that regulatory officials in
each market review and certify our vehicles prior to market entry.
Any delay in the homologation process could adversely impact our
ability to introduce any of these ECV models in their respective
markets on our planned timeframe, which could adversely affect our
business, financial condition and operating results and harm our
reputation.
Our business will be adversely affected if we are unable to protect
our intellectual property rights from unauthorized use or
infringement by third parties.
Any
failure to adequately protect our intellectual property rights
could result in the weakening or loss of such rights, which may
allow our competitors to offer similar or identical products or use
identical or confusingly similar branding, potentially resulting in
the loss of some of our competitive advantage, a decrease in our
revenue or an attribution of potentially lower quality products to
us, which would adversely affect our business, financial condition,
operating results and prospects. Our success depends, at least in
part, on our ability to protect our core technology and
intellectual property. To accomplish this, we rely on a combination
of patents, patent applications, trade secrets (including
know-how), employee and third-party nondisclosure agreements,
copyright protection, trademarks, intellectual property licenses
and other contractual rights to establish and protect our
intellectual property rights in our technology. Our registered
patents are under PRC law and have not been given reciprocal
treatment and protection under the laws of either the United States
or the European Union. We may be unable to adequately protect our
proprietary technology and intellectual property from use by third
parties.
The
protection provided by patent laws is and will be important to our
business. However, such patents and agreements and various other
measures we take to protect our intellectual property from use by
others may not be effective for various reasons, including the
following:
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our pending patent applications may
not result in the issuance of patents;
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our patents may not be broad enough to
protect our commercial endeavors;
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the patents we have been granted may
be challenged, invalidated or circumvented because of the
pre-existence of similar patented or unpatented technology or for
other reasons;
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the costs associated with obtaining
and enforcing patents in the countries in which we operate,
confidentiality and invention agreements or other intellectual
property rights may make enforcement impracticable; or
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current and future competitors may
independently develop similar technology, duplicate our vehicles or
design new vehicles in a way that circumvents our intellectual
property protection.
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Existing
trademark and trade secret laws and confidentiality agreements
afford only limited protections. In addition, the laws of some
foreign countries do not protect our proprietary rights to the same
extent as do the laws of the United States and policing the
unauthorized use of our intellectual property is difficult. For
example, historically the implementation and enforcement of PRC
intellectual property-related laws have been limited. Accordingly,
protection of intellectual property rights in China may not be as
effective as in the United States or other countries.
Some of
the components in our supply chain are co-designed with third-party
vendors, who are generally restricted from selling parts that are
co-designed with us to other parties. However, in the event we
discontinue our purchases of such co-designed components from our
vendors, these vendors may no longer be restricted from selling
such co-designed components to third parties.
We may need to defend ourselves against patent or trademark
infringement claims, which may be time-consuming and could cause us
to incur substantial costs.
Companies, organizations or individuals, including our competitors,
may hold or obtain patents, trademarks or other proprietary rights
that would prevent, limit or interfere with our ability to make,
use, develop or sell our vehicles or vehicle kits, which could make
it more difficult for us to operate our business. From time to
time, we receive notices from holders of patents or trademarks
regarding their proprietary rights. Companies holding patents or
other intellectual property rights may bring suits against us
alleging infringement of such rights or otherwise assert their
rights and seek licenses. Even if we are successful in these
proceedings, any intellectual property infringement claims against
us could be costly, time-consuming, harmful to our reputation, and
could divert the time and attention of our management and other
personnel or result in injunctive or other equitable relief that
may require us to make changes to our business, any of which could
have a material adverse effect on our financial condition, cash
flows, results of operations or prospects. In addition, if we are
determined to have infringed upon a third party’s intellectual
property rights, we may be required to do one or more of the
following:
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cease selling vehicles or
incorporating or using designs or offering goods or services that
incorporate or use the challenged intellectual property;
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pay substantial damages;
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obtain a license from the holder of
the infringed intellectual property right, which license may not be
available on reasonable terms or at all; or
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redesign our vehicles or other goods
or services.
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In the
event of a successful claim of infringement against us and our
failure or inability to obtain a license to the infringed
technology or other intellectual property right, our business,
financial condition, operating results and prospects could be
materially adversely affected. In addition, any litigation or
claims, whether or not valid, could result in substantial costs and
diversion of resources and management attention.
In
addition, we have agreed, and expect to continue to agree, to
indemnify our channel partners for certain intellectual property
infringement claims regarding our products. As a result, if
infringement claims are made against our channel partners, we may
be required to indemnify them for damages (including expenses)
resulting from such claims or to refund amounts they have paid to
us.
Compliance with environmental regulations can be expensive, and
noncompliance with these regulations may result in adverse
publicity and potentially significant monetary damages and
fines.
Our
business operations may generate noise, wastewater, end-of-life
batteries, gaseous byproduct and other industrial waste. We are
required to comply with all applicable national and local
regulations regarding the protection of the environment. We believe
we are in compliance with current environmental protection
requirements and have all necessary environmental permits to
conduct our business. However, if more stringent regulations are
adopted in the future, the costs of compliance with these new
regulations could be substantial. Additionally, if we fail to
comply with present or future environmental rules or regulations,
we may be liable for cleanup costs or be required to pay
substantial fines, suspend production or cease operations. Any
failure by us to control the use of, or to adequately restrict the
unauthorized discharge of, hazardous substances or comply with
other environmental regulations could subject us to potentially
significant monetary damages and fines or suspensions to our
business operations. Additionally, as we expand our local assembly
capabilities in our target markets, our expansion will necessarily
increase our exposure to liability with respect to environmental
regulations and the fines and injunctive actions related thereto
and require us to spend further resources and time complying with
complex environmental regulations in such jurisdictions.
Contamination at properties currently or formerly owned or operated
by us, and properties to which hazardous substances were sent by
us, may result in liability for us under environmental laws and
regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act (“CERCLA”). The U.S. government can
impose liability on us under CERCLA for the full amount of
remediation-related costs of a contaminated site without regard to
fault. Such costs can include those associated with the
investigation and cleanup of contaminated soil, ground water and
buildings as well as to reverse impacts to human health and damages
to natural resources.
Pursuant
to the Environmental Protection Law of the PRC, which was adopted
on December 26, 1989, and amended on April 24, 2014, effective on
January 1, 2015, any entity which discharges pollutants must adopt
measures to prevent and treat waste gas, waste water, waste
residue, medical waste, dust, malodorous gas, radioactive
substances generated in manufacturing, construction or any other
activities as well as environmental pollution and hazards such as
noise, vibration, ray radiation, electromagnetic radiation etc.
Environmental protection authorities impose various administrative
penalties on entities in violation of the Environmental Protection
Law, including warnings, fines, orders to rectify within a
prescribed period, cease construction, restrict or suspend
production, make recovery, disclose relevant information or make an
announcement, or seize and confiscate facilities and equipment
which cause pollutant emissions, the imposition of administrative
action against relevant responsible persons, and orders to shut
down enterprises. In addition, pursuant to the Civil Code of the
PRC, which was adopted on May 28, 2020, and became effective on
January 1, 2021, in the event of damage caused to others as a
result of environmental pollution and ecological destruction, the
actor will bear tortious liability. In the event a party, in
violation of laws and regulations, intentionally pollutes the
environment or damages the ecology, thereby causing serious
consequences, the infringed party is entitled to claim appropriate
punitive damages. Any violations of the Environmental Protection
Law or the Civil Code of the PRC could expose us to liabilities
including fines and damages that could impact our business,
prospects, financial condition and operating results.
China has
implemented several regulations, policies and measures to regulate
the batteries used in ECVs, which cover the security standards,
recycling activities and other specifications. For example, the
Interim Measures for the Management of the Recycling of Power
Battery in New Energy Vehicles (“PRC Battery Measures”) regulate
the recycling and disposal of end-of-life batteries for new energy
vehicles. The PRC Battery Measures provide that manufacturers of
new energy vehicles must take primary responsibilities of the
recycling of batteries and are required, for instance, to transfer
batteries that have been damaged during manufacturing to vendors
that provide recycling services, and to maintain records of the
vehicles they have manufactured, the identification codes of the
batteries incorporated into the vehicles, and the owners of the
vehicles. The batteries used in our ECVs are also subject to a
number of national standards in China, including functional safety
requirements and testing methods for the battery management system
of electric vehicles.
The EU
has specific regulations on batteries and the disposal of batteries
to minimize the negative environmental effects of batteries and
hazardous waste. The EU Battery Directive (2006/66/EC) (the “EU
Battery Directive”) is intended to cover all types of batteries
regardless of their shape, volume, weight, material composition or
use. It is aimed at reducing mercury, cadmium, lead and other
metals in the environment by minimizing the use of these substances
in batteries and by treating and re-using old batteries. This
directive applies to all types of batteries except those used to
protect European Member States’ security, for military purposes, or
sent into space. To achieve these objectives, the EU Battery
Directive prohibits the marketing of some batteries containing
hazardous substances. It establishes processes aimed at high levels
of collection and recycling of batteries with quantified collection
and recycling targets. The directive sets out minimum rules for
producer responsibility and provisions with regard to labeling of
batteries and their removability from equipment. Product markings
are required for batteries and accumulators to provide information
on capacity and to facilitate reuse and safe disposal. We currently
ship our ECVs pursuant to the requirements of the directive. Our
current estimated costs associated with our compliance with this
directive based on our current market share are not significant.
However, we continue to evaluate the impact of this directive as
European Union member states implement guidance, and actual costs
could differ from our current estimates.
In
December 2020, the European Commission adopted a proposal to revise
the EU Battery Directive. The proposal is designed to modernize the
EU’s regulatory framework for batteries to secure the
sustainability and competitiveness of battery value chains. It
could introduce mandatory requirements on sustainability (such as
requiring responsible sourcing of raw materials, restrictions on
the use of hazardous substances, carbon footprint rules, minimum
recycled content targets, performance and durability criteria),
safety and labelling for the marketing and putting into service of
batteries, and requirements for end-of-life management including to
facilitate the repurposing of industrial and electric-vehicle
batteries as stationary energy storage batteries. The proposal also
includes due diligence obligations for economic operators as
regards the sourcing of raw materials.
The EU
Restriction of Hazardous Substances Directive 2002/95/EC (the “RoHS
Directive”) places restrictions on the use of certain hazardous
substances in electrical and electronic equipment. All applicable
products sold in the European Union market after July 1, 2006 must
comply with EU RoHS Directive. While this directive does not
currently affect our ECVs in any meaningful way, should any changes
occur in the directive that would affect our ECVs, we will need to
comply with any new regulations that are imposed.
Our
noncompliance with any of these regulations may materially and
adversely affect our operations or financial condition.
We seek to continuously expand and improve our information
technology systems and use security measures designed to protect
our systems against breaches and cyber-attacks. If these efforts
are not successful, our business and operations could be disrupted,
and our operating results and reputation could be harmed.
We
seek to continuously expand and improve our information technology
systems, including implementing new internally developed and/or
external industry standard enterprise resource planning systems
(“ERP systems”), to assist us in the management of our business. We
maintain information technology measures designed to protect us
against intellectual property theft, data breaches and other
cyber-attacks. The implementation, maintenance and improvement of
these systems require significant management time, support and
cost. Moreover, there are inherent risks associated with
developing, improving and expanding our core systems as well as
implementing new systems, including the disruption of our data
management, procurement, manufacturing execution, finance and
supply chain processes. Despite network security and back-up
measures, our information technology systems are potentially
vulnerable to physical or electronic break-ins, computer viruses
and similar disruptive problems. Despite precautionary measures to
prevent unanticipated problems that could affect our information
technology systems, sustained or repeated system failures that
interrupt our ability to generate and maintain data could adversely
affect our ability to manage our data and inventory, procure parts
or supplies or manufacture, sell, deliver ECVs, or achieve and
maintain compliance with, or realize available benefits under, tax
laws and other applicable regulations.
We
cannot assure you that any of our new information technology
systems or their required functionality will be effectively
implemented, maintained or expanded as planned. If we do not
successfully maintain our information technology or expand these
systems as planned, our operations may be disrupted, our ability to
accurately or timely report our financial results could be
impaired, and deficiencies may arise in our internal control over
financial reporting, which may adversely affect our ability to
certify our financial results. Moreover, our proprietary
information could be compromised or misappropriated, and our
reputation may be adversely affected. If these systems or their
functionality do not operate as we expect them to, we may be
required to expend significant resources to make corrections or
find alternative sources for performing these functions.
Data collection is governed by restrictive regulations governing
the use, processing, and cross-border transfer of personal
information.
International jurisdictions have their own data security and
privacy legal framework with which companies or their customers
must comply. The collection, use, storage, transfer, and other
processing of personal data regarding individuals in the European
Economic Area is governed by the General Data Protection Regulation
(“GDPR”), which came into effect in May 2018. It contains numerous
requirements and changes from previously existing EU law, including
more robust obligations on data processors and heavier
documentation requirements for data protection compliance programs
by companies. Among other things, the GDPR regulates transfers of
personal data subject to the GDPR to countries outside of the
European Union that have not been found to provide adequate
protection to such personal data, including the United States. The
European Data Protection Board has issued draft guidance requiring
additional measures be implemented to protect EU personal data from
foreign law enforcement, including in the U.S. These additional
measures may require us to expend additional resources to
comply.
The GDPR
also introduced numerous privacy-related changes for companies
operating in the European Union, including greater control for data
subjects, increased data portability for EU consumers, data breach
notification requirements and increased fines. Fines of up to 20
million Euros or up to 4% of the annual global revenue of the
noncompliant company, whichever is greater, could be imposed for
violations of certain GDPR requirements. Such penalties are in
addition to any civil litigation claims by customers and data
subjects. The GDPR requirements apply not only to third-party
transactions but also to transfers of information between us and
our subsidiaries, including employee information.
The
European Commission has another draft regulation in the approval
process that focuses on a person’s right to conduct a private life,
in contrast to the GDPR, which focuses on protection of personal
data. The proposed legislation, known as the Regulation on Privacy
and Electronic Communications, or ePrivacy Regulation, would
replace the current ePrivacy Directive. While the new legislation
contains protections for those using communications services (for
example, protections against online tracking technologies), the
timing of its proposed enactment following the GDPR means that
additional time and effort may need to be spent addressing
differences between the ePrivacy Regulation and the GDPR. New rules
related to the ePrivacy Regulation are likely to include enhanced
consent requirements to use communications content and metadata and
other data collected from connected devices and physical objects,
including our ECVs which are fitted with networking devices.
Following
the United Kingdom’s (the “UK”) exit from the European Union, the
GDPR was transposed into UK law (“UK GDPR”) as supplemented by the
UK Data Protection Act 2018. As a result, the UK GDPR will not
automatically incorporate any changes made to the GDPR going
forward (which would need to be specifically incorporated by the UK
Government). At present, the GDPR and the UK GDPR are broadly
similar and have parallel regimes, which have not yet diverged
significantly. However, the UK Government has launched a public
consultation on proposed reforms to the data protection framework
in the UK. This may lead to future divergence and variance between
the two regimes.
In
addition, China has laws relating to the supervision of data and
information protection. The Cybersecurity Law regulates the
activities of “network operators,” which include companies that
manage any network under PRC jurisdiction. As such, certain of our
PRC subsidiaries may be regarded as network operators under the
Cybersecurity Law, since our ECVs are fitted with networking
devices. The Cybersecurity Law requires that the collection of
personal data is subject to consent by the person whose data is
being collected.
On June
10, 2021, China enacted the Data Security Law of the PRC (“DSL”),
which became effective as of September 1, 2021. The DSL introduces
several changes and new features to data security regulation and a
comprehensive data security regime, which authorizes national
departments to conduct stricter supervision of data in China. For
example, the PRC government will establish a catalogue of crucial
data categories and promulgate stricter regulations over the
protection of such crucial data listed in the catalogue. The DSL
also will introduce the concept of “National Core Data,” which
refers to data related to, among other topics, national security,
the PRC economy, and significant public interests, and provides
that stricter regulations may be imposed on such National Core
Data. The cross-border transfer of domestic data as required by
non-PRC judicial or enforcement authorities is also subject to the
approval of competent Chinese authorities.
Compliance with the GDPR, the UK GDPR, the new ePrivacy Regulation,
as well as the Cybersecurity Law and DSL in China, may involve
substantial operational costs or require us to change business
practices. While we have not had a substantial presence in the
European Union historically, in January 2022, we opened our
European Operations Center in Dusseldorf, Germany and, in March
2022, we acquired a 65% equity interest in Tropos Motors Europe
GmbH (“TME”), a “private label” channel partners that assembles and
distributes branded ECVs based on our Metro® called the ABLE and
one of our largest customers since 2019. As a result, we may be
required to comply with certain provisions of the GDPR and the new
ePrivacy Regulation (once effective). As a result, we may need to
undertake an update of certain of our business practices, including
(i) updating internal records, policies and procedures; (ii)
updating publicly facing privacy notices and consent mechanisms,
where required; (iii) implementing employee privacy training; (iv)
appointing an individual responsible for privacy compliance; (v)
implementing an inter-group data transfer agreement; (vi)
reviewing/updating contracts with vendors that process data on our
behalf, and (vii) implementing an audit framework. Furthermore, if
we begin selling our ECVs directly to end-users in the European
Union, UK or China, we would likely be required to comply with
additional regulatory requirements. To the extent we become subject
to any such regulations, our noncompliance could result in
proceedings by governmental entities, customers, data subjects or
others and may result in fines, penalties, and civil litigation
claims.
Our ECVs
are fitted with a networking device connecting the vehicle to our
proprietary cloud-based software, which enables end-users to
collect data about vehicle configuration, vehicle status and user
efficiency through a system of digitally enabled components, which
we sometimes refer to as “smart components.” With the permission of
the end-users of the vehicles, we received data collected from
approximately 950 Metro® units that we put into service through a
company affiliated with our former parent company, CAG Cayman, in
the Chinese market. This data included vehicle-specific data
collected for operational analysis, which we used to make
improvements in the quality and durability of such components. We
enable end-users to collect, store and analyze data using tools
that we have developed but we do not have access to this end-user
collected data unless we request and receive access from the
end-user. We do not currently collect, use or store any
vehicle-specific or driver-specific data in any region and do not
intend to do so in the future.
To the
extent we are required to comply with regulations under the GDPR,
the UK GDPR, the ePrivacy Regulation (once effective), the
Cybersecurity Law and the DSL (collectively, the “Data Security
Regulations”), any non-compliance could adversely affect our
business, financial condition, results of operations and prospects.
Compliance with Data Security Regulations may be a rigorous and
time-intensive process that may increase our cost of doing business
or require us to change our business practices, and despite those
efforts, there is a risk that we may be subject to fines and
penalties, litigation, and reputational harm in connection with any
future activities.
Any unauthorized control or manipulation of our ECV’s information
technology systems could result in loss of confidence in us and our
ECVs and harm our business.
Our ECVs
are equipped with complex information technology systems. For
example, our ECVs are designed with built-in data connectivity to
improve their functionality. We have designed, implemented and
tested security measures intended to prevent unauthorized access to
our information technology networks, our ECVs and their systems.
However, hackers may attempt in the future to gain unauthorized
access to modify, alter and use such networks and ECV systems to
gain control of, or to change, our ECVs’ functionality, user
interface and performance characteristics, or to gain access to
data stored in or generated by our ECVs. In addition, there are
limited preventative measures that we can take to prevent
unauthorized access to our information technology network by an
employee that is knowledgeable about our information technology
network and its various safeguards. We encourage reporting of
potential vulnerabilities in the security of our ECVs, and we aim
to remedy any reported and verified vulnerability. However, there
can be no assurance that vulnerabilities will not be exploited in
the future before they can be identified, or that our remediation
efforts are or will be successful.
Any
unauthorized access to or control of our ECVs or their systems or
any loss of data could result in legal claims or proceedings. In
addition, regardless of their veracity, reports of unauthorized
access to our ECVs, their systems or data, as well as other factors
that may result in the perception that our ECVs, their systems or
data are capable of being “hacked,” could adversely affect our
brand, business, financial condition, operating results and
prospects.
We are subject to anti-corruption, anti-bribery, anti-money
laundering, financial and economic sanctions and similar laws, and
noncompliance with such laws can subject us to administrative,
civil and criminal fines and penalties, collateral consequences,
remedial measures and legal expenses, all of which could adversely
affect our business, results of operations, financial condition,
prospects and reputation.
We are
subject to anti-corruption, anti-bribery, anti-money laundering,
financial and economic sanctions and similar laws and regulations
in various jurisdictions in which we conduct activities, including
the U.S. Foreign Corrupt Practices Act, or FCPA and other
anti-corruption laws and regulations. The FCPA prohibits us and our
officers, directors, employees and business partners acting on our
behalf, including agents, from corruptly offering, promising,
authorizing or providing anything of value to a “foreign official”
for the purposes of influencing official decisions or obtaining or
retaining business or otherwise obtaining favorable treatment. The
FCPA also requires companies to make and keep books, records and
accounts that accurately reflect transactions and dispositions of
assets and to maintain a system of adequate internal accounting
controls. A violation of these laws or regulations could adversely
affect our business, results of operations, financial condition,
prospects and reputation.
We have
direct or indirect interactions with officials and employees of
government agencies and state-owned affiliated entities in the
ordinary course of business. These interactions subject us to an
increased level of compliance-related concerns. We are in the
process of implementing policies and procedures designed to ensure
compliance by us and our directors, officers, employees,
representatives, consultants, agents and business partners with
applicable anti-corruption, anti-bribery, anti-money laundering,
financial and economic sanctions and similar laws and regulations.
However, our policies and procedures may not be sufficient, and our
directors, officers, employees, representatives, consultants,
agents, and business partners could engage in improper conduct for
which we may be held responsible.
Noncompliance with anti-corruption, anti-bribery, anti-money
laundering or financial and economic sanctions laws could subject
us to whistleblower complaints, adverse media coverage,
investigations, and severe administrative, civil and criminal
sanctions, collateral consequences, remedial measures and legal
expenses, all of which could materially and adversely affect our
business, results of operations, financial condition, prospects and
reputation. In addition, changes in economic sanctions laws in the
future could adversely affect our business and investments in our
shares.
Risks
Related to Doing Business in China
Changes in China’s economic, political or social conditions or
government policies could have a material adverse effect on our
business, results of operations, financial condition and
prospects.
A
significant amount of our assets and operations are located in
China. Accordingly, our business, financial condition, results of
operations and prospects may be influenced by political, economic
and social conditions in China generally. The Chinese economy
differs from the economies of most developed countries in many
respects, including the level of government involvement, level of
development, growth rate, control of foreign exchange and
allocation of resources. Although the Chinese government has
implemented measures emphasizing the utilization of market forces
for economic reform, the reduction of state ownership of productive
assets, and the establishment of improved corporate governance in
business enterprises, a substantial portion of productive assets in
China is still owned by the government. In addition, the Chinese
government continues to play a significant role in regulating
industry development by imposing industrial policies. The Chinese
government also exercises significant control over China’s economic
growth through allocating resources, controlling payment of foreign
currency-denominated obligations, setting monetary policy, and
providing preferential treatment to particular industries or
companies. In some instances, these regulatory measures could
negatively impact us. For instance, the Chinese government
restricts foreign direct investment in certain industries, which
could in the future, if such restrictions are expanded to include
the ECV industry, limit our ability to operate through Chinese
subsidiaries.
Any
adverse changes in economic conditions in China, in the policies of
the Chinese government or in the laws and regulations in China
could have a material adverse effect on the overall economic growth
of China. Such developments could adversely affect our business and
operating results, lead to reduction in demand for our ECVs and
adversely affect our competitive position. While the Chinese
economy has experienced significant growth over the past decades,
growth has been uneven, both geographically and among various
sectors of the economy. The Chinese government has implemented
various measures to encourage economic growth and guide the
allocation of resources. Some of these measures may benefit the
overall Chinese economy but may have a negative effect on us. For
example, our business, results of operations, financial condition
and prospects may be adversely affected by government control over
capital investments or changes in tax regulations. In addition, in
the past the Chinese government has implemented certain measures,
including interest rate adjustments, to control the pace of
economic growth. These measures may cause decreased economic
activity in China, which may also adversely affect our business,
results of operations, financial condition and prospects.
The PRC government may intervene or otherwise adversely affect our
operations at any time, or may exert more control over foreign
investment in issuers with operations in China, which could
materially affect our operations.
The PRC
government may intervene or otherwise adversely affect our
operations at any time, or may exert more control over foreign
investment in issuers with operations in China, which could
materially affect our operations. For example, the PRC government
has recently published new policies that significantly affected
certain industries such as the education and Internet industries,
and we cannot rule out the possibility that it will in the future
release regulations or policies regarding the electric commercial
vehicle or any other related industry that could adversely affect
the business, financial condition and results of operations of our
company. Furthermore, the PRC government has also recently
indicated an intent to exert more oversight and control over
foreign investment in companies with China-based operations. Rules
and regulations in China can change with little advance notice. Any
such action, once taken by the PRC government, could cause the
value of such securities to significantly decline.
Recently,
the PRC government initiated a series of regulatory actions and
statements to regulate business operations in China with little
advance notice, including cracking down on certain activities in
the securities market, enhancing supervision over China-based
companies listed overseas (particularly those using variable
interest entity structures), adopting new measures to extend the
scope of cybersecurity reviews (particularly for companies that
process large amounts of sensitive consumer data), and expanding
efforts in anti-monopoly enforcement. Since these statements and
regulatory actions are new, it is highly uncertain how soon
legislative or administrative bodies will respond, what existing or
new laws or regulations or detailed implementations and
interpretations will be modified or promulgated, if any, and the
potential impact such modified or new laws and regulations will
have on our daily business operations or the ability to accept
foreign investments.
Uncertainties with respect to the Chinese legal system could
materially and adversely affect us and may restrict the level of
legal protections to foreign investors.
China’s
legal system is based on statutory law. Unlike the common law
system, statutory law is based primarily on written statutes.
Previous court decisions may be cited as persuasive authority but
do not have a binding effect. Although the Supreme People’s Court
has determined and issued guiding caselaw that courts should refer
to when trying similar cases, it may not sufficiently cover all
aspects of economic activities in China. Since 1979, the Chinese
government has been promulgating and amending laws, regulations and
relevant interpretations regarding economic matters, such as
corporate organization and governance, foreign investment,
commerce, taxation and trade. However, since these laws and
regulations are relatively new, and the Chinese legal system
continues to rapidly evolve, the interpretation of many laws,
regulations and rules is not always uniform, and enforcement of
these laws, regulations and rules may involves uncertainties, which
may limit legal protections available to us.
In
addition, any litigation in China may be protracted and may result
in substantial costs and diversion of resources and management’s
attention. The legal system in China may not provide investors with
the same level of protection as in the United States or Australia.
We are governed by laws and regulations generally applicable to
local enterprises in China. Many of these laws and regulations are
still being continuously revised and improved. Interpretation,
implementation and enforcement of the existing laws and regulations
can be uncertain and unpredictable and therefore may restrict the
legal protections available to foreign investors.
We currently conduct a significant amount of our operations through
our subsidiaries established in China. Adverse regulatory
developments in China may subject us to additional regulatory
review or regulatory approval, and additional disclosure
requirements. Also, regulatory scrutiny in response to recent
tensions between the United States and China may impose additional
compliance requirements for companies like ours with significant
China-based operations. These developments could increase our
compliance costs or subject us to additional disclosure
requirements.
We
currently conduct a significant amount of our operations through
our subsidiaries established in China. Because of our corporate
structure, we and our investors are subject to unique risks due to
uncertainty regarding the interpretation and application of
currently enacted PRC laws and regulations and any future actions
of the PRC government relating to companies with significant PRC
operations, and the possibility of sanctions imposed by PRC
regulatory agencies, including the China Securities Regulatory
Commission, if we fail to comply with their rules and regulations.
For example, as a result of our PRC operations, we are subject to
PRC laws relating to, among others, data security and restriction
over foreign investments. Recent regulatory developments in China,
in particular with respect to restrictions on companies with
significant operations in China raising capital offshore, including
companies that process large amounts of sensitive consumer data and
companies with a variable interest entities structure, or a VIE
structure, may lead to additional regulatory review or approval in
China over our financing and capital raising activities in the U.S.
capital markets. On December 28, 2021, the Cyberspace
Administration of China (the “Cyberspace Administration”) and other
competent authorities issued the amended Cybersecurity Review
Measures (effective as of February 2022), which provides, among
other things, that online platform operators (i.e., over one
million users) must apply for cybersecurity review prior to public
listings outside of China. Under such rules, the Cyberspace
Administration has jurisdiction to review and limit foreign public
listings of critical information infrastructure operators (data
operators in industries such as energy, water conservancy and
public services) and online platform operators with more than one
million users (for example, companies that operate consumer
platforms such as ride-sharing, personal banking or retail).
Additionally, on December 24, 2021, the China Securities Regulatory
Commission published the Regulations of the State Council on the
Administration of Overseas Issuance and Listing of Securities by
Domestic Enterprises (Draft for Public Comments) and the Measures
for the Administration of Overseas Issuance and Listing of
Securities by Domestic Enterprises (Draft for Public Comments) for
public comments, which will apply to a domestic enterprise that
issues shares, depositary receipts, corporate bonds convertible
into shares, or other securities of an equity nature outside of the
PRC, or lists its securities for trading outside of the PRC. While
this regulation has not been formally promulgated and the criteria
for determining its application is still uncertain, we currently do
not expect such regulations, to apply to our operations in China.
However, we cannot be certain the applicability of such regulations
will be consistent with our expectations.
In
addition, on July 30, 2021, in response to the recent regulatory
developments in China and actions adopted by the PRC government,
the Chairman of the SEC issued a statement asking the SEC staff to
seek additional disclosures from offshore issuers associated with
China-based operating companies before their registration
statements will be declared effective, including detailed
disclosure related to VIE structures and whether the VIE and the
issuer, when applicable, received or were denied permission from
Chinese authorities to list on U.S. exchanges and the risks that
such approval could be denied or rescinded.
We may
face heightened scrutiny and negative publicity, which could result
in a material change in our operations or significantly limit our
ability to offer or continue to offer securities to investors and
cause the value of such securities to significantly decline.
Additionally, recent statements by PRC authorities and changes in
PRC internal regulatory mandates, such as certain rules surrounding
mergers and acquisitions, the Data Security Law, and rules related
to entities using a variable interest entity structure, may target
the Company due to our significant operations in China and impact
our ability to conduct business, accept foreign investments, or
maintain a listing on a U.S. exchange. We cannot predict the
effects of future developments in the PRC legal system. We may be
required in the future to procure additional permits,
authorizations and approvals for our existing and future
operations, which may not be obtainable in a timely fashion or at
all and which could materially affect our operations as a business.
The occurrence of any of the aforementioned regulatory obstacles or
the inability to obtain such permits or authorizations may have a
material and adverse effect on our business, financial condition
and results of operations.
Increases in labor costs and enforcement of stricter labor laws and
regulations in China may adversely affect our business and our
profitability.
China’s
overall economy and the average wage in China have increased in
recent years and are expected to grow. The average wage level for
our employees has also increased in recent years. We expect that
our labor costs, including wages and employee benefits, will
increase. Unless we are able to take effective measures to reduce
labor costs or pass on these increased labor costs to those who pay
for our ECVs, our profitability and results of operations may be
materially and adversely affected.
In
addition, we have been subject to stricter regulatory requirements
in terms of entering into labor contracts with our employees,
limitation with respect to utilization of labor dispatching,
applying for foreigner work permits, labor protection and labor
condition and paying various statutory employee benefits, including
pensions, housing fund, medical insurance, work-related injury
insurance, unemployment insurance and maternity insurance to
designated government agencies for the benefit of our employees.
Pursuant to the PRC Labor Contract Law and its implementation
rules, employers are subject to stricter requirements in terms of
signing labor contracts, minimum wages, paying remuneration,
determining the term of employee’s probation and unilaterally
terminating labor contracts. In the event that we decide to
terminate some of our employees or otherwise change our employment
or labor practices, the PRC Labor Contract Law and its
implementation rules may limit our ability to effect those changes
in a desirable or cost-effective manner, which could adversely
affect our business and results of operations.
In
October 2010, the Standing Committee of the National People’s
Congress promulgated the PRC Social Insurance Law, which came into
effect on July 1, 2011 and was amended on December 29, 2018. On
April 3, 1999, the State Council of the People’s Republic of China
(the “State Council”) promulgated the Regulations on the
Administration of Housing Funds, which was amended on March 24,
2002 and March 24, 2019. Companies registered and operating in
China are required under the Social Insurance Law and the
Regulations on the Administration of Housing Funds to apply for
social insurance registration and housing fund deposit registration
within 30 days of their establishment, and to pay for their
employees different social insurance including pension insurance,
medical insurance, work-related injury insurance, unemployment
insurance and maternity insurance to the extent required by law, as
well as housing provident funds. If we are deemed to have violated
relevant social insurance and housing funds regulations, we could
be subject to orders by the competent authorities for rectification
and failure to comply with such orders may further subject us to
administrative fines or other corresponding measures.
As the
interpretation and implementation of labor-related laws and
regulations are still evolving, our employment practices may
violate labor-related laws and regulations in China, which may
subject us to labor disputes or government investigations. We
cannot assure you that we have complied or will be able to comply
with all labor-related law and regulations including those relating
to obligations to make social insurance payments and contribute to
the housing provident funds. If we are deemed to have violated
relevant labor laws and regulations, we could be required to
provide additional compensation to our employees or assume other
responsibilities and our business, financial condition and results
of operations will be adversely affected.
Fluctuations in the value of the RMB and restrictions on currency
exchange may adversely affect our business.
The
reporting currency of our U.S. subsidiary is the U.S. Dollar while
our Chinese subsidiaries’ functional currency is RMB. Our Audited
Financial Statements are presented in USD and will be affected by
the foreign exchange rate of the Renminbi (“RMB”) against the USD.
During the years ended December 31, 2021, 2020 and 2019,
significant portions of our revenues were derived from the sales in
the European Union and United States, denominated in Euros or USD,
respectively, while our costs and expenses were primarily incurred
in the PRC (and denominated in RMB). The value of the RMB against
the Euro, USD and other currencies is affected by changes in
China’s political and economic conditions and by China’s foreign
exchange policies, as well as currency market conditions and other
factors.
Since
July 21, 2005, the RMB has been permitted to fluctuate within a
narrow and managed band against a basket of certain foreign
currencies. During the years ended December 31, 2021, 2020, and
2019 the RMB appreciated against the USD by approximately 2.7%,
appreciated against the USD by approximately 6.2%, and depreciated
against the USD by approximately 1.2%, respectively. During the
years ended December 31, 2021, 2020 and 2019, the RMB appreciated
against the Euro by approximately 8.9%, depreciated against the
Euro by approximately 2.2% and appreciated against the Euro by
approximately 0.9%, respectively. It is difficult to predict how
market forces or PRC, U.S. or EU government policy may impact the
exchange rate between the RMB and the USD or Euro, respectively, in
the future.
Currency
exchange rate fluctuation in either direction can negatively impact
our results of operations or financial condition. Appreciation in
RMB could have the effect of increasing our operating costs so long
as a material amount of our current operations occur in China.
Conversely, appreciation of USD against the RMB could have the
effect of reducing the value of our cash and cash equivalents in
China for the purpose of paying any cash dividends.
We may rely on dividends and other distributions on equity paid by
our PRC subsidiaries to fund any cash and financing requirements we
may have, and any limitation on the ability of our PRC subsidiaries
to make payments to us could have a material and adverse effect on
our ability to conduct our business.
We
conduct our operations in various countries, including China,
through wholly owned subsidiaries with direct equity ownership. If
our PRC subsidiaries incur debt on their own behalf in the future,
the instruments governing the debt may restrict their ability to
pay dividends or make other distributions to us. Under PRC laws and
regulations, our PRC subsidiaries, which are foreign-owned
enterprises, may pay dividends only out of their respective
accumulated profits as determined in accordance with PRC accounting
standards and regulations. In addition, a foreign-owned enterprise
is required to set aside at least 10% of its accumulated after-tax
profits each year, if any, to fund a certain statutory reserve
fund, until the aggregate amount of such fund reaches 50% of its
registered capital. Such reserve funds cannot be distributed to us
as dividends. At its discretion, a foreign-owned enterprise may
allocate a portion of its after-tax profits based on PRC accounting
standards to an enterprise expansion fund, or a staff welfare and
bonus fund. To date, we have not been required to set aside and
fund any such statutory reserve fund, as we have, since our
inception, incurred net losses.
Under
applicable PRC accounting standards and regulations, intercompany
transfers are accounted for under either a general account, for
cash transfers in the ordinary course of business, or a capital
account, for cash transfers on investments (i.e., dividends and
loan repayments). With respect to our capital account, we can send
capital investments to our subsidiaries for working capital and our
subsidiaries can use such capital at their discretion. To the
extent one of our PRC subsidiaries declares and pays a dividend,
such subsidiary must pay a transfer tax of 15% to repatriate any
profit distributed to our Australian parent company. Our PRC
subsidiaries, as Wholly Foreign Owned Enterprises (WFOEs) under PRC
law, can make dividends up to CAG HK without prior PRC regulatory
approval. However, any such subsidiary is limited in its ability to
make dividends while that subsidiary has either net losses in the
current period or accumulated net losses from prior periods and
will only be able to pay dividends during periods in which it has
positive net income and no accumulated net losses. We have not made
any cash distributions or transfers of other assets between us and
any of our subsidiaries. To date, there have been no net profits
recognized at any of our PRC subsidiaries and thus there have not
been any dividends or distributions made by any of our
subsidiaries. With respect to our general account, our subsidiaries
purchase and pay for materials and parts, and receive funds for the
sale of vehicle kits and vehicles. There is no PRC government
approval required for transactions in our general account, where
funds can be sent and received in the ordinary course of business
freely without government approvals.
Revenue
generated in Renminbi by our PRC Subsidiaries is not freely
convertible into other currencies. As a result, any restriction on
currency exchange may limit the ability of our PRC subsidiaries to
use their Renminbi revenues to pay dividends to us.
The PRC
government may continue to strengthen its capital controls and more
restrictions and substantial vetting processes may be put forward
by the State Administration of Foreign Exchange, or SAFE, for
cross-border transactions. Any limitation on the ability of our PRC
subsidiaries to pay dividends or make other kinds of payments to us
could materially and adversely limit our ability to grow, make
investments or acquisitions that could be beneficial to our
business, pay dividends, or otherwise fund and conduct our
business. In addition, the Enterprise Income Tax Law and its
implementation rules provide that a withholding tax rate of up to
10% will be applicable to dividends payable by Chinese companies to
non-PRC-resident enterprises unless otherwise exempted or reduced
according to treaties or arrangements between the PRC central
government and governments of other countries or regions where the
non-PRC-resident enterprises are incorporated.
Changes in U.S. and international trade policies, particularly with
regard to China, may adversely impact our business and operating
results.
Since the
beginning of 2018, there has been increasing rhetoric, in some
cases coupled with legislative or executive action, from several
U.S. and foreign leaders regarding tariffs against foreign imports
of certain materials. More specifically, there have been several
rounds of U.S. tariffs on Chinese goods taking effect in the past
few years, some of which prompted retaliatory Chinese tariffs on
U.S. goods. By January 2020, China and the United States had
reached a phase one trade deal to roll back tariffs and suspend
certain tariff increases by the United States that were scheduled
to take effect; however, such phase one trade deal made reductions
in tariffs contingent on certain purchase concessions from China.
As of March 2022, China has yet to satisfy the trade deal’s
purchase conditions and tariff levels have not been reduced under
the agreement. The institution of trade tariffs both globally and
between the U.S. and China specifically carries the risk of
negatively affecting both countries’ overall economic condition. If
these tariffs continue or additional new tariffs are imposed in the
future, they could have a negative impact on us as we have
significant operations in China.
The
Chinese government has adopted legislation and new regulations
designed to counteract U.S. trade policies towards China, including
the Anti-Foreign Sanctions Law and the Ministry of Commerce of the
People’s Republic of China Order No. 1 of 2021 on Rules on
Counteracting Unjustified Extraterritorial Application of Foreign
Legislation and Other Measures. Pursuant to the Anti-Foreign
Sanctions Law, all entities and individuals (including subsidiaries
of multinational companies and foreign citizen) in China (including
Hong Kong and Macao) risk being on the anti-sanctions list if they
are deemed to aid and abet in the implementation of sanctions
imposed by foreign countries. Continuing trade tensions between
China and the United States could adversely affect our business and
our operations.
It may be difficult for overseas regulators to conduct
investigations or collect evidence within China.
Shareholder claims or regulatory investigations that are common in
the United States and other developed countries generally are
difficult to pursue as a matter of law or practicality in China.
For example, in China, there are significant legal and other
obstacles to providing information needed for regulatory
investigations or litigation initiated outside China. Although the
authorities in China may establish a regulatory cooperation
mechanism with the securities regulatory authorities of another
country or region to implement cross-border supervision and
administration, such cooperation with the securities regulatory
authorities in the Unities States may not be efficient in the
absence of mutual and practical cooperation mechanism. Furthermore,
according to Article 177 of the PRC Securities Law, or Article 177,
which became effective in March 2020, no overseas securities
regulator is allowed to directly conduct investigation or evidence
collection activities within the territory of the PRC. While
detailed interpretation of or implementation rules under Article
177 have yet to be promulgated, the inability for an overseas
securities regulator to directly conduct investigations or evidence
collection activities within China may further increase
difficulties faced by you in protecting your interests.
PRC regulation of loans to and direct investment in PRC entities by
offshore holding companies and governmental control of currency
conversion may delay or prevent us from making loans to or make
additional capital contributions to our PRC subsidiaries, which
could materially and adversely affect our liquidity and our ability
to fund and expand our business.
Under PRC
laws and regulations, we are permitted to utilize the proceeds of
any financing outside China to fund our PRC subsidiaries by making
loans to or additional capital contributions to our PRC
subsidiaries, subject to applicable government registration,
statutory limitations on amount and approval requirements. These
PRC laws and regulations may limit our ability to use Renminbi
converted from the net proceeds of any financing outside China to
make future loans to our PRC subsidiaries or future capital
contributions by us to our PRC subsidiaries. If we fail to complete
such registrations or obtain such approvals, our ability to
capitalize or otherwise fund our PRC operations may be negatively
affected, which could materially and adversely affect our liquidity
and our ability to fund and expand our business.
PRC regulations relating to offshore investment activities by PRC
residents may limit our PRC subsidiaries’ ability to increase their
registered capital or distribute profits to us or otherwise expose
us or our PRC resident beneficial owners to liability and penalties
under PRC law.
SAFE
requires PRC residents or entities to register with SAFE or its
local branch in connection with their establishment or control of
an offshore entity established for the purpose of overseas
investment or financing. In addition, such PRC residents or
entities must update their SAFE registrations when the offshore
special purpose vehicle undergoes certain material events.
If our
shareholders who are PRC residents or entities do not complete
their registration with the local SAFE branches, our PRC
subsidiaries may be prohibited from distributing their profits and
any proceeds from any reduction in capital, share transfer or
liquidation to us, and we may be restricted in our ability to
contribute additional capital to our PRC subsidiaries. Moreover,
failure to comply with SAFE registration requirements could result
in liability under PRC laws for evasion of applicable foreign
exchange restrictions.
However,
we may not be informed of the identities of all the PRC residents
or entities holding direct or indirect interests in our company,
nor can we compel our beneficial owners to comply with SAFE
registration requirements. As a result, we cannot assure you that
all of our shareholders or beneficial owners who are PRC residents
or entities have complied with, and will in the future make or
obtain, any applicable registrations or approvals required by, SAFE
regulations. Failure by such shareholders or beneficial owners to
comply with SAFE regulations, or failure by us to amend the foreign
exchange registrations of our PRC subsidiaries, could subject us to
fines or legal sanctions, restrict our overseas or cross-border
investment activities, limit our PRC subsidiaries’ ability to make
distributions or pay dividends to us or affect our ownership
structure, which could adversely affect our business and
prospects.
Any failure to comply with PRC regulations regarding the
registration requirements for employee share incentive plans may
subject the PRC plan participants or us to fines and other legal or
administrative sanctions.
Under
SAFE regulations, PRC residents who participate in a share
incentive plan in an overseas publicly listed company may be
required to register with SAFE or its local branches and complete
certain other procedures. We and our PRC resident employees who
participate in our share incentive plans may become subject to
these regulations. If we or any of these PRC resident employees
fail to comply with these regulations, we or such employees may be
subject to fines and other legal or administrative sanctions. We
also face regulatory uncertainties that could restrict our ability
to adopt additional incentive plans for our directors, executive
officers and employees under PRC law.
You may experience difficulties in enforcing foreign judgments or
bringing actions in China against us based on foreign laws.
The
recognition and enforcement of foreign judgments in China are
provided for under the PRC Civil Procedures Law. PRC courts may
recognize and enforce foreign judgments in accordance with the
requirements of the PRC Civil Procedures Law based either on
treaties between China and the country where the judgment is made
or on principles of reciprocity between jurisdictions. China does
not have any treaties or other forms of reciprocity with the United
States or Australia that provide for the reciprocal recognition and
enforcement of foreign judgments. In addition, according to the PRC
Civil Procedures Law, PRC courts will not enforce a foreign
judgment if they decide that the judgment violates the basic
principles of PRC laws or national sovereignty, security or public
interest. As a result, it is uncertain whether and on what basis a
PRC court would enforce a judgment rendered by a court in the
United States or Australia against any of our subsidiaries or
assets located in China.
Risks Related to
Ownership of Our Ordinary Shares
Our ordinary shares may be delisted under the Holding Foreign
Companies Accountable Act if the PCAOB is unable to inspect our
auditors. The delisting of our ordinary shares, or the threat of
their being delisted, may materially and adversely affect the value
of your investment.
The
Holding Foreign Companies Accountable Act, or the HFCA Act, was
enacted on December 18, 2020. The HFCA Act states if the SEC
determines that a company has filed audit reports issued by a
registered public accounting firm that has not been subject to
inspection by the PCAOB for three consecutive years beginning in
2021, the SEC shall prohibit such ordinary shares from being traded
on a national securities exchange or in the over-the-counter
trading market in the U.S.
On March 24, 2021, the SEC adopted interim final rules relating to
the implementation of certain disclosure and documentation
requirements of the HFCA Act. A company will be required to comply
with these rules if the SEC identifies it as having a
“non-inspection” year under a process to be subsequently
established by the SEC. The SEC is assessing how to implement other
requirements of the HFCA Act, including the listing and trading
prohibition requirements described above. Furthermore, on June 22,
2021, the U.S. Senate passed the Accelerating Holding Foreign
Companies Accountable Act, which, if enacted, would amend the HFCA
Act and require the SEC to prohibit an issuer’s securities from
trading on any U.S. stock exchanges if its auditor is not subject
to PCAOB inspections for two consecutive years instead of three. A
bill corresponding to the Senate’s Accelerating Holding Foreign
Companies Accounting Act was introduced in the U.S. House of
Representatives on December 13, 2021, though such legislation has
not yet been passed. On September 22, 2021, the PCAOB adopted a
final rule implementing the HFCA Act, which provides a framework
for the PCAOB to use when determining, as contemplated under the
HFCA Act, whether the PCAOB is unable to inspect or investigate
completely registered public accounting firms located in a foreign
jurisdiction because of a position taken by one or more authorities
in that jurisdiction. On December 2, 2021, the SEC issued
amendments to finalize rules implementing the submission and
disclosure requirements in the HFCA Act. The rules apply to
registrants that the SEC identifies as having filed an Annual
Report with an audit report issued by a registered public
accounting firm that is located in a foreign jurisdiction and that
PCAOB is unable to inspect or investigate completely because of a
position taken by an authority in foreign jurisdictions. On
December 16, 2021, the PCAOB issued a Determination Report which
found that the PCAOB is unable to inspect or investigate completely
registered public accounting firms headquartered in: (i) China, and
(ii) Hong Kong.
Our
current auditor, Marcum Bernstein & Pinchuk LLP (“MBP”), the
independent registered public accounting firm that issues the audit
report included in this annual report on Form 20-F, as an auditor
of companies that are traded publicly in the United States and a
firm registered with the PCAOB, is subject to laws in the U.S.
pursuant to which the PCAOB conducts regular inspections to assess
its compliance with the applicable professional standards. MBP,
whose audit report is included in this prospectus, is headquartered
in New York, New York, and, as of the date of this annual report,
was not included in the list of PCAOB Identified Firms in the
Determination Report. MBP has been inspected by the PCAOB on a
regular basis with the last inspection in 2020. However, as noted
above, recent developments create uncertainty as to the PCAOB’s
continued ability to conduct inspections of our independent
accounting firm MBP.
Our
ability to retain an auditor subject to the PCAOB inspection and
investigation, including but not limited to inspection of the audit
working papers related to us, may depend on the relevant positions
of U.S. and Chinese regulators. With respect to audits of companies
with operations in China, such as the Company, there are
uncertainties about the ability of our auditor to fully cooperate
with a request by the PCAOB for audit working papers in China
without the approval of Chinese authorities. If the PCAOB is unable
to inspect or investigate completely the Company’s auditor because
of a position taken by an authority in a foreign jurisdiction, then
such lack of inspection could cause trading in the Company’s
securities to be prohibited under the HFCAA, and ultimately result
in a determination by a securities exchange to delist the Company’s
securities. Such a prohibition would substantially impair an
investor’s ability to sell or purchase the Company’s Ordinary
Shares and negatively impact the price of the Ordinary Shares.
Accordingly, the HFCAA calls for additional and more stringent
criteria to be applied to emerging market companies upon assessing
the qualification of their auditors, especially the non-U.S.
auditors who are not inspected by the PCAOB.
Our
Ordinary Share price may be volatile, and the value of our Ordinary
Shares may decline.
The
market price of our Ordinary Shares may be highly volatile and may
fluctuate or decline substantially as a result of a variety of
factors, some of which are beyond our control, including:
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our future financial performance,
including expectations regarding our revenue, expenses and other
operating results;
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changes in customer acceptance rates
or the pricing of our vehicles;
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delays in the production of our
vehicles;
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our ability to establish new channel
partners and successfully retain existing channel partners;
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our ability to anticipate market needs
and develop and introduce new and enhanced vehicles to adapt to
changes in our industry;
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the success of our competitors;
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our operating results failing to meet
the expectations of securities analysts or investors in a
particular period;
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changes in financial estimates and
recommendations by securities analysts concerning us or the
industry in which we operate in general;
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the stock price performance of other
companies that investors deem comparable to us;
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announcements by us or our competitors
of significant business developments, acquisitions, strategic
partnerships, joint ventures, collaborations or capital
commitments;
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future investments in our business,
our anticipated capital expenditures and our estimates regarding
our capital requirements;
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disputes or other developments related
to our intellectual property or other proprietary rights, including
litigation;
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changes in our capital structure,
including future issuances of securities or the incurrence of
debt;
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changes in senior management or key
personnel;
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changes in laws and regulations
affecting our business;
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commencement of, or involvement in,
investigations, inquiries or litigation;
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the inherent risks related to the
electric commercial vehicle industry;
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the trading volume of our Ordinary
Shares; and
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general economic and market
conditions.
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Broad
market and industry fluctuations, as well as general economic,
political, regulatory, and market conditions, may also negatively
impact the market price of our Ordinary Shares. In addition,
technology stocks have historically experienced high levels of
volatility. In the past, companies that have experienced volatility
in the market price of their securities have been subject to
securities class action litigation. We may be the target of this
type of litigation in the future, which could result in substantial
expenses and divert our management’s attention.
Concentration of ownership among our executive officers, directors
and their affiliates, as well as the Relationship Agreement entered
into in connection with the Combination, may prevent new investors
from influencing significant corporate decisions.
As of
March 31, 2022, our executive officers, directors and their
affiliates beneficially own, in the aggregate, approximately 30.7%
of our outstanding Ordinary Shares. In particular, as of March 31,
2022, Mr. Peter Z. Wang, our Chief Executive Officer, beneficially
owns approximately 27.4% of our outstanding Ordinary Shares.
Additionally, in connection with the Combination, NBG entered into
a relationship agreement, dated as of December 30, 2021 (the
“Relationship Agreement”), with Mr. Wang and Cenntro Enterprise
Limited and Trendway Capital Limited, each an entity controlled by
Mr. Wang (both entities together with Mr. Wang, the “Wang
Parties”). In accordance with the Acquisition Agreement and the
Relationship Agreement, the Board consists of five directors,
including Mr. Wang, Chris Thorne, Joe Tong and Simon Charles Howard
Tripp, directors designated by the Wang Parties (the “Wang Parties
Nominee Directors”), and Mr. Davis-Rice, NBG’s former chief
executive officer and the director designated by NBG. For so long
as the Wang Parties collectively beneficially own at least 10% of
our issued and outstanding Ordinary Shares, in the event that any
of the Wang Parties Nominee Directors are removed as a director by
members pursuant to section 203D of the Corporations Act, Mr. Wang
may give notice in writing to the Company of the person that the
Wang Parties wish to nominate in place of that previous Wang
Parties Nominee Director, together with their consent to act, and
the Company must ensure that such individual is appointed as a Wang
Parties Nominee Director of the same class of director as the
previous nominee within two business days of receipt of such notice
and signed consent to act.
As a
result, Mr. Wang will be able to exercise a significant level of
influence over all matters requiring shareholder approval,
including the election of directors, amendments of our Constitution
and approval of significant corporate transactions. This influence
could have the effect of delaying or preventing a change of control
of our company or changes in management and will make the approval
of certain transactions difficult or impossible without the support
of Mr. Wang.
Future sales of our Ordinary Shares by us in the public market
could cause the market price of our Ordinary Shares to decline. The
issuance of additional Ordinary Shares in connection with
financings, acquisitions, investments, our equity incentive plans
or otherwise will dilute all other shareholders.
Sales of
a substantial number of Ordinary Shares in the public market,
including sales of Ordinary Shares or securities convertible into
Ordinary Shares under our existing universal shelf registration
statements on Form F-3ASR, filed with the SEC on May 18, 2021 and
January 6, 2022, or the perception that these sales might occur,
could depress the market price of our Ordinary Shares and could
impair our ability to raise capital through the sale of additional
equity securities. We are unable to predict the timing of or the
effect that any such sales may have on the prevailing market price
of our Ordinary Shares.
The
issuance of additional Ordinary Shares in the future will result in
dilution to all other shareholders. In addition, we expect to grant
equity awards to employees, directors and consultants under our
equity incentive plans. As part of our business strategy, we may
acquire or make investments in companies, products or technologies
and issue equity securities to pay for any such acquisition or
investment. Any such issuances of additional share capital may
cause shareholders to experience significant dilution of their
ownership interests and the per share value of our Ordinary Shares
to decline.
If securities or industry analysts do not publish research or
publish unfavorable or inaccurate research about our business, the
market price and trading volume of our Ordinary Shares could
decline.
The
market price and trading volume of our Ordinary Shares is heavily
influenced by the way analysts interpret our financial information
and other disclosures. We do not have control over these analysts.
If industry analysts cease coverage of us or if securities analysts
do not publish research or reports about our business, the price of
our Ordinary Shares may be negatively affected. If securities or
industry analysts downgrade our Ordinary Shares or publish negative
reports about our business, the price of our Ordinary Shares would
likely decline. If one or more of these analysts cease coverage of
us or fail to publish reports on us regularly, demand for our
Ordinary Shares could decrease, which might cause a decline in the
price of our Ordinary Shares and could decrease the trading volume
of our Ordinary Shares.
We do not intend to pay dividends for the foreseeable future and,
as a result, your ability to achieve a return on your investment
will depend on appreciation in the price of our Ordinary
Shares.
We have
never declared or paid any cash dividends on our Ordinary Shares,
and we do not intend to pay any cash dividends in the foreseeable
future. Any determination to pay dividends in the future will be at
the discretion of our Board. Accordingly, you may need to rely on
sales of our Ordinary Shares after price appreciation, which may
never occur, as the only way to realize any future gains on your
investment.
There can be no assurance that we will be able to comply with the
continued listing standards of the Nasdaq Capital Market. Our
failure to meet the continued listing requirements could result in
a de-listing of our Ordinary Shares.
We cannot
assure you that we will be able to comply with the standards that
we are required to meet in order to maintain a listing of our
Ordinary Shares on the Nasdaq Capital Market of The Nasdaq Stock
Market LLC (“Nasdaq”). If we fail to satisfy the continued listing
requirements of the Nasdaq Capital Market, such as the minimum
stockholder’s equity requirement, the minimum bid price
requirements or the minimum market value of publicly held shares
requirement, Nasdaq staff may take steps to de-list our Ordinary
Shares. A notice of de-listing or any de-listing would likely have
a negative effect on the price of our Ordinary Shares and may
impair our shareholders’ ability to sell our Ordinary Shares when
they wish to do so. In the event that we receive a notice of
de-listing, we would plan to take actions to restore our compliance
with the Nasdaq Capital Market’s listing requirements, but we can
provide no assurance that any action taken by us would result in
our Ordinary Shares maintaining its listing, or that any such
action would stabilize the market price or improve the liquidity of
our Ordinary Shares.
As a foreign private issuer, we are permitted and expect to follow
certain home country corporate governance practices (in our case
Australian) in lieu of certain Nasdaq requirements applicable to
domestic issuers and we are permitted to file less information with
the SEC than a company that is not a foreign private issuer. This
may afford less protection to holders of our securities.
As a foreign private issuer under the Securities and Exchange Act
1934 (the “Exchange Act”), Nasdaq allows us to follow home country
governance practices (in our case, Australian) in lieu of the
otherwise applicable Nasdaq corporate governance requirements. In
accordance with this exception, we follow Australian corporate
governance practices in lieu of certain of the Nasdaq corporate
governance standards, as more fully described in Item 16G of this
Annual Report on Form 20-F. In particular, we follow Australian law
and corporate governance practices with respect to quorum
requirements applicable to shareholder meetings. These differences
may result in less shareholder approvals required generally for
corporate decision-making. We will also follow Australian law
instead of the Nasdaq requirement to obtain shareholder approval
prior to the issuance of securities in connection with a change of
control, certain acquisitions, private placements of securities, or
the establishment or amendment of certain stock option, purchase,
or other equity compensation plans or arrangements. These
differences may result in less shareholder oversight and requisite
approvals for certain acquisition or financing related decisions or
for certain company compensation related decisions. The Australian
home country practices described above may afford less protection
to holders of our securities than that provided under the exchange
listing rules of Nasdaq (the “Nasdaq Listing Rules”).
We are an “emerging growth company,” and we cannot be certain if
the reduced reporting and disclosure requirements applicable to
emerging growth companies will make our Ordinary Shares less
attractive to investors.
We are an
“emerging growth company” as defined in the Jumpstart Our Business
Startups Act of 2012 (the “JOBS Act”), and we may take advantage of
certain exemptions from various reporting requirements that are
applicable to other public companies that are not “emerging growth
companies,” including the auditor attestation requirements of
Section 404 of the Sarbanes-Oxley Act, or Section 404 and
disclosure obligations regarding executive compensation. Pursuant
to Section 107 of the JOBS Act, as an emerging growth company, we
have elected to use the extended transition period for complying
with new or revised accounting standards until those standards
would otherwise apply to private companies. As a result, our
financial statements may not be comparable to the financial
statements of issuers who are required to comply with the effective
dates for new or revised accounting standards that are applicable
to public companies, which may make our Ordinary Shares less
attractive to investors. In addition, if we cease to be an emerging
growth company, we will no longer be able to use the extended
transition period for complying with new or revised accounting
standards.
We will
remain an emerging growth company until the earliest of: (1) the
last day of the fiscal year following the fifth anniversary of June
20, 2018, which was the date of the first sale of our Ordinary
Shares pursuant to an effective registration statement; (2) the
last day of the first fiscal year in which our annual gross revenue
is $1.07 billion or more; (3) the date on which we have, during the
previous rolling three-year period, issued more than $1 billion in
non-convertible debt securities; and (4) the last day of the fiscal
year in which the market value of our Ordinary Shares held by
non-affiliates exceeded $700 million as of June 30 of such fiscal
year.
We cannot
predict if investors will find our Ordinary Shares less attractive
if we choose to rely on these exemptions. For example, if we do not
adopt a new or revised accounting standard, our future results of
operations may not be as comparable to the results of operations of
certain other companies in our industry that adopted such
standards. If some investors find our Ordinary Shares less
attractive as a result, there may be a less active trading market
for our Ordinary Shares, and our share price may be more
volatile.
Our Constitution and the Corporations Act contain anti-takeover
provisions, which may discourage a third-party from acquiring us
and adversely affect the rights of holders of our Ordinary
Shares.
Our
Constitution contains certain provisions that could limit the
ability of others to acquire control of our company, including
provisions that institute a staggered board of directors. In
addition, the Corporations Act contains provisions relating to
control transactions which regulate transactions pursuant to which
shareholders may gain a controlling equity stake in the Company.
These provisions could discourage, delay or prevent a transaction
involving a change in control of our company. These provisions
could also make it more difficult for you and other shareholders to
elect directors of your choosing and cause us to take other
corporate actions that you desire. Additionally, the Relationship
Agreement provides our Chairman and Chief Executive Officer, Peter
Z. Wang, with considerable influence over the composition of our
Board. See “⸺Concentration of ownership among our executive
officers, directors and their affiliates, as well as the
Relationship Agreement entered into in connection with the
Combination, may prevent new investors from influencing significant
corporate decisions.”
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INFORMATION ON THE COMPANY
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A. History and
Development of the Company
History and Development
We are an
Australian public limited company, originally formed on May 11,
2017 under the name “Bendon Group Holdings Limited.”
On June
19, 2018, NBG consummated the transactions (the “Bendon Merger”)
contemplated by that certain Agreement and Plan of Reorganization,
dated as of May 25, 2017 and amended on July 26, 2017, February 21,
2018, March 19, 2018 and April 23, 2018 (the “Bendon Merger
Agreement”), by and among NBG (f/k/a Bendon Group Holdings
Limited), Naked Brand Group Inc., a Nevada corporation (“Naked
(NV)”), Bendon, Naked Merger Sub Inc., a Nevada corporation and a
wholly owned subsidiary of NBG (“Bendon Merger Sub”) and Bendon
Investments Ltd., a New Zealand company and at the time the owner
of a majority of the outstanding shares of Bendon. Pursuant to the
Bendon Merger Agreement, (i) Bendon undertook a reorganization of
its corporate group, in which it inserted NBG as its parent entity
and the shareholders of Bendon exchanged their shares of Bendon for
shares of NBG and (ii) immediately thereafter, the parties
effectuated a merger of Bendon Merger Sub and Naked (NV), with
Naked (NV) surviving as a wholly owned subsidiary of NBG and Naked
(NV) shareholders receiving Ordinary Shares of NBG in exchange for
all outstanding shares of common stock of Naked (NV). Effective on
and from the closing of the Bendon Merger, NBG’s business became
the business of Bendon and Naked (NV) and NBG changed its name from
Bendon Group Holdings Limited to “Naked Brand Group Limited.”
On January 21, 2021, NBG announced plans to undertake a
restructuring in which it would dispose of its bricks-and-mortar
operations in order to focus exclusively on its e-commerce
business. To that end, in January 2021, NBG signed a non-binding
and non-exclusive term sheet for the divestment of our Bendon
subsidiary, to a group composed of then-existing management of NBG
(the “Bendon Sale”). On April 23, 2021, NBG held an Extraordinary
General Meeting of Shareholders, at which its shareholders approved
the Bendon Sale. On April 30, 2021, NBG signed a conditional share
sale agreement (the “Bendon Share Sale Agreement”) for the sale of
all of the issued share capital in Bendon to JADR Holdings Pty
Limited (“JADR Holdings”), an entity affiliated with Justin
Davis-Rice, the then Executive Chairman and Chief Executive Officer
of NBG, and Matana Intimates Holdings Trustee Limited (together
with JADR Holdings, the “Buyers”), an entity affiliated with Anna
Johnson, NBG’s prior Chief Executive Officer, and simultaneously
consummated the transactions contemplated thereby. The
consideration paid by the Buyers was NZ$1.00 as adjusted based on
the target inventory amount of NZ$18.2 million and by a true up
adjustment for estimated net cash/(debt) and working capital as at
the accounts date. The inventory adjustment resulted in a payment
by NBG to Bendon in the amount of NZ$4.8 million.
On November 5, 2021, NBG entered into the Acquisition Agreement
with CAG, CAG HK, CAC and CEG, each a wholly owned subsidiary of
CAG, setting forth the terms of the Combination. Pursuant to the
Acquisition Agreement, NBG purchased the Cenntro Shares from CAG.
The closing of the Combination occurred on December 30, 2021. The
aggregate purchase price for the Cenntro Shares was 174,853,546
Ordinary Shares and the assumption of options to purchase an
aggregate of 9,225,271 Ordinary Shares under the 2016 Plan.
Immediately after the Closing of the Combination, NBG changed its
name from “Naked Brand Group Limited” to “Cenntro Electric Group
Limited,” and the business conducted by Cenntro became the business
conducted by the Company. The transaction was accounted for as a
reverse recapitalization in which Cenntro was determined to be the
accounting acquirer.
Promptly following the Closing, CAG distributed the Acquisition
Shares to the holders of its capital stock in accordance with (i)
the distribution described in the Acquisition Agreement and (ii)
CAG’s Third Amended and Restated Memorandum and Articles of
Association.
On December 30, 2021, simultaneously with the closing of the
Combination, NBG divested itself of its business conducted through
FOH, pursuant to the Term Sheet, by and among NBG, Bendon and FOH.
Bendon is jointly controlled by Justin Davis-Rice, a member of the
Company’s Board and formerly NBG’s Executive Chairman and Chief
Executive Officer, and Anna Johnson, the prior Chief Executive
Officer of NBG prior to Mr. Davis-Rice. From June 2018 until April
2021, Bendon was an operating subsidiary of NBG. FOH is a designer
and e-commerce retailer of women’s intimate apparel, sleepwear and
swimwear. It is the exclusive licensee of the Frederick’s of
Hollywood global online license, under which it sells Frederick’s
of Hollywood intimate products, sleepwear and loungewear products,
swimwear and swimwear accessories products, and costume
products.
Under the Term Sheet, Bendon purchased all the outstanding shares
of common stock of FOH for a purchase price of AUS$1.00. In
connection with such purchase, NBG recapitalized FOH with USD$12.6
million in order to cover liabilities of FOH assumed by Bendon and
forgave USD$9.5 million of intercompany loans made by NBG to FOH.
The Term Sheet includes certain fundamental representations and
warranties of NBG, which terminated as of the closing of the
Divestiture. Under the Term Sheet, the Company has no liability to
Bendon or FOH following the closing.
Principal Capital Expenditures
Our
capital expenditures for the years ended December 31, 2021, 2020
and 2019 amounted to approximately $0.8 million, $0.08 million and
$0.06 million, respectively and consisted primarily of investments
in equipment related to our production of ECVs. We anticipate our
capital expenditures in fiscal year 2022 to include investments in
additional equipment for the expansion of our productive capacity
at our Changxing facility and equipment necessary for the
establishment of production capacity at our assembly facility in
Jacksonville, Florida, which will be financed primarily with our
working capital. During the same period, our only material
divestiture was the sale in November 2020 of our land use rights
and property related to our facility in Shengzhou for an aggregate
amount of approximately $34.3 million. However, NBG made
significant divestitures of its brick-and-mortar and online
intimate apparel business leading up to and at the closing of the
Combination. See “-History and Development” above for further
detail regarding NBG’s divestitures.
Office Location
Our
principal executive office is located as 501 Okerson Road,
Freehold, New Jersey 07782.
Principal Legal Advisers
Our
principal legal adviser in the U.S. is Pillsbury Winthrop Shaw
Pittman, located at 31 W 52nd Street, 29th Floor, New York, New
York 10019.
Additional Information
The SEC maintains an internet site,
www.sec.gov, that contains reports, proxy and information
statements, and other information regarding issuers, like us, that
file electronically with the SEC. We also maintain a website at
www.cenntroauto.com, which contains information about our
company. The information on our website is not deemed part of this
Annual Report.
B. Business
Overview
We are a designer and manufacturer of light- and medium-duty ECVs.
Our purpose-built ECVs are designed to serve a variety of corporate
and governmental organizations in support of city services,
last-mile delivery and other commercial applications. As of
December 31, 2021, we have sold or put into service more than 3,740
units of the Metro® in over 25 countries across North America,
Europe and Asia. Our first ECV model, the Metro®, has been driven
over seven million miles by commercial end-users in China alone. We
also introduced four new ECV models to serve the light- and
medium-duty market beginning in the fourth quarter of 2021. Our
mission is to leverage our technological and research and
development capabilities in areas such as vehicle design, digital
component development, vehicle control software, and “smart”
driving to become a technology leader in the ECV market.
We have
established an asset-light, distributed manufacturing business
model through which we can distribute our unique modular vehicles
in unassembled semi-knockdown vehicle kits (“vehicle kits”) for
local assembly in addition to fully assembled vehicles. Each of our
vehicle models has a modular design that allows for local assembly
in small factory facilities that require less capital investment.
We manufacture our own vehicle kits for the Metro® in our
facilities in China and leverage the economies of scale of our
manufacturing partners in China to manufacture vehicle kits and/or
fully assembled vehicles for our new ECV series. We believe our
distributed manufacturing methodology allows us to execute our
business plan with less capital than would be required by the
traditional, vertically integrated automotive model and, in the
long-term, drive higher profit margins.
Our
distributed manufacturing model allows us to focus our efforts on
the design of ECV models and related technologies while outsourcing
various portions of the manufacturing, assembly and marketing of
our vehicles to qualified third parties, allowing the Company to
operate with lower capital investment than traditional vertically
integrated automotive companies. We outsource the vast majority of
the marketing of our vehicles to third parties that refer to as our
“channel partners.” For the last several years, we relied
substantially on private label channel partners to assemble the
Metro® from vehicle kits that we manufactured in our facilities.
With the introduction of our new ECV models, we have begun the
process of shifting the manufacturing of our vehicle kits and in
some cases fully assembled vehicles to third party OEM
manufacturing partners and, in the case of vehicle kits, assembling
in our own facilities in North America and Europe. Our
relationships with such third parties, our “manufacturing
partners,” have allowed us to forego expensive capital investments
in our own facilities and operate within our historic working
capital limitations.
We began
pilot production of our first-generation, U.S. Class 1 (0-6,000
lbs.), electric light-duty commercial vehicle, the Metro®, in 2018,
and, as of December 31, 2021, we have sold approximately 2,440
units in over 25 countries across Europe, North America and Asia,
and put into service approximately 1,300 additional units in China
through affiliated parties. The Metro® is a customizable ECV used
in commercial applications such as city services (i.e., street
cleaners, firetrucks, food trucks and garbage trucks) and last-mile
delivery. The Metro® was “born electric,” meaning that, unlike many
other ECVs that are converted from existing internal combustion
engine vehicle (“ICE”) designs, the Metro® was purpose-built from
inception to be highly cost-effective and energy efficient,
implementing a number of proprietary design elements including a
lightweight structure and efficient power system. With our
developed supply chain and relationships with component vendors and
our growing channel partner network, we believe we are in position
for larger scale production and distribution of the Metro®.
Since our
inception, we have invested resources in the research and
development not only of ECV design and manufacturing processes, but
also in digitally enabled components, intra-vehicle communication,
vehicle control and vehicle automation, or what we collectively
refer to as “vehicle digitization.” We have developed a prototype
system-on-chip (which we sometimes refer to as an “SOC”) for
vehicle control and an open-platform, programmable chassis, with
potential for both programmable and autonomous driving
capabilities. We have also designed and developed in-house a
proprietary telematics box, sometimes referred to as a T-Box, which
allows our ECVs to send and receive data relating to location,
speed, acceleration, braking and battery consumption, among others,
to end-users. Additionally, our engineers have worked closely with
certain of our qualified suppliers to co-design digitally enabled
components in areas such as steering, braking, acceleration and
signaling.
Recently, we introduced four new ECV models, each of which are
designed for specific geographic markets and to address additional
commercial applications. The Logistar™ 400 is a U.S. Class 4 (over
14,000 lbs.) medium-duty electric commercial truck designed to meet
U.S. city delivery and service needs. The Logistar™ 400 is offered
in four configurations: cargo-box, van, flatbed truck, and basic
chassis for upfitters. The Logistar™ 200 is a European Union N1
Class electric commercial vehicle designed to meet the European
Union’s city delivery and city service requirements. The Logistar™
200 was homologated in the European Union in January 2022 and first
became commercially available in the European market in February
2022. The Neibor® 150 is a European Union and UK L7e (heavy
quadricycle) Class compact electric commercial vehicle designed to
meet European neighborhood delivery and neighborhood service needs.
The Neibor® 150 was homologated in December 2022 and first became
commercially available in the European market in March 2022. We
have also developed the Teemak™, an off-road electric commercial
vehicle with essentially no homologation requirements in the United
States and limited certification requirements and are developing
the Neibor® 300, a European Union and UK L7e (heavy quadricycle)
Class compact electric commercial vehicle designed to complement
the smaller Neibor® 150. See “Risk Factors-Risks Related to Our
Business and Financial Results-Our future success depends on our
ability to introduce new models and we may experience delays in
launching and ramping up production of our new ECV models.”
We
have also developed the ePortee™, which we also refer to as the
Cenntro iChassis, an open-platform and programmable chassis
product. The Cenntro iChassis is designed to be a basic modular
building block for use by automakers and special vehicle upfitters
in the design of automated or autonomous driving vehicles. Through
our advancements in vehicle digitization and smart components, we
have equipped the Cenntro iChassis with digital control
capabilities. The Cenntro iChassis allows third-party developers to
integrate detection devices (i.e., lidar, radar, ultra-sound,
infrared and other sensory devices) and third-party or proprietary
decision-making software to allow for vehicles based on the
programmable chassis to be driven autonomously.
The
electrification of the global automotive industry has been a major
policy focus of governments worldwide. Certain countries, such as
the United States, China, Canada, Germany, and various other
European countries, have announced aggressive EV initiatives
designed to reduce carbon emissions, through the replacement of
fossil fuels, and have begun incentivizing the development and sale
of ECVs through government subsidy programs.
Industry Overview
and Market Opportunity
The EV Market
According
to an January 2022 report by Allied Market Research, the global EV
market was valued at approximately $163.01 billion in 2020 and is
projected to reach approximately $823.75 billion by 2030,
representing a compound annual growth rate of 18.2% from 2021 to
2030. Factors such as increases in demand for fuel-efficient,
high-performance and low-emission vehicles, along with stringent
government rules and regulations toward vehicle emissions are
expected to drive the growth of the electric vehicle market.
Many governments around the world, including the United States,
China, Germany, and various other European countries, are
regulating vehicle emissions and fuel economy standards and
offering incentives to commercial and government operators to
purchase more energy efficient vehicles. The mitigation of
greenhouse gas emissions from ICE vehicles is an integral part of
various nations’ strategies to meet the objectives of the 2015
Paris Agreement, which the United States rejoined in February 2021.
Some of the countries that have made announcements regarding their
intention to phase out ICE vehicles include the following:
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China: End production and sales of ICE
vehicles by 2040;
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France: Ban the sale of ICE cars by
2040;
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Germany: No registration of ICE
vehicles by 2030 (passed by legislature); cities can ban diesel
cars;
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India: Official target of no new ICE
vehicles sold after 2030; Incentive program in place for EV
sales;
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Japan: Incentive program in place for
EV sales; and
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United Kingdom: Ban the sale of new
ICE cars starting in 2035.
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In the United States, the Biden administration announced plans to
put the United States on a path to achieve net-zero emissions,
economy-wide, by no later than 2050. In 2021, President Biden
signed an executive order that mandates the replacement of all
civilian federal vehicles, over 600,000 vehicles, with U.S.-made
clean and zero-emission vans, trucks and passenger vehicles. The
Biden administration has also announced a goal of building more
than 500,000 EV chargers across the United States and has expressed
its support for an expansion of federal tax credits and incentives
targeted at EVs and EV manufacturing. In August 2021, the Biden
Administration announced that it had set the goal for half of all
new vehicles to be electric by 2030, as part of a plan that also
includes construction of a nationwide network of charging stations
and various financial incentives to consumers and auto industry
companies. In November 2021, President Biden signed the $1.2
trillion bipartisan infrastructure bill into law, which bill
includes $7.5 billion for electric vehicle charging infrastructure,
$3 billion to support the domestic battery material processing
industry and $3 billion to support the development of domestic
battery manufacturing and recycling facilities. We believe the
Biden administration’s strong support for EVs and renewables will
encourage an even more rapid shift from ICEs to EVs in the United
States, particularly in the commercial vehicle market.
Incentive
programs and new regulations affecting passenger and commercial
vehicles vary by country. However, there is strong sentiment to
reduce global greenhouse gas emissions from leading governments.
For heavy-duty vehicles, the European Union mandated a 15%
reduction in CO2 emissions (from 2019 levels) by 2025 and a 30%
reduction target (from 2019 levels) by 2030. Also, by 2025,
manufacturers will be required to ensure that at least a 2% market
share of the sales of new vehicles is made up of
zero-and-low-emission vehicles to counteract steadily increasing
road traffic emissions. For light-duty vehicles, the European Union
has mandated a 15% reduction in CO2 emissions by 2025 and a 31%
reduction target by 2030. The European Union may impose financial
penalties on vehicle manufacturers for failure to achieve certain
CO2 emission targets imposed on such manufacturers, with such
penalties scaling upward based on the level of CO2 emission
exceedance for their vehicles. We believe that increasing
government regulations and incentives, together with shifting
consumer preferences, will encourage significant growth in the
market for ECVs.
Improvements in Battery Technology
With the
global trend toward reducing the number of ICE vehicles,
electric-battery and fuel cell technologies stand out as strong
alternatives. Prior to COVID-19, battery costs had decreased
significantly over the past decade and, in the long run, prices are
expected to continue to fall. According to research service
BloombergNEF (BNEF), lithium-ion battery pack prices decreased from
above $1,200 per kilowatt-hour in 2010 to $132/kWh in 2021 in real
terms, representing a decline of approximately 89%. Although
battery pack prices have recently increased and may continue to
increase in the near-term due to the rising price of lithium as a
result of COVID-19 and other factors, we anticipate that battery
prices will continue to decrease in the long-term. BNEF forecasts
that by 2024, average prices are expected to fall to below
$100/kWh, though such reductions in average price may be delayed
due to higher raw material prices in the near term. As investment
in battery technology continues to increase, we believe these cost
reductions will continue to improve the economics of
battery-powered ECVs.
Last-mile Delivery and City Services
The
last-mile delivery market in the United States and the European
Union is quickly expanding, driven by the rapid growth in the
e-commerce industry resulting from consumer preference for faster
deliveries, significant increases in online purchases resulting
from COVID-19 and governmental focus on low emission urban
logistics models. We believe consumer behavior will accelerate the
online transformation of retail businesses and the expected need
for efficient last-mile delivery ECVs.
We
believe there is a growing sustainability trend among companies to
reduce their carbon footprint and incorporate ECVs into their
commercial delivery fleets. A number of well-established companies,
such as Amazon, FedEx, UPS and Walmart, have made announcements
about their intentions to reduce CO2 emissions and/or become
carbon-neutral by a specified future date. A number of these
companies have committed to purchase large quantities of ECVs (some
of which are not yet commercially available) to transition their
fleets over the next several years, with a focus on enhancing their
last-mile delivery services, as well as lowering their operating
costs, all while reducing their carbon footprint.
Autonomous Driving
The world’s largest technology and automotive companies are engaged
in large-scale projects related to autonomous driving initiatives
and other future mobility projects. The vast economic and safety
potential of autonomous vehicles has continued to drive substantial
investment, further accelerating the pace of technological
development. According to Allied Market Research, the global
autonomous vehicle market was valued at $76.13 billion in 2020, and
is projected to reach $2,161.79 billion by 2030, representing a
compound annual growth rate of 40.1% from 2021 to 2030.
Our Competitive Strengths
We
design, develop and manufacture ECVs in a cost-effective manner to
enable us to compete favorably in the light- and medium-duty
commercial vehicle market. We believe our competitive strengths
position us well to continue to grow our base of vehicles and
capitalize on the expected growth in the light- and medium-duty ECV
market:
Proven Record of Manufacturing and Distributing ECVs
We have
manufactured light-duty ECVs since 2018. Our business to date has
been primarily focused on selling the Metro® in the light-duty ECV
market, which is a relatively new market with only a limited number
of automakers successfully delivering vehicles in this segment
currently. As of December 31, 2021, we have sold approximately
2,440 Metro® units in Europe, North America and Asia and put into
service approximately 1,300 additional units in China through
affiliated parties. We have established relationships with 20
channel partners, including two “private label” channel partners
that assemble our vehicle kits and sell them in the United States
and certain countries in the European Union, two channel partners
that upfit our vehicles and sell them in Korea and the United
States and the remainder that sell fully assembled vehicles we
manufacture. We believe our production and delivery of over 3,740
Metro® units, with over seven million miles of commercial use in
China alone, provides us valuable insight into market dynamics that
are not readily apparent or accessible to new competitors, which
will assist us as we expand into new markets. We believe we are
positioned to take advantage of the growing light- to medium-duty
ECV market, which has few mature competitors capable of
manufacturing and delivering cost-effective and financially viable
ECVs today.
Distributed Manufacturing Methodology
Traditionally, automakers operate under a vertically integrated
business model performing a variety of capital-intensive and
time-consuming functions, including not only vehicle design,
process setup, tooling, parts making, supply chain establishment,
vehicle assembly and vehicle homologation, but also market
promotion, sales and distribution, after-market support and vehicle
servicing. This business model requires significant capital, is
asset heavy and imposes significant barriers to entry for new
players while impeding their ability to rapidly change their
vehicle lineup or their operating model.
Based on
our unique manufacturing and distribution model, we believe we are
positioned to be an industry disruptor. Unlike many traditional,
vertically integrated vehicle companies, which manufacture fully
assembled vehicles for export, we use an innovative distributed
manufacturing methodology in which our ECVs are designed to be
manufactured and exported as vehicle kits for assembly in local
markets. Our ECVs are designed using a “modular” method, allowing
for simple assembly and eliminating the need for acquiring and
maintaining heavy and expensive assembly equipment at the local
assembly stage. We or our manufacturing partners manufacture and
integrate the materials and parts into vehicle kits, which we can
then ship to one of our local assembly facilities or our channel
partners for assembly, and thereafter for marketing, sales and
service by our channel partners. Historically, we manufactured our
Metro® model in our facilities in China and exported the majority
of such Metro® units as vehicle kits for assembly by our private
label channel partners in their respective markets. We anticipate
that our new models, on the other hand, will be manufactured into
vehicle kits or fully assembled vehicle by third party
manufacturing partners and, in the case of vehicle kits, assembled
by us in local markets in which the ECV units are to be sold.
We believe that our distributed manufacturing methodology can
provide us with competitive advantages compared to traditional
vehicle manufacturers, as we are able to operate with lower capital
investment requirements. In addition, we believe our distributed
manufacturing methodology provides significant advantages for local
homologation, local distribution, and local service. For example,
we believe U.S. homologation certification requirements are less
burdensome for vehicles that are manufactured in the United States
rather than imported into the United States.
As of
December 31, 2021, our distributed manufacturing methodology relied
upon two Cenntro-owned assembly facilities, including our facility
at Changxing, which assembles for international export, and our
local assembly facility in Freehold, New Jersey, which we utilize
for trial production of our Logistar™ 400 model. We are in the
process of establishing a local assembly facility in Jacksonville,
Florida, where we plan to assemble the Logistar™ 400 and the
Teemak™ for distribution to our channel partners for sales in the
North American market. We expect to begin trial assembling
operations at the Jacksonville facility by the end of the second
quarter of 2022. Additionally, we expect that our acquisition of a
65% equity interest in TME will allow us to expand local assembly
capacity in the European Union for production of our European ECV
models, including the Neibor® and Logistar™ series, in addition to
the Metro®. We have also historically relied upon two private label
channel partners who assembled vehicles in the United States and
Germany and marketed the fully assembled vehicles under their own
brand names. For further discussion of our “private label” channel
partners, see “-Our Channel Partners and Channel Partner
Network.”
Prior to
the regionalization of our supply chains, we plan to utilize these
facilities to assemble vehicle kits that are manufactured by us in
our facilities in Changxing, in the case of the Metro®, and by
third parties in the case of our other new ECV models. We have
subcontracted all manufacturing processes of the ECV components for
our Logistar™ and Neibor® series and Teemak™ model to our qualified
suppliers, allowing us to further reduce our capital expenditure
requirements and increase our focus on local assembly.
In the
long-term, through our deep supply chain development know-how, we
intend to establish supply chain relationships in North America and
the European Union to support our manufacturing and assembly needs
in these markets, thereby reducing the time in transit and
potentially the duties associated with importing our components and
spare parts. We plan to use a “merge in transit” model where
component parts from suppliers are consolidated at our local
assembly facilities for final ECV assembly.
Our Core Technology
Because we design, develop and manufacture our ECVs, our technology
is at the core of what we believe positions us to effectively
compete and become a technology leader in the ECV market. Since
inception in 2013 through December 31, 2021, we have spent
approximately $75.1 million in research and development activities
related to our business. Specifically, we have developed new
vehicle chassis structures and digital control, smart driving and
network connectivity capabilities. In addition to our significant
know-how, as of December 31, 2021, we had 134 discovery patents,
nine design patents and 104 innovation patents granted by the
Chinese Patent Office, and 11 innovation patent applications and 40
discovery patent applications pending in the Chinese Patent Office,
covering our technological innovations relating to power systems,
vehicle electronics, vehicle control and structure, production
processes and other new technologies.
Our
technological advantage begins with our chassis designs, which
promote efficiencies in energy consumption as well as development
and manufacturing processes. The Metro® and Neibor® Series utilize
proprietary, lightweight chassis designs that reduce the overall
weight of the vehicle and thus increase the battery efficiency of
the vehicle. Our chassis designs also lend themselves to
modification and flexibility to meet the needs of the specific
customers in our local markets. For instance, our ECVs can be
upfitted and customized to fill a variety of end-user roles, such
as a small firetruck, street sweeper, vending truck, garbage truck,
pickup truck or service truck.
We have
developed a proprietary vehicle control unit (a “VCU”) that allows
for vehicle status awareness and vehicle operation control
capabilities. We have designed our VCU to integrate the various
sub-control systems and embedded systems on our ECVs into a single
module, which oversees and controls vehicle operations such as
monitoring, driving, alarming, communication, display, positioning
and entertaining, among other functions. Our VCU allows end-users
to connect their ECV fleet to a vehicle management system in order
to monitor fleet operations and driver behavior, enabling them to
efficiently manage their delivery performance and logistics.
Through the VCU interface, end-users are able to customize vehicle
operations, including setting speed and boundary limitations, horn
control, light control and other controls that we believe enhance
the safety and functionality of our ECVs.
For
future vehicle applications, we have made innovations in “digital
control” technology and employed autonomous “smart driving”
technology. Our “digital control” technology allows an ECV
component to act solely through the control of a computer program
or artificial intelligence, or AI, rather than manual human
intervention. For instance, a digitally enabled windshield wiper
could automatically alter its speed of oscillation to optimize
visibility, based on determinations of a computer program that
measures the severity of the rain. Our “smart driving” technology
extends digital control capability to components that control the
movement of the ECV (i.e., steering, braking, acceleration,
signaling and parking). We have also successfully developed a
programmable chassis and tested an autonomous “smart driving”
delivery truck on the road with real traffic. Our programmable
chassis, while interfacing with third-party decision-making
software, will not require a steering wheel or any pedals and will
execute driving operations solely via control by a computer program
or AI software.
We are
focused on continuous improvement in our technology through
continued investment in research and development. We believe our
ECV expertise, market focus, installed base of vehicles and
know-how (including our smart driving capabilities), coupled with
our dedication to research and development, will enable us to
continue advancing our business.
Low Upfront Cost and Operating Costs to End-Users
Through
our modular ECV design and unique business model, we believe we are
able to enter the ECV market with competitively priced products
compared to our competitors in the ECV space. For instance, our
Metro® and Neibor® Series are designed with a proprietary,
lightweight chassis structure, enabling us to use less steel and
such ECVs to utilize less battery power than our competitors.
Furthermore, because our ECVs have fewer components and moving
parts than their ICE counterparts, we believe the ongoing
maintenance costs of our vehicles is low. In addition, engines in
traditional ICE commercial vehicles typically have a 10-year life,
whereas the motor in our ECVs are designed to last, on average, for
more than 20 years. The lithium-ion batteries used in our ECVs have
a useful life of approximately 2,000 charge-cycles, with each
charge providing for a range, in the case of the Metro®, of
approximately 124 miles per charge for a total range of
approximately 248,400 miles over a battery’s useful life.
Additionally, based on our collected data, the Metro® has a miles
per gallon of gasoline equivalent of approximately 156 (equivalent
to 4.875 miles per KWh).
Our Integrated Supply Chain
We have invested significant time and resources in developing a
supply chain capable of providing all of the components and
materials necessary to manufacture our ECVs. Our integrated supply
chain is comprised of over 300 suppliers located in China and
various other countries. Generally, our suppliers undergo rigorous
testing before we onboard them as a supplier, including quality and
process auditing, product verification, regulatory compliance and
reliability testing. Our suppliers must demonstrate that they can
consistently deliver their specialized parts on time, while meeting
our quality and product specifications. Many of our components are
based on Cenntro-developed designs, and our suppliers are
contractually restricted from selling our customized components to
any third parties unless we discontinue our purchases from such
suppliers.
We plan
to expand our supply chain as necessary to support our planned
growth, including localizing our supply chain for certain key
components of our ECVs in North America and the European Union. We
have subcontracted all manufacturing processes of the ECV
components for our new ECV models to our qualified suppliers,
allowing us to further reduce our capital expenditure requirements
and increase our focus on local assembly.
Our Network-Enabled Cloud Technology
Each of
our ECV models are fitted with a networking device connecting the
vehicle to our proprietary cloud-based software, which enables our
end-users to collect data about vehicle configuration, vehicle
status and user efficiency through a system of digitally enabled
components, which we sometimes refer to as “smart components,” that
we install in our ECVs. We believe the information collected on our
cloud-based information database system provides significant
benefits to our end-users. With over 100 different metrics capable
of being measured through the use of smart components, our database
allows end-users to track the performance of specific vehicle
components and provides them insight into the reliability and
efficiency of these components. In addition, this information
allows end-users to monitor fleet operations and driver behavior,
enabling them to efficiently manage their delivery performance and
logistics. To the extent end-users provide our channel partners
with access to this information, our channel partners may use this
information to provide enhanced after-market servicing and support
to their customers. We also believe this data may be valuable to
end-users for insurance, financial and other purposes. Moreover,
end-users are able to use our network to customize vehicle
operations, including setting speed and boundary limitations, horn
control, light control and other controls that we believe enhance
the safety and functionality of our ECVs.
Using our
proprietary cloud-based software, we have analyzed over seven
million miles of commercial use in China, recorded between 2017 and
2021, in order to improve our ECVs’ reliability and durability.
With the permission of the end-users of the vehicles, we received
data collected from approximately 950 Metro® units that we put into
service through a company affiliated with our former parent
company, CAG Cayman, in the Chinese market. This data included
vehicle-specific data collected for operational analysis (for
example, total cumulative miles traveled or uptime before the
failure of a specific component), which we used, for instance, to
determine which of our components fails most often, which of our
components fails first and for how long they were operational, in
order to make improvements in the quality and durability of such
components. We enable end-users to collect, store and analyze data
using tools that we have developed but we do not have access to
this end-user collected data unless we request and receive access
from the end-user. We do not currently collect, use or store any
vehicle-specific or driver-specific data in any region and do not
intend to do so in the future.
Strategic Channel Partner Network
We have
established our channel partner network to distribute our ECVs in a
number of markets around the world. Through this network, we have
engaged partners for local homologation, promotion, distribution,
and service in the markets they serve, and, in a limited number of
cases, assembly, upfitting and customization. All our channel
partners sell fully assembled ECVs. In addition, channel partners
that have established the capabilities to assemble our ECVs receive
vehicle kits from us, assemble the vehicles and sell them locally
in the country or region in which they serve under their brand. We
refer to these channel partners as “private label.” Our channel
partners include local businesses, dealers, distributors, auto
repair shops and service providers, who purchase our fully
assembled ECVs (other than the “private label” channel partners)
and sell them in their respective local markets.
More
specifically, we believe our channel partner network provides
significant advantages to us as we are able to outsource the cost
of marketing, distribution and maintenance (and in some markets,
homologation) to businesses with local know-how in their respective
markets and avoid the cost of developing this local know-how. As of
December 31, 2021, we had established business relationships with
20 channel partners in 18 countries, including two “private label”
channel partners in the United States and Germany.
Our Highly Skilled and Experienced Management Team
Our management team is led by Peter Z. Wang, our Chief Executive
Officer and Chairman of the Board, who we refer to as our Chairman.
Mr. Wang has extensive experience in the automotive and technology
industries, having co-founded Sinomachinery Group (a diesel power
system (engine and transmission) manufacturer) in 2006 and
UTStarcom (a global telecom infrastructure provider), which went
public in 2000. Mr. Wang was named as one of the Outstanding 50
Asian Americans in Business by Asian American Business Development
Center in 2004, one of China’s 100 Most Innovative Businessmen by
Fast Company Magazine in 2017 and one of the Most Intriguing
Entrepreneurs by Goldman Sachs in 2019.
More
specifically, our management team has significant experience in
vehicle design, supply chain, logistics, quality control and
process management. Our management is singularly focused on
developing and manufacturing high quality, best-in-class, light-
and medium-duty ECVs for the growing ECV marketplace and becoming a
technology leader in the ECV market. Starting in 2013 with a simple
idea, our management team has successfully designed energy
efficient ECVs and associated technologies and established a broad
supply chain to support our product growth.
Our Growth
Strategy
We intend
to be a leading global designer, developer and manufacturer of
electric light- and medium-duty ECVs. The key elements of our
growth strategy include:
Expand Our Channel Partner Network and Assembly and Supporting
Facilities
As of
December 31, 2021, we have established business relationships with
20 channel partners in 18 countries, including the United States,
Germany, Korea, Spain, Italy and Mexico. We plan to expand our
channel partner network and increase the number of our assembly
facilities. As our channel partner network and Cenntro facility
footprint grows, we expect to penetrate a broader segment of the
global market and increase our sales volume and product offerings.
We expect to add up to 20 additional channel partners in
2022.
During
2021, Cenntro Automotive Corporation (“CAC”) began utilizing one of
our two facilities in Freehold, New Jersey for the trial production
of our Logistar™ 400 model. We also have established a European
Operations Center in Dusseldorf, Germany, which provides marketing
support, after-market support and spare-parts warehousing for the
European market, as well as warehousing services with a logistics
company in Budapest, Hungary to house spare parts for our ECVs. We
are also in the process of establishing a local assembly facility
in Jacksonville, Florida, where we plan to assemble the Logistar™
400 and the Teemak™ for distribution to our channel partners for
sales in the North American market We believe having a local
assembly facility in Germany will provide us with access to
well-established hardware and logistics systems and trained
personnel. We expect to begin trial assembling operations at the
Jacksonville facility by the end of the second quarter of 2022. We
expect that our acquisition of a 65% equity interest in TME will
allow us to expand local assembly capacity in the European Union
for production of our EU ECV models, including the Neibor® and
Logistar™ series, in addition to the Metro®.
We
believe that augmenting our channel partner network, assembly
facilities and support centers together with regionalizing our
supply chain will enhance brand recognition, provide economic
advantages and reduce time to market for our ECVs.
Regionalize Manufacturing and Supply Chain
We plan to regionalize the manufacturing and supply chain relating
to certain key components of our ECVs, such as vehicle frames and
battery packs, in the geographic markets in which our ECVs are
sold. In the long-term, through our deep supply chain development
know-how, we plan to geographically expand our supply chain to
support our planned growth. More specifically, we intend to
establish supply chain relationships in North America and the
European Union to support our manufacturing and assembly needs in
these markets, thereby reducing the time in transit and potentially
the duties associated with importing our components and spare parts
from China. We believe we can reduce the overall cost of ECV
assembly in certain geographical markets by shifting to a “merge in
transit” model, whereby component shipments from suppliers,
including local market suppliers, are consolidated at our local
assembly facilities for final ECV assembly, in contrast with our
current model which integrates all components into vehicle kits or
fully assembled vehicles in our manufacturing facilities in China
or our manufacturing partners’ facilities. We believe that
investing in the regionalization of our manufacturing and supply
chain can ultimately provide significant benefits to us and our
channel partners. We believe sourcing our ECV components and
manufacturing, assembling and selling our ECVs regionally can help
us reduce costs associated with import/export taxes and shipping,
further reducing vehicle production costs. In addition, we believe
that regionalizing our manufacturing and supply chain will help
support and strengthen our brand in the markets in which our ECVs
are sold, as our operations become integrated into those markets.
We believe that our deep supply chain development know-how will
provide us significant advantages; however, currently,
substantially all of our supply chain experience is limited to
China. If we are unable to effectively manage the sourcing of our
components and the responsiveness of our supply chain in areas
outside of China, our business and results of operations may be
harmed. It is also likely that in the early stages of our supply
chain expansion, we can expect most component sources will be
single-source suppliers in areas outside of China.
Expand Our Product Offerings
We began
pilot production of our first-generation, U.S. Class 1 (0 - 6,000
lbs.), light-duty commercial vehicle, the Metro®, in 2018, and, as
of December 31, 2021, we have sold approximately 2,440 units
throughout Europe, North America and Asia and deployed
approximately 1,300 additional units in China through a company
affiliated with our former parent company, CAG Cayman. Utilizing
our proprietary design and technology, we recently launched the
Logistar™ 400 as a U.S. Class 4 (over 14,000 lbs.) medium-duty
commercial vehicle in the United States, the Logistar™ 200,
designed to meet the European Union N1 Class truck requirements,
the Neibor® 150, designed
to meet the European Union and UK L7e Class requirements, in the
European Union and the UK, in the European market, and the Teemak™,
an off-road electric commercial vehicle. Our pipeline includes the
Neibor® 300, an L7e Class compact electric commercial vehicle
designed to complement the smaller Neibor 150 in the European and
UK markets, and the ePortee™ programmable chassis, which we also
refer to as the Cenntro iChassis, which is expected to become
commercially available in 2022.
Expand Market Breadth and Depth
We expect
to increase our market share in the current markets where our ECVs
are sold, while simultaneously penetrating new markets worldwide.
As of December 31, 2021, we have sold the Metro® in over 25
countries throughout North America, Europe and Asia and have
homologated the Metro® in over 32 countries.
The
following table summarizes the breakdown of our revenues by region
for the years ended December 31, 2021, 2020 and 2019,
respectively:
| |
|
For the
Year Ended December 31,
|
|
| |
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
|
$ |
|
|
|
%
|
|
|
$ |
|
|
|
%
|
|
|
$ |
|
|
|
%
|
|
|
United States
|
|
$
|
3,420,636
|
|
|
|
39.9
|
%
|
|
$
|
734,206
|
|
|
|
13.5
|
%
|
|
$
|
383,718
|
|
|
|
10.7
|
%
|
|
Europe
|
|
$
|
4,380,752
|
|
|
|
51.1
|
%
|
|
$
|
4,008,763
|
|
|
|
73.4
|
%
|
|
$
|
2,859,779
|
|
|
|
80.0
|
%
|
|
Asia
|
|
$
|
729,868
|
|
|
|
8.5
|
%
|
|
$
|
717,034
|
|
|
|
13.1
|
%
|
|
$
|
332,390
|
|
|
|
9.3
|
%
|
|
Others
|
|
$
|
45,576
|
|
|
|
0.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
We are
currently targeting new markets where local governments have begun
incentivizing a shift from ICEs to EVs. We intend to expand our
reach in these markets with the efforts and market knowledge of our
existing channel partners as well as by forming new partnerships
and leveraging our increased brand recognition.
Autonomous Driving
We intend to continue to invest in chassis digitization and smart
driving technology. We have developed the ePortee™, which we also
refer to as the Cenntro iChassis, an open-platform and programmable
vehicle chassis with digital control capabilities. The Cenntro
iChassis is designed to act as a basic and core execution unit of
an automated or autonomous driving vehicle. It includes application
programming and communication interfaces that enable third-party
autonomous driving vehicle developers to use this programmable
chassis to develop various autonomous driving applications and
fittings.
Our ECVs
The Metro®
The
Metro® is a customizable ECV used in commercial applications such
as city services (i.e., street cleaners, firetrucks and garbage
trucks) and last-mile delivery. The Metro® was “born electric,”
meaning that, unlike many other ECVs that are converted from
existing ICE designs, the Metro® was purpose-built from inception
to be highly energy efficient and providing for a greater range,
implementing a number of proprietary design elements, including a
lightweight structure and efficient power system. The Metro® has
been driven over seven million miles of commercial use by end-users
in China alone.
The
Metro® chassis is designed with a unique cab-forward feature. By
moving the cab of the Metro® forward over the front wheels, we have
been able to increase its cargo volume ratio and decrease the cost
of materials used in its manufacturing. In addition, the chassis of
the Metro® has been designed to support a variety of fittings,
allowing the vehicle to be used for a number of different
applications, which we believe is a feature rarely offered by other
ECV manufacturers and gives us the opportunity to market the Metro®
to a wider array of potential end-users. We believe our lightweight
chassis structure and cab-forward design of the Metro® enable
greater payload and cargo volume with lower vehicle weight and
smaller vehicle size, compared to other like-size ECVs. Our modular
vehicle design enables us to manufacture a wide range of variations
of Metro® models around a uniform chassis structure.
The
Metro® complies with, or is exempt from, all applicable vehicle
safety standards related to light-duty commercial vehicles in North
America and the Asian and European countries in which it is sold.
The Metro® has passed N1 homologation requirements in Asia. We have
obtained EU Small Series Type Approval for our new model of the
Metro® under N1 vehicle classification, which includes an annual
sales limitation of 1,500 units into the European Union market. In
the United States, the Metro® qualifies as a Neighborhood Electric
Vehicle (an “NEV”) with low-speed modifications, and, as a result,
is not required to pass the United States high speed front-end
impact test. NEVs are built to have a top speed of 25 miles per
hour (40 km/h) and have a maximum loaded weight of 3,000 lbs.
(1,400 kgs) and are classified by the United States Department of
Transportation as low-speed vehicles. This qualification generally
limits the Metro® to roads with posted maximum speed limits of 35
miles per hour (56 km/h). Under the EU Small Series N1 Type
Approval, the Metro® does not have comparable speed limitations in
the European Union.
Logistar™ Series
The
Logistar™ 400 is a medium-duty electric commercial truck designed
to meet the delivery requirements of tier 1 logistics companies as
well as upfitters. The Logistar™ 400 is a U.S. Class 4 (over 14,000
lbs.) truck under U.S. truck classification. It can be configured
as a delivery van or a shuttle bus or equipped with a cargo box or
a truck bed. In addition, the Logistar™ 400 can be upfitted for
different applications of city service, such as a vending truck,
fire truck, garbage truck and repair truck. We expect that the most
common use of the Logistar™ 400 will be for intra-city
delivery.
The
Logistar™ 400 has a cargo volume that is over three times the cargo
volume of the Metro® and a payload capacity more than seven times
the payload capacity of the Metro®. The homologation of the
Logistar™ 400 is substantially complete and the Company is waiting
for approval from the EPA.
We have
also designed the Logistar™ 200 for the EU market. The Logistar™
200 is designed to qualify as an N1 category truck in the European
Union and will be available in two models, each specialized for
last-mile delivery, city delivery and city services. We completed
homologation of the Logistar™ 200 in the European Union in January
2022 and it became commercially available in the EU market in
February 2021.
Neibor® Series
We developed the Neibor®
150, a small truck that is designed to meet the European Union and
the UK’s L7e (Heavy Quadricycle) qualification. The
Neibor® 150 is designed
for short distance delivery in narrow city streets and is expected
to be used mainly for city delivery and last-mile delivery, and to
a lesser extent by tradespeople. We are also developing the Neibor®
300, a European Union and UK L7e (heavy quadricycle) Class compact
ECV designed to complement the smaller Neibor® 150. We completed
homologation of the Neibor® 150 in the European Union in December
2021 and it became commercially available in the EU market in March
2022.
Unlike
sales of the new model of the Metro® into the EU and UK markets
(under Small Series Type Approval under the N1 designation, as
discussed above), we do not expect either the Neibor® 150 or 300 to
be subject to any annual sales limitations in the European Union or
in the UK. The Neibor® series will be manufactured into vehicle
kits or fully assembled vehicles by our manufacturing partners and,
in the case of vehicle kits, assembled by us at our assembly
facilities.
Teemak™
We
designed the Teemak™ as an electric off-road commercial utility
vehicle. The Teemak™ has a payload capacity up to 2,756lb (or
1,200kg), which we believe to be greater than the majority of
currently available, off-road utility vehicles. The maximum speed
of the Teemak™ is 65 km/h (or approximately 40.4 mph), which we
believe is sufficient for off-road applications. We expect the
Teemak™ to be used on farms, vineyards, golf courses, college
campuses, parks, warehouses, industrial parks, and for other
off-road applications. Because the Teemak™ is an off-road ECV, it
is not subject to regulations by the Department of Transportation
or NHTSA (National Highway Traffic Safety Administration). The
Teemak™ became commercially available in the United States and the
European Union in December 2021.
ePortee™ or Cenntro iChassis
We have developed the Cenntro iChassis, an open-platform and
programmable chassis product. The Cenntro iChassis is designed to
act as a basic and core execution unit of an automated or
autonomous driving vehicle. It includes application programming and
communication interfaces that enable third-party autonomous driving
vehicle developers to use this programmable chassis to develop
various autonomous driving applications and fittings. We have
designed the Cenntro iChassis to be able to execute commands
received from an open-platform system, taking such actions as
steering, accelerating, braking, reversing and activating lights.
When combined with detection capabilities, a proprietary (or
open-source) driving system and configuration upfitting, the
Cenntro iChassis can be integrated into a completed vehicle for
various automated and autonomous driving applications, such as
autonomous delivery, vending, cleaning, patrolling and other
automated applications. We anticipate that third-party developers
will integrate detection devices and develop their own proprietary
decision-making software or use open-source software to allow for
autonomous driving using the Cenntro iChassis. We expect that the
Cenntro iChassis will be commercially available in late 2022.
Technology
Our
technology is at the core of what we believe positions us to
effectively compete in the ECV market. Since inception in 2013
through December 31, 2021, we have spent over $75.1 million in
research and development activities related to our operations,
developing various technologies and advancements, including the
following:
Vehicle Control
Unit
We have
developed a proprietary VCU that allows for vehicle status
awareness and vehicle operation control capabilities. We have
designed our VCU to integrate the various sub-control systems and
embedded systems on our ECVs into a single module, which oversees
and controls vehicle operations such as monitoring, driving,
alarming, communication, display, positioning and entertaining,
among other functions. Our VCU allows end-users to connect their
ECV fleet to a vehicle management system in order to monitor fleet
operations and driver behavior, enabling them to efficiently manage
their delivery performance and logistics. Through the VCU
interface, end-users are able to customize vehicle operations,
including setting speed and boundary limitations, horn control,
light control and other controls which we believe enhance the
safety and functionality of our ECVs. With the permission of the
end-users of the vehicles, we received data collected from
approximately 950 Metro® units that we put into service through a
company affiliated with our former parent company, CAG Cayman, in
the Chinese market. This data included vehicle-specific data
collected for operational analysis (for example, total cumulative
miles traveled or uptime before the failure of a specific
component), which we used, for instance, to determine which of our
components fail most often, which of our components fail first and
for how long they were operational, in order to make improvements
in the quality and durability of such components. We enable
end-users to collect, store and analyze data using tools that we
have developed but we do not have access to this end-user collected
data unless we request and receive access from the end-user. We do
not currently collect, use or store any vehicle-specific or
driver-specific data in any region and do not intend to do so in
the future.
We have
also developed and tested an SOC prototype that is designed to
integrate all the software controlling functions into a controlling
chip to eliminate the printed circuit board (PCB) of the VCU,
improve the controlling stability, ease maintenance and lower
costs. Our VCUs do not currently include the SOC but we intend to
incorporate the SOC into our ECVs beginning in 2023.
Vehicle Digitization
To
achieve intra-vehicle communication, optimal status awareness and
digital control, we have developed a system of smart components and
a unique vehicle bus, which is a specialized internal communication
network that interconnects the vehicle’s components and allows
two-way communication between each “smart” component and an
end-user’s vehicle management system. This form of vehicle
digitization provides the end-user the ability to monitor the
status and direct actions of each smart component. For electronic
components, we use digital signal technology to provide for data
transmission from the component, however, for non-electronic
components, such as a tire or axle, we have developed a patented
vibration technology to allow for such communication. We believe
our vibration technology is more reliable and cost-effective than
the sensor technology often utilized by other vehicle manufacturers
to provide for non-electronic component communication.
Manufacturing
While we
rely on our supply chain to manufacture many of the components of
our ECVs, we currently manufacture three of the most important
components of our Metro® - the chassis, driving cab and wire
harness - at our facility in Changxing, China. The chassis and
driving cab are manufactured by us using laser cutting, robotic
welding, and third-party coating processes. After production, we
install the final electronic components and other component parts
to complete the chassis and driving cab. The wire harness, which
acts as the nervous system of our ECVs, is manufactured by us with
digital signal receivers rather than analog, carrying signals and
information to and from component parts, as well as our cloud-based
information database. All manufacturing processes of the ECV
components and vehicle kits for each of our new ECV models have
been subcontracted to our qualified suppliers and manufacturing
partners, respectively, allowing us to further reduce our capital
expenditure requirements in order to execute on our light-asset
distributed manufacturing business model and methodology.
Distributed
Manufacturing Methodology
Through
our innovative distributed manufacturing methodology, our ECVs are
currently manufactured and integrated as vehicle kits by us (in the
case of the Metro®) or our manufacturing partners (in the case of
our new ECV models), which then can be exported for assembly in our
target markets or assembled in assembly facilities and exported as
fully assembled vehicles. We currently have relationships with
three automotive OEMs in China that manufacture vehicle kits or
fully assembled vehicles for export for our new ECV models.
Our ECVs
are designed using a “modular” method, allowing for simple assembly
processes and eliminating the need for acquiring and maintaining
heavy and expensive assembly equipment at the assembly stage.
Historically, the majority of our ECVs were either fully assembled
for export in our Changxing facility or shipped as vehicle kits for
local assembly by our “private label” channel partners for sale in
local markets. During 2021, we began utilizing one of our two
facilities in Freehold, New Jersey for the trial production of our
Logistar™ 400 model. To meet our anticipated demand in the United
States, we are in the process of establishing a local assembly
facility in Jacksonville, Florida. We expect to begin trial
assembling operations at the Jacksonville facility by the end of
the second quarter of 2022. We expect the Jacksonville facility to
have an annual assembly capacity of at least 10,000 vehicles per
year. Additionally, we expect that our acquisition of a 65% equity
interest in TME will allow us to expand local assembly capacity in
the European Union for production of our European ECV models,
including the Neibor® and Logistar™ series, in addition to the
Metro®.
Prior to the regionalization of our supply chains, we plan to
utilize our facilities in the United States and Europe Union (once
operational) to assemble vehicle kits that we manufacture in our
facilities in Changxing or that our manufacturing partners will
manufacture at their facilities. In the long term, once we have
successfully regionalized our supply chains for our various
components, we intend to shift manufacturing and assembly of our
ECVs for marketing in the United States and the European Union to
local facilities in the United States and Germany,
respectively.
Our Integrated Supply Chain
We have
invested significant time and resources in developing a supply
chain capable of providing all of the components and materials
necessary to manufacture our ECVs. Our integrated supply chain is
comprised of over 300 suppliers located in China and various other
countries. Our vehicle designs share many of the same component
parts, including the battery module, battery control, motor control
and vehicle control, allowing us to achieve significant cost
efficiencies in our supply chain. Generally, our suppliers undergo
rigorous testing before we onboard them as a supplier, including
quality and process auditing, product verification, regulatory
compliance and reliability testing. Our suppliers must demonstrate
that they can consistently deliver their specialized parts on time,
while meeting our quality and product specifications. Many of our
components are based on Cenntro-developed designs, and our
suppliers are contractually restricted from selling our customized
components to any third parties unless we discontinue our purchases
from such suppliers.
Currently, materials and components for our Metro® are shipped to
our Changxing facilities where we manufacture key components for
and vehicle kits of our Metro® model and integrate vehicle kits for
assembly and shipment. Components for our new ECV models are
shipped directly to our manufacturing partners who manufacture
vehicle kits and fully assembled vehicles for such models. Since
substantially all of our manufacturing to date has been conducted
in China (through both our facilities and those of our
manufacturing partners), sourcing our components in China has been
more cost-effective than sourcing components outside of China, and
we believe it has reduced risks arising from shipping delays and
importing inefficiencies.
In the
long-term, through our deep supply chain development know-how, we
plan to geographically expand our supply chain to support our
planned growth. More specifically, we intend to establish supply
chain relationships in North America and the European Union to
support our manufacturing and assembly needs in these markets,
thereby reducing the time in transit and potentially the duties
associated with importing our components and spare parts from
China. We believe we can reduce the overall cost of ECV assembly by
shifting to a “merge in transit” model, whereby component shipments
from suppliers, including local market suppliers, are consolidated
at our local assembly facilities for final ECV assembly.
Historically, we have generally obtained components from multiple
sources whenever possible, similar to other automotive
manufacturers. However, a small number of components used in our
ECVs are purchased from a single-source, which we refer to as our
single-source suppliers. For example, while several sources for the
airbag module in the Metro® are available, we currently have only
one supplier for this component. We generally do not maintain
long-term agreements with our single-source suppliers. The vast
majority of our components have alternative sources and we do not
anticipate that finding qualified alternative sources for any
particular component, including single-source supplier components,
will be a material concern. For our new ECV models, we anticipate
that in the short term, we will source substantially all components
from single-source suppliers due to volume limitations and
efficiency concerns.
We use
various raw materials in our business including aluminum, steel,
carbon fiber, non-ferrous metals such as copper, lithium, nickel
and cobalt, as well as key component inputs such as semiconductors.
The prices for these raw materials and key components fluctuate
depending on market conditions and global demand. We believe that
we have adequate supplies or sources of availability of the raw
materials necessary to meet our manufacturing and supply
requirements. There are always risks and uncertainties, however,
with respect to the supply of raw materials that could impact their
availability in sufficient quantities or reasonable prices to meet
our needs. For example, beginning in late 2020, the automotive
industry has been subject to a shortage of semiconductors due to a
spike in demand and a series of supply chain issues relating to
COVID-19.
We have
implemented an ERP system to automate our procurement and inventory
processes and integrate them with our financial accounting
functions. We plan to make additional investments in our management
systems to support further growth in our operations. Our current
ERP system has multilingual capability and is utilized across the
Company by each of our subsidiaries, branches and facilities
globally.
Battery Systems
Our ECVs utilize a lithium-ion battery. Currently, all of our
lithium-ion batteries for the Metro® are supplied by Zhejiang
Gushen Technology Co. Ltd. (Gushen or Godsend), a Chinese battery
manufacturer. We expect Godsend to continue to supply substantially
all of the batteries for our Metro®; however, we intend to source
the batteries for the Logistar™ 200 and 400, Neibor® 150 and 300
and Teemak™ from other suppliers, including suppliers in the United
States and the European Union once available. Typically, the
battery supplier provides us with a five-year/200,000 kilometers
warranty on the batteries we purchase. Our lithium-ion batteries
have two ways to charge - slow charging from a regular power
outlet, which is only available in ECVs utilizing a low voltage
power system (i.e., the Metro®, Neibor® 150 and 300, and Teemak™)
and fast charging from an ECV charging station.
ECVs that
run on lithium-ion battery electric power can experience battery
capacity and performance loss over time, depending on the use and
age of the battery. We anticipate the battery capacity in our ECVs
will decline over time as the battery deteriorates. Other factors
such as usage, time and stress patterns may also impact the
battery’s ability to hold a charge, which would decrease our ECVs
range. For example, depending on the battery chemistry of the
specific cells inside a vehicle battery pack, after approximately
1,000 to 1,500 charge and discharge cycles, energy capacity
retention is about 80%. In moderate weather conditions, a fully
charged battery sitting idle can lose about 2% to 5% of its charge
over a 30-day period.
Our Channel Partners and Channel Partner Network
Our
channel partner network is a pillar of our business model and
further differentiates us from our traditional vertically
integrated competitors. We primarily promote and sell our ECVs in
North America, the Europe Union and Asia through our channel
partner network. Since our business model has historically been
primarily “Business-to-Business,” we generally have not directly
contracted with the end-users of our ECVs. Substantially all
marketing and sales of our ECVs have historically been handled
through our channel partners. Though we have conducted some direct
sales to dealers, upfitters, governments and other enterprises, and
may increase such efforts in the future, we primarily focus our
efforts on locating potential business partners who may be
interested in joining our channel partner network and act as
regional partners in the promotion, sale, distribution and
servicing of our ECVs in their local markets.
Our
channel partner network includes relationships with two channel
partners that sell proprietary versions of our Metro® model under
their own brand name. These “private label” channel partners
include Ayro, Inc. (“Ayro”) and TME. We also previously had a
channel partner relationship with Tropos Technologies, Inc., an
affiliate of TME (“Tropos Technologies”). During the year ended
December 31, 2021, we terminated our channel partnership with
Tropos Technologies.
Pursuant
to a manufacturing license agreement, Ayro markets a model ECV
called the “411” that we manufacture in China and ship to Ayro in
vehicle kits. We own the design of the Ayro 411, which is
substantially based on our Metro® model, and license to Ayro the
right to market and distribute the licensed product. Ayro assembles
the “411” units at their own facilities, then markets and services
these vehicles similar to our other channel partners. Ayro
currently has exclusive distribution and service rights to the 411
in a number of jurisdictions in the United States.
Pursuant
to agreements with TME, during the years ended December 31, 2021,
2020 and 2019, we produced and shipped vehicle kits of a line of
proprietary ECV models based on the Metro® called the ABLE. The
design of the ABLE includes features that distinguished it from the
Metro® and Ayro 411. TME has exclusive rights to market the ABLE in
Germany, Austria, Belgium, Luxemburg, Switzerland and
Liechtenstein. On March 25, 2022, as previously announced, we
completed an acquisition of a 65% equity interest in TME, which we
expect will allow us to expand local assembly capacity in the
European Union for production of our European ECV models, including
the Neibor® and Logistar™ series, in addition to the Metro®.
In our
view, we do not compete with our “private label” channel partners
for market share. Rather, we view our “private label” channel
partners as our customers and distributors. We believe the sale of
ECVs that we design and manufacture by our “private label” channel
partners enhances the overall market acceptance of ECVs in general
and provides us with an additional path to sell our ECVs into a
given market. Our “private label” channel partners do not
manufacture and distribute the Metro®.
While we develop, design and manufacture ECVs, our channel partners
are responsible for marketing, sales, financing, distribution,
after-market support and vehicle servicing. Substantially all of
our channel partners receive fully assembled ECVs from our
facilities; however, our “private label” channel partners also
assemble our vehicle kits into fully assembled ECVs. Due to these
assembly responsibilities, the “private label” channel partners
have historically been the manufacturer of record of our ECVs. Our
channel partners, in certain target markets, also are responsible
for vehicle homologation.
The
length of time it takes to onboard a channel partner is dependent
on their role. Onboarding a channel partner typically takes up to
one year or as little as six months from contract to sale,
depending on their familiarity with ECVs and the types of services
they will provide. In contrast, onboarding for “private label”
channel partners that assemble and upfit their own branded versions
of our ECVs historically can take up to two years from the time
that we contract with them until the time they commence selling
ECVs as these channel partners need to establish and become
familiar with our assembly technology and processes.
We
provide a warranty program to our channel partners intended to
cover defects in certain parts of our ECVs such as the chassis,
brake system, electric systems, battery and power train. Our
warranty obligations generally extend for a period of one to two
years beginning on the day the ECV is sold to the end-user, unless
a longer period is required, for instance pursuant to European
regulations. Our “private label” channel partners who currently
assemble our ECVs are generally required to indemnify us against
claims for any liability that arises due to workmanship by the
“private label” channel partners with respect to the Metro®. We
believe our channel partners maintain comprehensive liability
insurance for defects related our ECVs.
While we
generally own all intellectual property rights including patents,
patent applications, design rights, trade secrets and technical
data related to the design and manufacturing of our ECVs, certain
of our channel partners have been granted licenses to use our
intellectual property subject to our approval. We have agreed to
indemnify our channel partners from third-party claims relating to
infringement concerning our intellectual property.
We
believe our channel partner network provides significant advantages
to us as we are able to outsource the cost of marketing,
distribution and maintenance (and in some markets, homologation) to
businesses with local know-how in their respective markets and
avoid the cost of developing this local know-how. Our channel
partner network provides significant advantages to our channel
partners because they avoid the time and capital associated with
vehicle design, the development of manufacturing processes and the
establishment of a supply chain. In addition, our channel partners
have access to customized fittings for our ECVs, allowing them to
potentially expand their existing market and increase sales.
As of
December 31, 2021, we had established business relationships with
20 channel partners in 18 countries, including two “private label”
channel partners in the United States and Germany. We expect to add
up to 20 additional channel partners by the end of 2022.
For the
years ended December 31, 2021, 2020 and 2019, our three largest
channel partners represented 74.7%, 81.9% and 72.0% of our total
revenue, respectively. For the years ended December 31, 2021, 2020
and 2019, our channel partners purchased approximately 918, 707 and
334 ECVs from us, respectively.
Quality Control
Our
quality control efforts are divided between product quality,
supplier quality, and channel partner quality. Our product quality
and supplier quality efforts are focused on designing and
manufacturing products and processes with high levels of
reliability. Our product quality engineers work with our
engineering team and our suppliers to confirm that the product
designs meet functional specifications and durability requirements.
Our supplier quality engineers work with our suppliers to ensure
that their processes and systems are capable of delivering the
parts we need at the required quality level, on time, and on
budget. Our quality systems engineers create and manage our
systems, such as configuration management and corrective action
systems, to help ensure product developers, supply chain managers
and production controllers have the requisite product
information.
Our
channel partner quality control efforts are focused on monitoring
the marketing, sales, repair and other processes (including, some
limited cases, assembly) to ensure they meet standards. Prior to
selling our ECVs, our “private label” channel partners and
manufacturing partners undergo performance testing designed to
ensure they can assemble our ECVs correctly, timely and otherwise
to standards mandated by the respective countries in which the ECVs
are sold. We conduct routine monitoring and compliance audit
activities to make sure such channel partners (and manufacturing
partners) continue to meet our standards once in operation.
Facilities
We
currently lease six facilities located in the United States,
Germany and China. One of our existing United States facilities
located in Freehold, New Jersey, is approximately 9,750 square feet
and is used primarily for the trial production of our Logistar™ 400
model and warehousing. Our second existing facility in Freehold,
New Jersey is approximately 2,600 square feet and is used as our
corporate headquarters. Our two China facilities are located in
Hangzhou and Changxing, China. Our Changxing facility is
approximately 165,800 square feet, and is primarily used for
engineering, production of vehicle kits of the Metro® and assembly
of certain ECV models for export and logistics operations. Our
Hangzhou facility is approximately 15,456 square feet, and is
primarily used as regional headquarters, as well as for research
and development, supply-chain management, and sales operations. In
January 2022, we established a European Operations Center in
Dusseldorf, Germany, which provides marketing support, after-market
support and spare-parts warehousing for the European market. Our
European Operations Center is approximately 27,220 square feet. We
are also in the process of establishing a local assembly facility
in Jacksonville, Florida, where we plan to assemble the Logistar™
400 and the Teemak™ for distribution to our channel partners for
sales in the North American market. We expect to begin trial
assembling operations at the Jacksonville facility by the end of
the second quarter of 2022. In addition, in connection with our
acquisition of a 65% equity interest in TME, we have access to
TME’s facility in Herne, Germany, where we expect to expand local
assembly capacity in the European Union for production of our
European ECV models, including the Neibor® and Logistar™ series, in
addition to the Metro®.
Intellectual Property
Our
success depends, at least in part, on our ability to protect our
core technology and intellectual property. To accomplish this, we
rely on a combination of patents, patent applications, trade
secrets, including know-how, employee and third-party nondisclosure
agreements, copyright laws, trademarks, intellectual property
licenses and other contractual rights to establish and protect our
proprietary rights in our technology. As of December 31, 2021, we
had 134 discovery patents, nine design patents and 104 innovation
patents granted by the Chinese Patent Office, and 11 innovation
patent applications and 40 discovery patent applications pending in
the Chinese Patent Office, covering our technological innovations
relating to power systems, vehicle electronics and structure,
production processes and other new technologies. All of our patents
are granted under PRC law and have not been given reciprocal
treatment and protection under the laws of either the United States
or the European Union. Our issued patents will begin to expire in
April 2024. We intend to continue to file additional patent
applications with respect to our innovation and know-how.
Seasonality
Our
operating results may vary significantly from period-to-period due
to many factors, including seasonal factors that may have an effect
on the demand for our ECVs. Demand for vehicles in the automotive
industry in general typically decline over the winter season, while
sales are generally higher during the spring and summer months. Our
limited operating history makes it difficult for us to judge the
exact nature or extent of the seasonality of our business. Usually,
any unexpected severe weather conditions in some markets may impact
demand for our vehicles.
Competition
With the expected growth of last-mile delivery and city delivery
services, new regulatory requirements for vehicle emissions,
technological advances and shifting consumer demands, we expect
increased competition in the ECV market. For example, Workhorse and
Daimler have introduced their first light-duty ECV models in the
United States, and Rivian, Nikola, Via, Nissan, Ford and GM are
expected to launch light-duty ECVs in the United States in the next
several years. The European light-duty commercial market is more
developed, with light-duty ECV models currently being sold by Fiat
Group, Renault, DHL, Piaggio, StreetScooter and other vehicle
manufacturers. We believe the primary competitive factors between
companies in the light- and medium-duty ECV market include:
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Total cost of ownership (including
lower up-front costs);
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Availability of proprietary charging
network;
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Product performance and uptime;
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Vehicle quality, reliability and
safety;
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Technological innovation; and
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Traditional ICE manufacturers and new entrants in the ECV market
may have higher brand name recognition, greater capital resources
and longer operating histories than we do. Nonetheless, we believe
we have the benefit of lower operating costs to our end-users as
well as superior core technology, which we believe are advantageous
when introducing new technology. We cannot provide assurances that
our competitors will not build ECVs that favorably compete with our
ECVs, or that end-users will choose our ECVs over those of our
competitors.
Governmental
Regulations
Vehicle Safety and Testing Regulations and Standards
United States
Our ECVs
are subject to, and are designed to comply with, numerous
regulatory requirements and industry standards established by the
U.S. Department of Transportation (“DOT”), National Highway Traffic
Safety Administration (“NHTSA”). These include early warning
reporting requirements regarding warranty claims, field reports,
death and injury reports; foreign recalls; owner’s manual
requirements; and various Federal Motor Vehicle Safety Standards
(“FMVSSs”), established by the NHTSA.
Examples of the FMVSSs that apply to our vehicles include:
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FMVSS
No. 210 (Seat Belt Assemblies and Anchorages) - Performance
and equipment requirements to provide effective occupant protection
by restraint and reducing the probability of failure.
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FMVSS
No. 302 (Flammability of Interior Materials) - Burn
resistance capabilities of materials used in the occupant
compartments of motor vehicles.
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FMVSS
No. 305 (Electrolyte Spillage and Electrical Shock
Protection) - EV safety and battery retention following
specified crash tests.
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In
addition to the FMVSSs, we also design our vehicles to meet the
requirements of the DOT’s Motor Carrier Safety Administration,
which has numerous Federal Motor Vehicle Carrier Safety
Requirements that apply to our vehicles. These include
specifications and requirements applicable to auxiliary lamps,
speedometers, and step, handhold and deck placement.
European Union
Our ECVs
sold in the European Union require type approval to confirm that
they meet a minimum set of regulatory, technical and safety
requirements. Our ECVs are subject to the European Community Whole
Vehicle Type Approval framework regulations set out in EU
Regulation 168/2013, which applies to L7 vehicles, and EU
Regulation 2018/858, which applies to certain vehicles of
Categories M, N and O, including the N1, which applies to light
vehicles. We sell the Metro® in the European Union under the N1
Small Series Type Approval, the Neibor® 150 under the L7e type
approval and the Logistar™ 200 under the N1 type approval.
Our ECVs,
once approved by the EU Approval Authority, receive a certificate
of conformity, which is used to demonstrate compliance with the
applicable type approval requirements during the vehicle
registration process. Any vehicle with a certificate of conformity
can be sold throughout Europe with no further regulation
requirements.
Given the
ECV industry is rapidly developing, requirements and regulations
are likely to change over time and in various countries to which we
import our ECVs for sale or assembly. It may be expensive or time
consuming to comply with any changes to these requirements.
The UK
has adopted the EU requirements post-Brexit, so in addition to
European Type Approval we need to obtain a UK National Type
Approval for vehicles imported to or assembled in the UK.
Applications may be based on an existing valid EU type approval. No
additional testing is required and the technical requirements are
the same as for the EU market. We sell the Metro® into the UK under
N1 Type Approval. We intend to obtain the applicable approval for
the EU and UK markets as needed.
EPA Emissions and Certificate of Conformity
The U.S.
federal Clean Air Act requires that we obtain either a Certificate
of Conformity issued by the EPA or a California Executive Order
issued by the California Air Resources Board (“CARB”) with respect
to emissions for our vehicles. The Certificate of Conformity is
required for vehicles sold in states covered by the Clean Air Act’s
standards, and an Executive Order from CARB is required for
vehicles sold in states that have sought and received a waiver from
the EPA to utilize California standards. The California standards
for emissions control for certain regulated pollutants for new
vehicles and engines sold in California are set by CARB.
Manufacturers who sell vehicles in violation of these standards may
be subject to penalties of up to $37,500 per violation, as well as
product recall and corrective action requirements.
Battery Safety, Testing, Transportation, and Recycling
Our ECVs
contain battery packs, the cells of which are composed mainly of
lithium-ion. Our ECVs are designed to meet International
Organization for Standardization standards for battery systems and
electrically propelled road vehicles. The latter standards address
aspects of in-vehicle safety, connecting to external power
supplies, conductive charging, battery pack enclosure protection
from effects due to the ingress of water, and vibration,
thermal-cycling, overcharge, and thermal control testing for
lithium-ion battery packs and systems.
United States
Our
battery pack shipments comply with regulations governing the
transport of “hazardous materials” in the United States and
“dangerous goods” in the European Union. In the United States, the
governing regulations, are promulgated by the Pipeline and
Hazardous Materials Safety Administration at 49 C.F.R. Parts
171-180 and are based on the UN Recommendations on the Safe
Transport of Dangerous Goods Model Regulations, and related UN
Manual Tests and Criteria. The latter form the basis for the EU
regulations regarding the transportation of lithium-ion batteries.
Under both regulatory regimes, packaging requirements vary based on
the mode of transportation: e.g., ocean vessel, rail, truck, or
airplane.
Our battery packs are designed to meet the compliance requirements
of the UN Manual of Tests and Criteria, so that our battery packs
and vehicles may be shipped by any method. These tests
include:
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Altitude simulation - Simulating air
transport;
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Thermal cycling - Assessing cell and
battery seal integrity;
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Vibration - Simulating vibration during
transport;
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Shock - Simulating possible impacts
during transport;
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External short circuit - Simulating an
external short circuit; and
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Overcharge - Evaluating the ability of
a rechargeable battery to withstand overcharging.
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The
lithium-ion battery packs include packaging containing trace
amounts of various hazardous chemicals whose use, storage and
disposal is regulated under U.S. federal law. Moreover, lithium-ion
batteries themselves may present risks to human health and the
environment - including fire hazards - if improperly disposed. Our
potential liability for such risks is not eliminated by virtue of
our distributed manufacturing methodology. Therefore, consistent
with the approach of certain traditional, vertically integrated ECV
manufacturers, we intend to perform product stewardship in the form
of a “take-back” program to return potentially harmful materials
into the circular economy. Specifically, we intend to enter into a
service agreement with a third-party vendor with advanced direct
cycling technology to recycle our lithium-ion batteries.
European Union
The EU
has specific regulations on batteries and the disposal of batteries
to minimize the negative environmental effects of batteries and
hazardous waste.
The EU
Battery Directive is intended to reduce mercury, cadmium, lead and
other metals in the environment by minimizing the use of these
substances in new batteries and treating and re-using old
batteries. The EU Battery Directive applies to all types of
batteries except those used to protect European Member States’
security, for military purposes, or sent into space. To achieve
these objectives, the EU Battery Directive prohibits the marketing
of some batteries containing hazardous substances. Among other
things, it establishes quantified collection and recycling targets
and product labeling requirements. We currently ship our ECVs
pursuant to the requirements of the EU Battery Directive. Our
current estimated costs to comply with this directive is not
significant. However, we continue to evaluate the impact of this
directive as European Union member states implement guidance, and
actual costs could differ from our current estimates.
In
December 2020, the European Commission adopted a proposal to revise
the EU Battery Directive. The proposal is designed to modernize the
EU’s regulatory framework for batteries to secure the
sustainability and competitiveness of battery value chains. It
could introduce mandatory requirements on sustainability (such as
requiring responsible sourcing of raw materials, restrictions on
the use of hazardous substances, carbon footprint rules, minimum
recycled content targets, performance and durability criteria),
safety and labelling for the marketing and putting into service of
batteries, and requirements for end-of-life management including to
facilitate the repurposing of industrial and electric-vehicle
batteries as stationary energy storage batteries. The proposal also
includes due diligence obligations for economic operators in regard
to the sourcing of raw materials.
The RoHS
Directive places restrictions on the use of certain hazardous
substances in electrical and electronic equipment. All applicable
products sold in the European Union market after July 1, 2006 must
comply with the RoHS Directive. While this directive does not
currently affect our ECVs in any meaningful way, should any changes
occur in the RoHS Directive that would affect our ECVs, we will
need to comply with any new regulations that are imposed.
PRC
China has
implemented several regulations, policies and measures to regulate
the batteries used in ECVs, which cover the security standards,
recycling activities and other specifications. For example, the PRC
Battery Measures regulate the recycling and disposal of end-of-life
batteries for new energy vehicles. The PRC Battery Measures provide
that manufacturers of new energy vehicles must take primary
responsibilities of the recycling of batteries and are required,
for instance, to transfer batteries that have been damaged during
manufacturing to vendors that provide recycling services, and to
maintain records of the vehicles they have manufactured, the
identification codes of the batteries incorporated into the
vehicles, and the owners of the vehicles. The batteries used in our
ECVs are also subject to a number of national standards in China,
including functional safety requirements and testing methods for
the battery management system of electric vehicles.
Our
noncompliance with any of these regulations may materially and
adversely affect our operations or financial condition.
Government Subsidies for ECVs
Greenhouse Gas (“GHG”) Compliance
Credits and Nitrogen Oxide Emission Standards
The EPA’s
GHG emissions regulatory framework provides for aggregate emissions
targets and a system of tradable GHG compliance credits. Automakers
that surpass aggregate emissions targets may trade GHG compliance
credits with automakers who cannot meet such targets. In connection
with the delivery and placement into service of our zero-emission
vehicles, we or our channel partners in the United States may earn
such tradable GHG compliance credits These credits may be sold to
other manufacturers who do not comply with emissions reduction
standards. For example, EPA regulations require vehicle
manufacturers to meet the nitrogen oxide emission standard for each
type of vehicle produced. These emission standards have become
stricter over time, increasing the difficulty for conventional
diesel vehicles to meet the standard. It is expected that
manufacturers of diesel trucks will need to purchase GHG compliance
credits to cover their emission deficit. We do not currently have
any agreements with third parties to trade GHG compliance credits
but plan to enter into such agreements as our production and sales
in the United States grow.
Various
states have their own systems for accumulating and trading GHG
compliance credits, which generally resemble EPA’s. For example,
California’s Low-Emission Vehicle Regulations, and similar laws in
other states, require vehicle manufacturers to ensure that a
portion of the vehicles delivered for sale in that state during
each model year are zero emission vehicles. These laws provide that
a manufacturer of zero emission vehicles may earn credits and that
they may sell excess credits to other manufacturers who are not in
compliance with emissions-related regulatory requirements.
Currently, eleven states, besides California, have established such
programs: Colorado, Connecticut, Maine, Maryland, Massachusetts,
New Jersey, New York, Oregon, Rhode Island, Vermont and Washington.
As a manufacturer of zero emission vehicles, we plan to pursue
paths to potentially earn tradable credits on each Logistar™ 400
vehicle (once homologated) sold in California and these other
states, to the extent permitted by applicable laws.
Environmental Regulations
Operations and facilities involved in the manufacture of our ECVs
are subject to extensive environmental, safety and health (“EHS”)
regulations. Moreover, the general trend over the past few decades
has been for EHS requirements to become more stringent over time.
The laws and regulations to which our operations and facilities are
subject govern, among others, the storage, handling, treatment,
transportation, and disposal of hazardous materials and hazardous
wastes; wastewater and air emissions; resource conservation and
recovery; the protection of natural resources and endangered
species; and the remediation of environmental contamination.
Compliance with environmental laws and regulations, including
permitting requirements, is an important aspect of our ability - as
well as that of our channel partners - to continue our operations
both in the United States and in other markets. Violations of EHS
laws and regulations or permits may result in substantial
governmental enforcement, civil penalties, criminal fines, and
orders to cease operations or to conduct or pay for corrective
action. In some instances, violations may also result in the
suspension or revocation of permits and licenses.
Under the
Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA), the primary U.S. federal remedial statute, any party
that contributes to an unauthorized release of hazardous substances
at a contaminated site may be jointly and severally liable for the
full range of remedial and governmental oversight costs associated
with the cleanup. In addition to statutory liability, noncompliance
with EHS laws and releases of hazardous substances, materials, or
wastes may give rise to toxic tort claims, which in theory could
result in material liabilities. As we expand our local assembly
capabilities in our target markets, we expect our environmental
liability exposure to increase. This may require us to spend
additional capital resources on environmental compliance matters.
Pursuant to the Environmental Protection Law of the PRC, which was
adopted on December 26, 1989 and amended on April 24, 2014,
effective on January 1, 2015, any entity which discharges
pollutants must adopt measures to prevent and treat waste gas,
waste water, waste residue, medical waste, dust, malodorous gas,
radioactive substances generated in manufacturing, construction or
any other activities as well as environmental pollution and hazards
such as noise, vibration, ray radiation, electromagnetic radiation
etc. Environmental protection authorities impose various
administrative penalties on entities in violation of the
Environmental Protection Law, including warnings, fines, orders to
rectify within a prescribed period, cease construction, restrict or
suspend production, make recovery, disclose relevant information or
make an announcement, or seize and confiscate facilities and
equipment which cause pollutant emissions, the imposition of
administrative action against relevant responsible persons, and
orders to shut down enterprises. In addition, pursuant to the Civil
Code of the PRC, which was adopted on May 28, 2020, and became
effective on January 1, 2021, in the event of damage caused to
others as a result of environmental pollution and ecological
destruction, the actor will bear tortious liability. In the event a
party, in violation of laws and regulations, intentionally pollutes
the environment or damages the ecology, thereby causing serious
consequences, the infringed party is entitled to claim appropriate
punitive damages. Any violations of the Environmental Protection
Law or the Civil Code could expose us to liabilities including
fines and damages that could impact our business, prospects,
financial condition and operating results.
The EU
end-of-life vehicle (“ELV”) regulations ensure manufacturers
design, produce and manage their vehicles to reduce waste and
maximize material recovery at the point a vehicle is dismantled.
For applicable vehicles, we believe we comply with applicable ELV
regulations and intend to rely on third party recyclers to recycle
ELVs manufactured by us.
Data Security Regulation
International jurisdictions have their own data security and
privacy legal framework with which companies or their customers
must comply. The collection, use, storage, transfer, and other
processing of personal data regarding individuals in the European
Economic Area is governed by the GDPR, which came into effect in
May 2018. It contains numerous requirements and changes from
previously existing EU law, including more robust obligations on
data processors and heavier documentation requirements for data
protection compliance programs by companies. Among other things,
the GDPR regulates transfers of personal data subject to the GDPR
to countries outside of the European Union that have not been found
to provide adequate protection to such personal data, including the
United States. The European Data Protection Board has issued draft
guidance requiring additional measures be implemented to protect EU
personal data from foreign law enforcement, including in the U.S.
These additional measures may require us to expend additional
resources to comply.
The GDPR
also introduced numerous privacy-related changes for companies
operating in the European Union, including greater control for data
subjects, increased data portability for EU consumers, data breach
notification requirements and increased fines. Fines of up to 20
million Euros or up to 4% of the annual global revenue of the
noncompliant company, whichever is greater, could be imposed for
violations of certain GDPR requirements. Such penalties are in
addition to any civil litigation claims by customers and data
subjects. The GDPR requirements apply not only to third-party
transactions but also to transfers of information between us and
our subsidiaries, including employee information.
The European Commission has another draft regulation in the
approval process that focuses on a person’s right to conduct a
private life, in contrast to the GDPR, which focuses on protection
of personal data. The proposed legislation, known as the Regulation
on Privacy and Electronic Communications, or ePrivacy Regulation,
would replace the current ePrivacy Directive. While the new
legislation contains protections for those using communications
services (for example, protections against online tracking
technologies), the timing of its proposed enactment following the
GDPR means that additional time and effort may need to be spent
addressing differences between the ePrivacy Regulation and the
GDPR. New rules related to the ePrivacy Regulation are likely to
include enhanced consent requirements to use communications content
and metadata and other data collected from connected devices and
physical objects, including our ECVs which are fitted with
networking devices.
Following
the UK’s exit from the European Union, the GDPR was transposed into
UK law (“UK GDPR”) and is supplemented by the UK Data Protection
Act 2018. As a result, the UK GDPR will not automatically
incorporate any changes made to the GDPR going forward (which would
need to be specifically incorporated by the UK Government). At
present, the GDPR and the UK GDPR are broadly similar and have
parallel regimes, which have not yet diverged significantly.
However, the UK Government has launched a public consultation on
proposed reforms to the data protection framework in the UK. This
may lead to future divergence and variance between the two
regimes.
China has
laws relating to the supervision of data and information
protection. The Cybersecurity Law regulates the activities of
“network operators,” which include companies that manage any
network under PRC jurisdiction. The Cyber Security Law requires
that network operators, including internet information services
providers, take technical measures and other necessary measures in
accordance with applicable laws and regulations and the compulsory
requirements of the national and industrial standards to safeguard
the safe and stable operation of its networks. As such, certain of
our PRC subsidiaries may be regarded as network operators under the
Cybersecurity Law, since our ECVs are fitted with networking
devices. The Cybersecurity Law requires that the collection of
personal data is subject to consent by the person whose data is
being collected. Any violation of the Cyber Security Law may
subject an internet information services provider to warnings,
fines, confiscation of illegal gains, revocation of licenses,
cancellation of filings, shutdown of websites or criminal
liabilities.
On June
10, 2021, China enacted the DSL, which became effective as of
September 1, 2021. The DSL introduces several changes and new
features to data security regulation and a comprehensive data
security regime, which authorizes national departments to conduct
stricter supervision of data in China. For example, the PRC
government will establish a catalogue of crucial data categories
and promulgate stricter regulations over the protection of such
crucial data listed in the catalogue. The DSL also will introduce
the concept of “National Core Data,” which refers to data related
to, among other topics, national security, the PRC economy, and
significant public interests, and provides that stricter
regulations may be imposed on such National Core Data. The
cross-border transfer of domestic data as required by non-PRC
judicial or enforcement authorities is also subject to the approval
of competent Chinese authorities.
Compliance with the GDPR, the UK GDPR, the new ePrivacy Regulation,
as well as the Cybersecurity Law and DSL in China, may involve
substantial operational costs or require us to change business
practices. While we have not had a substantial presence in the
European Union historically, in January 2022, we opened our
European Operations Center in Dusseldorf, Germany and, in March
2022, we acquired a 65% equity interest in TME. As a result, we may
be required to comply with certain provisions of the GDPR and the
new ePrivacy Regulation (once effective). As a result, we may need
to undertake an update of certain of our business practices,
including (i) updating internal records, policies and procedures;
(ii) updating publicly facing privacy notices and consent
mechanisms, where required; (iii) implementing employee privacy
training; (iv) appointing an individual responsible for privacy
compliance; (v) implementing an inter-group data transfer
agreement; (vi) reviewing/updating contracts with vendors that
process data on our behalf, and (vii) implementing an audit
framework. Furthermore, if we begin selling our ECVs directly to
end-users in the European Union, UK or China, we would likely be
required to comply with additional regulatory requirements. To the
extent we become subject to any such regulations, our noncompliance
could result in proceedings by governmental entities, customers,
data subjects or others and may result in fines, penalties, and
civil litigation claims.
We have
developed data retrieving and interfacing capabilities, which
enable our end-users to collect, use and store user-specific data
as they desire. End-users can utilize this data to, for instance,
monitor vehicle and driver’s behavior to manage fleet activities.
Leasing or insurance company could also potentially use this data,
with permission from end-users.
With the
permission of the end-users of the vehicles, between 2017 and 2021,
we received data collected from approximately 950 Metro® units that
we put into service through a company affiliated with our former
parent company, CAG Cayman, in the Chinese market. This data
included vehicle-specific data collected for operational analysis,
which we used to make improvements in the quality and durability of
such components. We enable end-users to collect, store and analyze
data using tools that we have developed but we do not have access
to this end-user collected data unless we request and receive
access from the end-user. We do not currently collect, use or store
any vehicle-specific or driver-specific data in any region and do
not intend to do so in the future.
PRC Intellectual Property Law
Pursuant
to the Patent Law of the PRC and the Implementation Regulations for
the Patent Law of the PRC, each as amended, the patent system of
the PRC adopts the principle of “first to file,” where two or more
applicants have made their respective application for patent for
the same invention-creation, the patent rights will be granted to
the applicant who has filed first. Inventions and utility models
for which patent rights are granted are required to possess
novelty, creativity and practicality. The duration of patent rights
for an invention is 20 years, the duration of patent rights for a
utility model is 10 years and the duration of patent rights for a
design is 15 years, commencing from the filing date. Implementation
of a patent without licensing of the patentee constitutes an
infringement of patent rights. Our issued patents will begin to
expire in April 2024.
The PRC
Copyright Law, which became effective on June 1, 1991 and was
amended in 2001, 2010 and 2020, provides that Chinese citizens,
legal persons, or other organizations own copyright in their
copyrightable works (which include, among others, works of
literature, art, natural science, social science, engineering
technology, and computer software), whether published or not.
Copyright owners enjoy certain legal rights, including right of
publication, right of authorship, and right of reproduction. The
Copyright Law as revised in 2010 extends copyright protection to
Internet activities, products disseminated over the Internet, and
software products. In addition, the Copyright Law provides for a
voluntary registration system administered by the China Copyright
Protection Center. Pursuant to the Copyright Law, an infringer of
copyrights is subject to various civil liabilities, which include
ceasing infringement activities, apologizing to the copyright
owners and compensating the loss of the copyright owners.
Infringers of copyright may also be subject to fines and/or
administrative or criminal liabilities in severe situations.
Pursuant
to the Computer Software Copyright Protection Regulations
promulgated by the State Council on December 20, 2001 and amended
on January 30, 2013, the software copyright owner may go through
the registration formalities with a software registration authority
recognized by the State Council’s copyright administrative
department. The software copyright owner may authorize others to
exercise that copyright and is entitled to receive
remuneration.
Pursuant
to the Trademark Law of the PRC and the Implementation Regulations
for the Trademark Law of the PRC, each as amended, the Trademark
Bureau of the Administration for Industry and Commerce Department
of the State Council is in charge of trademark registration and
administration nationwide. In order for a trademark to be
registered, it must possess distinctive characteristics to
facilitate identification and cannot conflict with prior legitimate
rights obtained by others. A registered trademark is valid for 10
years, commencing from the date of registration. Upon expiry of the
validity period of a registered trademark, where the trademark
registrant intends to continue using the trademark, the registrant
must complete renewal formalities to extend the validity period for
an additional 10 years.
PRC Foreign Exchange Laws
The
Foreign Exchange Control Regulations of the PRC, as amended, is the
main regulation of foreign exchange management in the PRC. Pursuant
to Foreign Exchange Control Regulations of the PRC, payments of
current account items, such as profit distributions, interest
payments and trade and service-related foreign exchange
transactions, can be made in foreign currencies without prior
approval from the State Administration of Foreign Exchange, or
SAFE, by complying with certain procedural requirements. By
contrast, approval from or registration with appropriate government
authorities or their designated banks is required where RMB is to
be converted into foreign currency and remitted out of China to pay
capital account items, such as direct investments, repayment of
foreign currency-denominated loans, repatriation of investments and
investments in securities outside of China.
Loans by Foreign Companies to PRC Subsidiaries
A loan
made by foreign investors as shareholders in a foreign-invested
enterprise, or FIE, is considered foreign debt in China and is
regulated by various laws and regulations, including the PRC
Regulation on Foreign Exchange Administration, the Interim
Provisions on the Management of Foreign Debts, the Statistical
Monitoring of Foreign Debt Tentative Provisions, the Detailed Rules
for the Implementation of Provisional Regulations on Statistics and
Supervision of Foreign Debt, and the Administrative Measures for
Registration of Foreign Debt. Under these rules and regulations, a
shareholder loan in the form of foreign debt made to a PRC entity
does not require the prior approval of the SAFE. However, such
foreign debt must be registered with and recorded by the SAFE or
its local branches within fifteen business days after the entering
of the foreign debt contract. Pursuant to these rules and
regulations, the balance of the foreign debts of an FIE cannot
exceed the difference between the total investment and the
registered capital of the FIE.
On
January 12, 2017, the People’s Bank of China (the “PBOC”)
promulgated the Notice of the People’s Bank of China on Matters
concerning the Macro-Prudential Management of Full-Covered
Cross-Border Financing, or PBOC Notice No. 9. Pursuant to PBOC
Notice No. 9, FIEs may adopt the currently valid foreign debt
management mechanism, or the mechanism as provided in PBOC Notice
No. 9 at their own discretion. PBOC Notice No. 9 provides that
enterprises may conduct independent cross-border financing in
Renminbi or foreign currencies as required. Pursuant to PBOC Notice
No. 9, the outstanding cross-border financing of an enterprise will
be calculated using a risk-weighted approach and cannot exceed
certain specified upper limits. PBOC Notice No. 9 further provides
that the upper limit of risk-weighted outstanding cross-border
financing for enterprises is 200% of its net assets, or the Net
Asset Limits. Enterprises must file with the SAFE in its capital
item information system after entering into the relevant
cross-border financing contracts and prior to three business days
before drawing any money from the foreign debts.
Based on the foregoing, if we provide funding to our wholly
foreign-owned subsidiaries through shareholder loans, the balance
of such loans cannot exceed the difference between the total
investment and the registered capital of the subsidiaries and we
will need to register such loans with the SAFE or its local
branches in the event that the currently valid foreign debt
management mechanism applies, or the balance of such loans will be
subject to the risk-weighted approach and the Net Asset Limits and
we will need to file the loans with the SAFE in its information
system in the event that the mechanism as provided in PBOC Notice
No. 9 applies. Pursuant to PBOC Notice No. 9, the PBOC and the SAFE
would determine the cross-border financing administration mechanism
for the FIEs after evaluating the overall implementation of PBOC
Notice No. 9. As of the date of this Annual Report, neither the
PBOC nor the SAFE has promulgated and made public any further
rules, regulations, notices, or circulars in this regard. It is
uncertain which mechanism will be adopted by the PBOC and the SAFE
in the future and what statutory limits will be imposed on us when
providing loans to our PRC subsidiaries.
Regulation of Dividend Distributions under PRC Law
The
principal laws and regulations regulating the distribution of
dividends by FIEs in China include the PRC Company Law, as amended
in 2004, 2005, 2013 and 2018, and the 2019 PRC Foreign Investment
Law and its Implementation Rules. Under the current regulatory
regime in China, FIEs in China may pay dividends only out of their
retained earnings, if any, determined in accordance with PRC
accounting standards and regulations. A PRC company is required to
set aside as statutory reserve funds at least 10% of its after-tax
profit, until the cumulative amount of such reserve funds reaches
50% of its registered capital unless laws regarding foreign
investment provide otherwise. A PRC company cannot distribute any
profits until any losses from prior fiscal years have been offset.
Profits retained from prior fiscal years may be distributed
together with distributable profits from the current fiscal
year.
PRC Regulations on Employment and Social Welfare
The PRC
Labor Contract Law, which became effective on January 1, 2008 and
amended on December 28, 2012, primarily aims at regulating rights
and obligations of employer and employee relationships, including
the establishment, performance and termination of labor contracts.
Pursuant to the Labor Contract Law, labor contracts must be
executed in writing if labor relationships are to be or have been
established between employers and employees. Employers are
prohibited from forcing employees to work above certain time limits
and employers must pay employees for overtime work in accordance
with national regulations. In addition, employee wages must not be
lower than local standards on minimum wages and must be paid to
employees in a timely manner.
As
required under the Regulation of Insurance for Labor Injury
implemented on January 1, 2004 and amended in 2010, the Provisional
Measures for Maternity Insurance of Employees of Corporations
implemented on January 1, 1995, the Decisions on the Establishment
of a Unified Program for Old-Aged Pension Insurance of the State
Council issued on July 16, 1997, the Decisions on the Establishment
of the Medical Insurance Program for Urban Workers of the State
Council promulgated on December 14, 1998, the Unemployment
Insurance Measures promulgated on January 22, 1999, and the PRC
Social Insurance Law implemented on July 1, 2011 and amended on
December 29, 2018, employers are required to provide their
employees in China with welfare benefits covering pension
insurance, unemployment insurance, maternity insurance,
work-related injury insurance, and medical insurance. These
payments are made to local administrative authorities. Any employer
that fails to make social insurance contributions may be ordered to
rectify the noncompliance and pay the required contributions within
a prescribed time limit and be subject to a late fee. If the
employer still fails to rectify the failure to make the relevant
contributions within the prescribed time, it may be subject to a
fine ranging from one to three times the amount overdue. On July
20, 2018, the General Office of the State Council issued the Plan
for Reforming the State and Local Tax Collection and Administration
Systems, which stipulated that the State Taxation Administration
would become solely responsible for collecting social insurance
premiums.
In
accordance with the Regulations on the Administration of Housing
Funds, which was promulgated by the State Council in 1999 and
amended in 2002 and 2019, employers must register at the designated
administrative centers and open bank accounts for depositing
employees’ housing funds. Employers and employees are also required
to pay and deposit housing funds, with an amount no less than 5% of
the monthly average salary of the employee in the preceding year in
full and on time.
Human Capital Resources and Employees
Our human
capital resource objectives include attracting, developing, and
retaining personnel and enhancing diversity and inclusion in our
workforce to foster community, collaboration, and creativity among
our employees, and support our ability to grow our business. To
facilitate these objectives, we seek to foster a diverse,
inclusive, and safe workplace, with opportunities for employees to
develop their talents and advance their careers.
We also
strive to create a culture that allows our employees to explore
their innovativeness and entrepreneurship and an environment where
inspired people thrive in a convergence of technology and design.
We encourage our employees to think creatively, act
collaboratively, and use technology and data to solve problems. Our
management team’s sense of mission, long-term focus and commitment
to our core values are central to our success.
As of
March 1, 2022, we had 213 full-time employees, including 18 in
management, 28 in research and development, 34 in supply chain
operations, 18 in marketing, 63 in manufacturing/engineering, 15 in
quality assurance, 18 in finance and 19 in corporate affairs. A
total of 154 employees are located in our manufacturing and design
facilities in China, 42 employees are based in our facilities in
Germany and 17 employees are based in the United States. None of
our employees are currently represented by labor unions or are
covered by a collective bargaining agreement with respect to their
employment. We enter into standard labor contracts with our Chinese
employees. We also enter into standard confidentiality agreements
with certain of our employees that contain non-compete
restrictions. We believe we maintain good relationships with our
employees and have not experienced any major labor disputes.
Under PRC
regulations, we are required to participate in and make
contributions to housing funds and various employee social security
plans that are organized by applicable local municipal and
provincial governments, including pension, maternity, medical,
work-related injury and unemployment benefit plans.
C. Organizational
Structure
Subsidiary Information
Set forth below
is the primary business and domicile of each of our
subsidiaries:
| |
• |
Cenntro Automotive Corporation, a
Delaware corporation, is our current operating subsidiary in the
United States. CAC’s operations include corporate affairs,
administrative, human resources, global marketing and sales,
after-market support to our channel partners, homologation and
quality assurance. CAC also leases and operates our facilities in
Freehold, New Jersey, our corporate headquarters, and our
Jacksonville, Florida facility, where we plan to assemble our
vehicles from vehicle kits for the North American market.
|
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• |
Cenntro Electric Group, Inc., a
Delaware corporation, is a non-operating holding company.
|
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• |
Naked Brand Group, Inc., a Nevada
corporation, is currently a non-operating holding company.
|
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• |
Naked, Inc., a Nevada corporation, is
currently a non-operating company.
|
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• |
Cenntro Automotive Group Limited, a
Hong Kong private company limited by shares, is a non-operating,
investment holding company, which holds the share equity in all of
our PRC subsidiaries and Simachinery Equipment (as defined
below).
|
| |
• |
Hangzhou Cenntro Autotech Co., Ltd., a
PRC limited liability company (“Autotech”), is one of our operating
subsidiaries in China. Operations under Autotech include vehicle
and technological developments, homologation (in certain
instances), regulatory compliance, quality assurance, and the
holding of material assets in Hangzhou, China.
|
| |
• |
Hangzhou Hengzhong Tech Co., Ltd., a
PRC limited liability company (“Hengzhong Tech”), is one of our
operating subsidiaries in China. Operations under Hengzhong Tech
include supply procurement, vendor qualification and auditing,
component quality assurance and certification, and component
development.
|
| |
• |
Hangzhou Ronda Tech Co., Ltd., a PRC
limited liability company (“Ronda”), is one of our operating
subsidiaries in China. Operations under Ronda include corporate
affairs, administrative, human resources, global marketing and
sales, and after-market support to our channel partners.
|
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• |
Shengzhou Cenntro Machinery Co., Ltd.,
a PRC limited liability company (“Shengzhou Machinery”), is
currently dormant. Prior to our sale of the land and facility in
Shengzhou, China in 2020, Shengzhou Machinery owned and operated
our Shengzhou manufacturing facility, where it manufactured key
components for the Metro® and assembled vehicle kits and full
vehicles. In May 2021, Shengzhou Machinery ceased these
operations.
|
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• |
Simachinery Equipment Limited, a Hong
Kong private company limited by shares (“Simachinery Equipment”),
is the non-operating, investment holding company of Zhejiang
Sinomachinery (as defined below).
|
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• |
Tropos Motors Europe GmbH (TME), a
German limited liability company, is an operating company in which
the Company acquired a 65% equity interest in March 2022. Prior to
the acquisition, TME assembled, marketed and sold a branded version
of the Metro® called ABLE that it purchased from the Company. TME
operates a local assembly facility in Herne, Germany, which the
Company expects to utilize in expanding its local assembly capacity
for various ECV models for the European market.
|
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• |
Zhejiang Sinomachinery Co., Ltd., a
PRC limited liability company (“Zhejiang Sinomachinery”), is one of
our operating subsidiaries in China. Zhejiang Sinomachinery’s
operations focus on the development and maintenance of our supply
chains and the development of our Logistar™ model.
|
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• |
Zhejiang Cenntro Machinery Co., Ltd.,
a PRC limited liability company (“Zhejiang Machinery”), is one of
our operating subsidiaries in China. Operations under Zhejiang
Machinery include leasing our facility in Changxing, China and
assembling our Metro® model vehicle kits and fully assembled
vehicles. Zhejiang Machinery currently performs the role that
Shengzhou Machinery performed prior to the sale of our facility in
Shengzhou in 2020.
|
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• |
Zhejiang Tooniu Tech Co., Ltd., a PRC
limited liability company (“Tooniu”), is one our operating
subsidiaries in China. Tooniu’s operations focus on the development
of off-road electric utility vehicles. Tooniu is responsible for
the development and supply of the Teemak™ vehicle and vehicle kits
to our channel partners.
|
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• |
Zhejiang Xbean Tech Co. Ltd. is a PRC
limited liability company (“Zhejiang Xbean”) and is currently
dormant. Zhejiang Xbean’s operations historically focused on the
design, manufacture and sale of certain smaller ECV models that are
not material to our business. Zhejiang Xbean ceased operations in
early 2021.
|
D. Property, Plants
and Equipment
The
disclosure with respect to the Company’s facilities set forth under
“⸻Business Overview⸻Facilities” above is incorporated by reference
herein.
| ITEM 4A. |
UNRESOLVED STAFF
COMMENTS
|
None.
|
ITEM
5. |
OPERATING AND
FINANCIAL REVIEW AND PROSPECTS
|
You should read the following discussion and analysis of our
financial condition and results of operations in conjunction with
our Audited Financial Statements for the fiscal year ended December
31, 2021 and the audited combined financial statements of Cenntro
for the fiscal years ended December 31, 2020 and 2019, and related
notes included herein, in each case. This discussion contains
forward-looking statements that involve risks and uncertainties.
Our actual results and the timing of selected events could differ
materially from those anticipated in these forward-looking
statements as a result of various factors, including those set
forth under “Risk Factors” and “Special Note Regarding
Forward-Looking Statements.”
Introduction
We are a
designer and manufacturer of light- and medium-duty ECVs. Our
purpose-built ECVs are designed to serve a variety of corporate and
governmental organizations in support of city services, last-mile
delivery and other commercial applications. As of December 31,
2021, we have sold or put into service more than 3,740 units of the
Metro® in over 25 countries across North America, Europe and Asia.
Our first ECV model, the Metro®, has been driven over seven million
miles by commercial end-users in China alone. We also introduced
four new ECV models to serve the light- and medium-duty market
beginning in the fourth quarter of 2021. Our mission is to leverage
our technological and research and development capabilities in
areas such as vehicle design, digital component development,
vehicle control software and “smart driving” to become a technology
leader in the ECV market.
We have
established an asset-light, distributed manufacturing business
model through which we can distribute our unique modular vehicles
in vehicle kits for local assembly in addition to fully assembled
vehicles. Each of our vehicle models has a modular design that
allows for local assembly in small factory facilities that require
less capital investment. We manufacture our own vehicle kits for
the Metro® in our facilities in China and leverage the economies of
scale of our manufacturing partners in China to manufacture vehicle
kits and/or fully assembled vehicles for our new ECV series. We
believe our distributed manufacturing methodology allows us to
execute our business plan with less capital than would be required
by the traditional, vertically integrated automotive model and, in
the long-term, drive higher profit margins.
Our
distributed manufacturing model allows us to focus our efforts on
the design of ECV models and related technologies while outsourcing
various portions of the manufacturing, assembly and marketing of
our vehicles to qualified third parties, allowing the Company to
operate with lower capital investment than traditional vertically
integrated automotive companies. We outsource the vast majority of
the marketing of our vehicles to third parties that refer to as our
“channel partners.” For the last several years, we relied
substantially on private label channel partners to assemble the
Metro® from vehicle kits that we manufactured in our facilities.
With the introduction of our new ECV models, we have begun the
process of shifting the manufacturing of our vehicle kits and in
some cases fully assembled vehicles to third party OEM
manufacturing partners and, in the case of vehicle kits, assembling
in our own facilities in North America and Europe. Our
relationships with such third parties, our “manufacturing
partners,” have allowed us to forego expensive capital investments
in our own facilities and operate within our historic working
capital limitations.
We began
pilot production of our first-generation, U.S. Class 1 (0-6,000
lbs.), electric light-duty commercial vehicle, the Metro®, in 2018,
and, as of December 31, 2021, we have sold approximately 2,440
units in over 25 countries across Europe, North America and Asia,
and put into service approximately 1,300 additional units in China
through affiliated parties. The Metro® is a customizable ECV used
in commercial applications such as city services (i.e., street
cleaners, firetrucks, food trucks and garbage trucks) and last-mile
delivery. The Metro® was “born electric,” meaning that, unlike many
other ECVs that are converted from existing ICE designs, the Metro®
was purpose-built from inception to be highly cost-effective and
energy efficient, implementing a number of proprietary design
elements including a lightweight structure and efficient power
system. With our developed supply chain and relationships with
component vendors and our growing channel partner network, we
believe we are in position for larger scale production and
distribution of the Metro®.
Since our
inception, we have invested resources in the research and
development not only of ECV design and manufacturing processes, but
also in digitally enabled components, intra-vehicle communication,
vehicle control and vehicle automation, or what we collectively
refer to as “vehicle digitization.” We have developed a prototype
system-on-chip (which we sometimes refer to as an “SOC”) for
vehicle control and an open-platform, programmable chassis, with
potential for both programmable and autonomous driving
capabilities. We have also designed and developed in-house a
proprietary telematics box, sometimes referred to as a T-Box, which
allows our ECVs to send and receive data relating to location,
speed, acceleration, braking and battery consumption, among others,
to end-users. Additionally, our engineers have worked closely with
certain of our qualified suppliers to co-design digitally enabled
components in areas such as steering, braking, acceleration and
signaling.
The
electrification of the global automotive industry has been a major
policy focus of governments worldwide. Certain countries, such as
the United States, China, Canada, Germany and various other
European countries, have announced aggressive EV initiatives
designed to reduce carbon emissions, through the replacement of
fossil fuels, and have begun incentivizing the development and sale
of ECVs through government subsidy programs.
Expand
Our Channel Partner Network and Assembly and Supporting
Facilities
As of
December 31, 2021, we have established business relationships with
20 channel partners in 18 countries, including the United States,
Germany, Korea, Spain, Italy and Mexico. We plan to expand our
channel partner network and increase the number of our assembly
facilities. As our channel partner network and Cenntro facility
footprint grows, we expect to penetrate a broader segment of the
global market and increase our sales volume and product offerings.
We expect to add up to 20 additional channel partners in
2022.
During
2021, we began utilizing one of our two facilities in Freehold, New
Jersey for the trial production of our Logistar™ 400 model. We also
have established a European Operations Center in Dusseldorf,
Germany, which provides marketing support, after-market support and
spare-parts warehousing for the European market, as well as
warehousing services with a logistics company in Budapest, Hungary
to house spare parts for our ECVs. We are also in the process of
establishing a local assembly facility in Jacksonville, Florida,
where we plan to assemble the Logistar™ 400 and the Teemak™ for
distribution to our channel partners for sales in the North
American market. We expect to begin trial assembling operations at
the Jacksonville facility by the end of the second quarter of 2022.
We believe having a local assembly facility in Germany will provide
us with access to well-established hardware and logistics systems
and trained personnel. We expect that our acquisition of a 65%
equity interest in TME will allow us to expand local assembly
capacity in the European Union for production of our EU ECV models,
including the Neibor® and Logistar™ series, in addition to the
Metro®.
We
believe that augmenting our channel partner network, assembly
facilities and support centers together with regionalizing our
supply chain will enhance brand recognition, provide economic
advantages and reduce time to market for our ECVs.
Regionalize Manufacturing and Supply Chain
We plan
to regionalize the manufacturing and supply chain relating to
certain key components of our ECVs, such as vehicle frames and
battery packs, in the geographic markets in which our ECVs are
sold. In the long-term, through our deep supply chain development
know-how, we plan to geographically expand our supply chain to
support our planned growth. More specifically, we intend to
establish supply chain relationships in North America and the
European Union to support our manufacturing and assembly needs in
these markets, thereby reducing the time in transit and potentially
the duties associated with importing our components and spare parts
from China. We believe we can reduce the overall cost of ECV
assembly in certain geographical markets by shifting to a “merge in
transit” model, whereby component shipments from suppliers,
including local market suppliers, are consolidated at our local
assembly facilities for final ECV assembly, in contrast with our
current model which integrates all components into vehicle kits or
fully assembled vehicles in our manufacturing facilities in China
or our manufacturing partners’ facilities. We believe that
investing in the regionalization of our manufacturing and supply
chain can ultimately provide significant benefits to us and our
channel partners. We believe sourcing our ECV components and
manufacturing, assembling and selling our ECVs regionally can help
us reduce costs associated with import/export taxes and shipping,
further reducing vehicle production costs. In addition, we believe
that regionalizing our manufacturing and supply chain will help
support and strengthen our brand in the markets in which our ECVs
are sold, as our operations become integrated into those
markets.
Acquisition of Majority Interest in TME
On March
5, 2022, we entered into a Share and Loan Purchase Agreement (the
“Purchase Agreement”) with Mosolf SE & Co. KG, a limited
liability partnership incorporated under the laws of Germany
(“Mosolf”), pursuant to which Mosolf agreed to sell to us (i) 65%
of the issued and outstanding shares (the “TME Shares”) in TME, and
(ii) 100% of the shareholder loan (the “Shareholder Loan”) which
Mosolf previously provided to TME (the “TME Transaction”).
The TME
Transaction closed on March 25, 2022. At the closing of the TME
Transaction, we paid Mosolf €3,250,000 (or approximately USD$3.6
million) for the purchase of the TME Shares and €11,900,000 (or
approximately USD$13.0 million) for the purchase of the Shareholder
Loan, for total aggregate consideration of €15,150,000 (or
approximately USD$16.6 million). An aggregate of €3,000,000 (or
approximately USD$3.3 million) of the purchase price is held in
escrow to satisfy amounts payable to any of the buyer indemnified
parties in accordance with the terms of the Purchase
Agreement.
Relocating Accounting Functions
Historically, substantially all of our accounting oversight and
consolidation functions were conducted in China. However, we are in
the process of taking measures to relocate certain critical
accounting functions to the United States. We intend to migrate and
maintain critical operational, technical and financial data and
accounting records in our U.S. headquarters in New Jersey, United
States. During the year ended December 31, 2021, we hired a
controller for our North American operations. In the first quarter
of 2022, we started planning the implementation of an industry
standard ERP system that we intend to be the platform for our
global financial operations and reporting system. We plan to
continue strengthening critical accounting functions in North
America in 2022.
Material
Weakness in Internal Control Over Financial Reporting
Prior to
the closing of the Combination, Cenntro was a private company with
limited accounting personnel and other resources with which to
address its internal control over financial reporting in accordance
with the requirements applicable to public companies. As a private
company, historically Cenntro had not retained a sufficient number
of professionals with an appropriate level of accounting knowledge,
training and experience to appropriately analyze, record and
disclose accounting matters under U.S. GAAP.
During
the preparation of its 2019 and 2020 financial statements,
Cenntro’s management identified a material weakness in its internal
control over financial reporting. Specifically, Cenntro did not
historically have adequate accounting staff generally in its
finance and accounting department, particularly with respect to (i)
the preparation of financial statements prepared in accordance with
U.S. GAAP and the inclusion of proper disclosures in the related
footnotes, and (ii) the design, documentation and implementation of
internal controls surrounding risk management and financial
reporting processes. During the preparation of the Company’s
consolidated and combined financial statements for the year ended
December 31, 2021, management reassessed the Company’s internal
control over financial reporting. Although controls and supervision
over risk management and financial reporting processes have
improved, management has concluded that the Company continues to
have this material weakness in its internal control over financial
reporting.
Management has taken and is continuing to take actions to remediate
this material weakness and is taking steps to strengthen our
internal control over financial reporting and risk management. In
April 2021, we hired an experienced Chief Financial Officer, Mr.
Edmond Cheng and, as a result of the Combination, internal control
over financial reporting and risk management is now overseen by an
audit committee with significant experience in overseeing the
preparation of financial statements in accordance with U.S. GAAP
and compliance with SEC reporting requirements. In addition, we
intend to hire additional personnel with greater familiarity with
U.S. GAAP and SEC reporting requirements. With the assistance of
outside consultants, we plan to (i) further develop and implement
formal policies, processes and documentation procedures relating to
our financial reporting as well as (ii) address the accounting
function’s staffing needs and training and strengthen our internal
control processes. This material weakness will not be considered
remediated until management completes the design and implementation
of the measures described above and the controls operate for a
sufficient period of time and management has concluded that these
controls are effective.
Key
Factors Affecting Operating Results
Impact
of COVID-19 Pandemic on the Company
The
COVID-19 pandemic and associated containment measures have caused
economic and financial disruptions globally, affecting regions in
which we sell our ECVs and conduct our business operations. We are
unable to predict the full impact the pandemic may have on our
results of operations, financial condition, liquidity, and cash
flows due to numerous uncertainties, including the progression of
the pandemic, governmental and other responses, as well as the
resulting supply shortages and macroeconomic impacts, including
price inflation. In addition, new variant strains of COVID-19 have
emerged in different locations around the world, including the
Omicron variant and its new subvariants. The impact of the Omicron
subvariants and other COVID variants cannot be predicted at this
time and could depend on numerous factors, including vaccination
rates among the population, the effectiveness of COVID-19 vaccines
against new variants and the response by governmental bodies and
regulators.
We are
also unable to predict the extent of the impact of the pandemic on
our customers, suppliers, and other partners, which could
materially adversely affect demand for our ECVs and our results of
operations and financial condition. For the years ended December
31, 2021 and 2020, the COVID-19 pandemic contributed to uncertainty
in the demand environment for our ECVs. Our business was adversely
affected by supply constraints resulting from the pandemic that
affected the timing of shipments of certain components and ECVs in
desired quantities or configurations. During the early stages of
the pandemic, our facilities were completely closed for more than
one month, our ability to ship into the European Union was halted
and we had no new orders for our ECVs between March 2020 through
October 2020. Additionally, the pandemic negatively impacted our
channel partner network, including opportunities to grow the
network, and most of our channel partners at least temporarily shut
down their businesses. During the year ended December 31, 2021, our
business was negatively impacted by the resurgence of COVID-19. Our
supply chains and manufacturing were impacted by lock-downs and
containment measures implemented by local governments. As a result,
production lead times for our existing models as well as the
release dates of our new models were extended. Additional
COVID-related precautionary measures taken at ports have resulted
in delays in customs clearing.
Measures
taken to contain the COVID-19 pandemic, such as travel
restrictions, quarantines, shelter-in-place, and shutdowns, have
affected and may continue to affect our workforce and operations,
and those of our vendors, suppliers, and channel and manufacturing
partners. Restrictions on our operations or workforce, or similar
limitations for others, may affect our ability to meet customer
demand. We have taken and will continue to take risk mitigation
actions that we believe are in the best interests of our employees,
customers, suppliers, and other partners. Work-from-home and other
measures may create additional operational risks, including
heightened cybersecurity risks. These measures may not be
sufficient to mitigate the risks posed by the virus, and illness
and workforce disruptions could lead to unavailability of key
personnel and impair our ability to perform critical
functions.
We are
closely monitoring the development of the COVID-19 pandemic. The
COVID-19 pandemic may continue to cause disruption and volatility
in the global debt and capital markets, which may increase our cost
of capital and adversely affect our access to capital. The COVID-19
pandemic may adversely affect our business, results of operations,
and financial condition and it also may have the effect of
exacerbating the other risks discussed in the “Risk Factors”
section included herein. Developments related to the COVID-19
pandemic have been unpredictable, and additional impacts and risks
may arise that we are not aware of or are not able to respond to in
an effective manner.
Shortages of Shipping Containers and Certain Components and Raw
Materials
We rely
heavily on the international shipping industry to transport our
vehicles from our facilities (and those of our manufacturing
partners) in China to our local assembly facilities and channel
partners around the world. There is currently a shortage of
shipping capacity from China and other parts of Asia, and as a
result, our ability to deliver our ECV units to our channel
partners has been disrupted and delayed. Over the past year, the
strong rise in demand for Chinese exports has outpaced the
availability of containers in Asia, creating a container shortage
and significant backlogs in many freight markets around the world,
including the U.S., the Middle East, and East Asia. These container
shortages at Asian ports have exacerbated supply bottlenecks and
further increased shipping costs, by up to 400% in some regions. As
a result, companies in Asia have reported paying premium rates.
These shortages of shipping containers, indirectly as a result of
the COVID-19 pandemic, have caused us to incur increased
transportation costs and led to inefficient order fulfillment and
order backlog during the year ended December 31, 2021. This
challenge has impacted the timing of sales to some of our customers
as we work to manage product availability and in certain cases
adjust orders and shipping with our suppliers, manufacturing
partners and customers. Additionally, the cost of shipping from
China to local markets in North America and Europe have each
increased substantially between March 2020 and December 2021.
Additionally, our ECVs use various raw materials including
aluminum, steel, carbon fiber, non-ferrous metals such as copper,
lithium, nickel and cobalt, as well as key component inputs such as
semiconductors. The prices for these raw materials fluctuate
depending on factors beyond our control, including market
conditions and global demand for these materials, and have
adversely affect our business and operating results. For instance,
the automotive industry has been facing a significant shortage of
semiconductors due to the impact of COVID-19. The global
semiconductor supply shortage is having wide-ranging effects across
multiple industries, particularly the automotive industry, and it
has impacted multiple suppliers that incorporate semiconductors
into the parts they supply to us. Due to shortages related to the
impact of COVID-19 and other factors, our vendors are also
experiencing substantial increases in the price of commodities such
as steel and lithium, which are key raw materials in the
manufacture of our chassis and batteries, respectively. Over the
past two years, beginning with the COVID-19 crisis in early 2020,
lithium-ion battery shortages have increased lead times for
procurement and caused significant price increases over such
period.
Such
shortages have had, and will continue to have, a negative impact on
vehicle production, gross profit margin, product delivery time and
revenue recognition. Our operating results for the year ended
December 31, 2021 have been significantly impacted by such
shortages and we expect such shortages to continue for the
foreseeable future.
In order
to reduce the risk of international shipping disruptions and supply
chain concentration, we are considering diversification to reduce
our supply chain’s dependency in Asia, using more local suppliers,
and producing some critical components, such as lithium battery by
ourselves outside of China. Such considerations may introduce
short-term challenges on quality assurance, material risk, and
local government approvals, but would allow the Company to have
procurement and production localizations that are mostly supported
by local governments in the long run.
New ECV
Models
Recently,
we introduced four new ECV models, each of which are designed for
specific geographic markets and to address additional commercial
applications. The Logistar™ 400 is a U.S. Class 4 (over 14,000
lbs.) medium-duty electric commercial truck designed to meet U.S.
city delivery and service needs. The Logistar™ 400 is offered in
four configurations: cargo-box, van, flatbed truck, and basic
chassis for upfitters. The Logistar™ 200 is a European Union N1
Class electric commercial vehicle designed to meet the European
Union’s city delivery and city service requirements. The Logistar™
200 was homologated in the European Union in January 2022 and first
became commercially available in the European market in February
2022. The Neibor® 150 is a European Union and UK L7e (heavy
quadricycle) Class compact electric commercial vehicle designed to
meet European neighborhood delivery and neighborhood service needs.
The Neibor® 150 was homologated in December 2022 and first became
commercially available in the European market in March 2022. We
have also developed the Teemak™, an off-road electric commercial
vehicle with essentially no homologation requirements in the United
States and limited certification requirements and are developing
the Neibor® 300, a European Union and UK L7e (heavy quadricycle)
Class compact electric commercial vehicle designed to complement
the smaller Neibor® 150. The Teemak™ first became commercially
available in the United States in December 2021. See “Risk
Factors-Risks Related to Our Business and Financial Results-Our
future success depends on our ability to introduce new models and
we may experience delays in launching and ramping up production of
our new ECV models.”
We have
also developed the ePortee™, which we also refer to as the Cenntro
iChassis, an open-platform and programmable chassis product. The
Cenntro iChassis is designed to be a basic modular building block
for use by automakers and special vehicle upfitters in the design
of automated or autonomous driving vehicles. Through our
advancements in vehicle digitization and smart components, we have
equipped the Cenntro iChassis with digital control capabilities.
The Cenntro iChassis allows third-party developers to integrate
detection devices (i.e., lidar, radar, ultra-sound, infrared and
other sensory devices) and third-party or proprietary
decision-making software to allow for vehicles based on the
programmable chassis to be driven autonomously.
A. Key Components
of Results of Operations
Net revenues
We
generate revenue primarily through the sale of ECVs to our channel
partners. Historically, these revenues were generated solely by the
sale of the Metro® but we recently began generating revenue from
the sales of the Logistar™ 200 in Europe.
Net
revenues during the years of 2021, 2020 and 2019 were generated
from (a) vehicles sales, which primarily represent net revenues
from sales of Metro® vehicles (including vehicle kits), (b) sales
of ECV spare-parts related to our Metro® vehicles, and (c) other
sales, which primarily relate to: (i) sales of ECV batteries to
certain customers and (ii) charges on services provided to channel
partners for technical developments and assistance with vehicle
homologation or certification.
Cost of goods sold
Cost of
goods sold mainly consists of production-related costs including
costs of raw materials, consumables, direct labor, overhead costs,
depreciation of plants and equipment, manufacturing waste treatment
processing fees and inventory write-downs. We incur cost of goods
sold in relation to (i) vehicle sales and spare-part sales,
including, among others, purchases of raw materials, labor costs,
and manufacturing expenses that relate to ECVs, and (ii) other
sales, including cost and expenses that are not related to ECV
sales. We believe the average cost per vehicle may continue to
decrease because we expect our cost of materials and parts to
decrease as our vehicle production volume increases. However, in
the short term, certain components and materials may increase in
price due to shortages of certain input components such as battery
packs and semiconductors. We also anticipate the price of battery
packs, the largest portion of our vehicle production cost, will
decrease in the long-term, though prices have increased and may
continue to increase in the near-term due to the rising price of
lithium as a result of COVID-19 and other factors.
Inventories are stated at the lower of cost or net realizable
value. The cost of raw materials is determined on the basis of
weighted average. The cost of finished goods is determined on the
basis of weighted average and is comprised of direct materials,
direct labor cost and an appropriate proportion of overhead. Net
realizable value is based on estimated selling prices less selling
expenses and any further costs of completion. Adjustments to reduce
the cost of inventory to net realizable value are made, if
required, for estimated excess, obsolescence, or impaired balances.
Write-downs are recorded in the cost of goods sold in our
statements of operations and comprehensive loss.
Operating expenses
Our
operating expenses consist of general and administrative, selling
and marketing expenses, and research and development expenses.
General and administrative expenses are the most significant
components of our operating expenses. Operating expenses also
include provision for doubtful accounts.
Research
and Development Expenses
Research
and development expenses consist primarily of employee compensation
and related expenses, prototype expenses, costs associated with
assets acquired for research and development, product development
costs, production inspection and testing expenses, product
strategic advisory fees, third-party engineering and contractor
support costs and allocated overhead. We expect our research and
development expenses to increase as we continue to invest in new
ECV models, new materials and techniques, vehicle management and
control systems, digital control capabilities and other
technologies.
Selling
and Marketing Expenses
Selling
and marketing expenses consist primarily of employee compensation
and related expenses, sales commissions, marketing programs,
freight costs, travel and entertainment expenses and allocated
overhead. Marketing programs consist of advertising, tradeshows,
events, corporate communications and brand-building activities. We
expect our selling and marketing expenses to increase as we
introduce our new ECV models, further develop additional channel
partners and expand our sales globally.
General
and Administrative Expenses
General
and administrative expenses consist primarily of employee
compensation and related expenses for administrative functions
including finance, legal, human resources and fees for third-party
professional services, and allocated overhead. While we will
continue to monitor general and administrative expenses, we expect
general and administrative expenses to materially increase over the
next two years in connection with the execution of our growth
strategy, including the regionalization of our manufacturing and
supply chain, expanded product offerings and expenses relating to
being a public company.
Provision for doubtful accounts
A
provision for doubtful accounts is recorded for periods in which we
determine a loss on a receivable is probable, based on our
assessment of specific factors, such as troubled collections,
historical experience, aging accounts, ongoing business relations
and other factors. Account balances are charged off against the
provision after all means of collection have been exhausted and the
potential for recovery is considered remote.
Other income (expenses)
Interest
expense, net
Interest
expense, net, consists of interest on outstanding loans and other
borrowings.
Gain
from disposal of land use rights and properties
Land in
China is owned by the government and land ownership rights cannot
be sold to an individual or to a private company. However, the
Chinese government grants the user a “land use right” to use the
land. On November 9, 2020, we sold our land use rights and
properties related to the Shengzhou facility to a third party for
an aggregate amount of approximately $34.3 million and recognized a
gain of approximately $7.0 million for the year ended December 31,
2020.
Income
(loss) from and impairment on equity method investments
Entities
over which we have the ability to exercise significant influence
but do not have a controlling interest through investment in common
shares, or in-substance common shares, are accounted for using the
equity method. Under the equity method, we initially record our
investment at cost and subsequently recognize our proportionate
share of each such entity’s net income or loss after the date of
investment into our statements of operations and comprehensive loss
and accordingly adjust the carrying amount of the investment. When
our share of losses in the equity of such entity equals or exceeds
our interest in the equity of such entity, we do not recognize
further losses, unless we have incurred obligations or made
payments or guarantees on behalf of such entity. An impairment
charge is recorded when the carrying amount of the investment
exceeds its fair value and this condition is determined to be
other-than-temporary. The adjusted carrying amount of the assets
become new cost basis.
Key
Operating Metrics
We
prepare and analyze operating and financial data to assess the
performance of our business and allocate our resources. The
following table sets forth our key performance indicators for the
years ended December 31, 2021, 2020 and 2019.
| |
|
Year ended
December 30
|
|
| |
|
2021
|
|
|
2020
|
|
|
2019
|
|
| |
|
(Unaudited)
|
|
|
Gross
margin of Metro® vehicle sales
|
|
|
14.6
|
%
|
|
|
9.7
|
%
|
|
|
-7.9
|
%
|
|
Adjusted
EBITDA
|
|
$
|
(7,032,550
|
)
|
|
$
|
(5,585,622
|
)
|
|
$
|
(11,451,897
|
)
|
Gross margin of vehicle sales. Gross
margin of vehicle sales is defined as gross profit of vehicle sales
divided by total revenue of vehicle sales.
Adjusted EBITDA. We define Adjusted
EBITDA as net (loss)/income before net interest expense, income tax
expense and depreciation and amortization as further adjusted to
exclude the impact of stock-based compensation expense and
non-recurring or extraordinary expenses, losses, charges or gains.
We caution investors that amounts presented in accordance with our
definition of Adjusted EBITDA may not be comparable to similar
measures disclosed by our competitors because not all companies and
analysts calculate Adjusted EBITDA in the same manner. We present
Adjusted EBITDA because we consider it to be an important
supplemental measure of our performance and believe it is
frequently used by securities analysts, investors, and other
interested parties in the evaluation of companies in our industry.
Management believes that investors’ understanding of our
performance is enhanced by including this non-GAAP financial
measure as a reasonable basis for comparing our ongoing results of
operations. See “-Non-GAAP Financial Measures and Non-IFRS
Financial Information.”
Results
of Operations
The
following table sets forth a summary of our statements of
operations for the periods indicated:
|
|
|
Year Ended
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(Expressed
in U.S. Dollars)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
|
8,576,832
|
|
|
|
5,460,003
|
|
|
|
3,575,887
|
|
|
Cost of
goods sold
|
|
|
(7,073,391
|
)
|
|
|
(4,889,850
|
)
|
|
|
(3,699,741
|
)
|
|
Gross profit/(loss)
|
|
|
1,503,441
|
|
|
|
570,153
|
|
|
|
(123,854
|
)
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and marketing expenses
|
|
|
(1,034,242
|
)
|
|
|
(783,763
|
)
|
|
|
(964,471
|
)
|
|
General
and administrative expenses
|
|
|
(14,978,897
|
)
|
|
|
(8,735,534
|
)
|
|
|
(10,959,203
|
)
|
|
Research
and development expenses
|
|
|
(1,478,256
|
)
|
|
|
(1,365,380
|
)
|
|
|
(2,145,884
|
)
|
|
Provision for doubtful accounts
|
|
|
(469,702
|
)
|
|
|
(319,816
|
)
|
|
|
(3,598,506
|
)
|
|
Total
operating expenses
|
|
|
(17,961,097
|
)
|
|
|
(11,204,493
|
)
|
|
|
(17,668,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(16,457,656
|
)
|
|
|
(10,634,340
|
)
|
|
|
(17,791,918
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(1,069,581
|
)
|
|
|
(1,411,558
|
)
|
|
|
(1,058,795
|
)
|
|
Income
(loss) from and impairment on equity method investments
|
|
|
15,167
|
|
|
|
(330,103
|
)
|
|
|
(1,235,306
|
)
|
|
Gain
from disposal of land use rights and properties
|
|
|
-
|
|
|
|
7,005,446
|
|
|
|
-
|
|
|
Other
income, net
|
|
|
1,090,263
|
|
|
|
173,624
|
|
|
|
580,549
|
|
|
Loss
before income taxes
|
|
|
(16,421,807
|
)
|
|
|
(5,196,931
|
)
|
|
|
(19,505,470
|
)
|
|
Income
tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Net loss
|
|
|
(16,421,807
|
)
|
|
|
(5,196,931
|
)
|
|
|
(19,505,470
|
)
|
|
Less:
net loss attributable to non-controlling interests
|
|
|
-
|
|
|
|
(31,039
|
)
|
|
|
(39,455
|
)
|
|
Net loss attributable to the Company’s shareholders
|
|
|
(16,421,807
|
)
|
|
|
(5,165,892
|
)
|
|
|
(19,466,015
|
)
|
Net Revenues
The
following table presents our net revenue components by amount and
as a percentage of the total net revenues for the periods
presented.
|
|
|
Year Ended
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(Expressed
in U.S. Dollars)
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle
Sales
|
|
$
|
7,287,478
|
|
|
|
84.97
|
%
|
|
$
|
5,037,454
|
|
|
|
92.26
|
%
|
|
$
|
3,224,794
|
|
|
|
90.18
|
%
|
|
Spare-part sales
|
|
|
195,350
|
|
|
|
2.28
|
%
|
|
|
163,142
|
|
|
|
2.99
|
%
|
|
|
257,303
|
|
|
|
7.20
|
%
|
|
Other
sales
|
|
|
1,094,004
|
|
|
|
12.75
|
%
|
|
|
259,407
|
|
|
|
4.75
|
%
|
|
|
93,790
|
|
|
|
2.62
|
%
|
|
Total net revenues
|
|
$
|
8,576,832
|
|
|
|
100.00
|
%
|
|
$
|
5,460,003
|
|
|
|
100
|
%
|
|
$
|
3,575,887
|
|
|
|
100
|
%
|
Net
revenues for the year ended December 31, 2021 was approximately
$8.6 million, an increase of $3.1 million or approximately 57.1%
from approximately $5.5 million for the year ended December 31,
2020. The increase in net revenues in 2021 was primarily attributed
to (i) an increase in vehicle sales of approximately $2.3 million
primarily attributable to a 53.5% increase in Metro® units sold,
(ii) an increase in service revenue of $0.8 million, primarily
attributable to ECV design services provided to third
parties.
For the
year ended December 31, 2021, we sold 918 ECVs, including 816
Metro® vehicle kits, 88 fully assembled Metro® vehicle kits and 14
fully assembled Logistar® 200 units, compared with 707 ECVs for the
year ended December 31, 2020, including 467 Metro® vehicle kits,
122 fully assembled Metro® units and 118 smaller ECVs manufactured
by Zhejiang Xbean.
For the
year ended December 31, 2021, net revenues from vehicle sales in
Europe, North America, and Asia (including China) as a percentage
of total vehicle net revenues was 57.1%, 34.2% and 8.1%,
respectively, compared to 79.0%, 14.0%, and 7.0%, respectively, for
the corresponding period in 2020.
Net
revenues for the year ended December 31, 2020 were approximately
$5.5 million, an increase of $1.9 million or approximately 52.7%
from approximately $3.6 million for the year ended December 31,
2019. The increase in net revenues in 2020 was primarily attributed
to an increase in vehicle sales of approximately $1.8 million,
including an increase of approximately 80.9% in the sale of Metro®
units.
For the
year ended December 31, 2020, we sold 707 ECVs, including 467
Metro® vehicle kits, 122 fully assembled Metro® units and 118
smaller ECVs manufactured by Zhejiang Xbean for sale and
distribution in China, compared with 342 ECVs for the year ended
December 31, 2019, including 271 Metro® vehicle kits, 53 fully
assembled Metro® units and 18 smaller ECVs manufactured by Zhejiang
Xbean. Starting in 2019, we improved our Metro® vehicles by
upgrading battery components (such as including lithium-ion
batteries) and adding features such as airbags, air conditioning
and advanced brake systems. In 2020, we continued to distribute two
customized variations of the Metro® (ABLE and 411) to our “private
label” channel partners.
Geographically, the vast majority of our net revenues were
generated from vehicle sales in the European Union for the years
ended December 31, 2020 and 2019. For the year ended December 31,
2020, net revenues from vehicle sales in Europe, North America, and
Asia (including China) as a percentage of total vehicle net
revenues was 79.0%, 14.0%, and 7.0%, respectively, compared to
86.9%, 10.1%, and 3.0%, respectively for the corresponding period
in 2019.
Cost of goods sold
The
following table presents our cost of goods sold by amount and as a
percentage of the total cost of goods sold for the periods
presented.
|
|
|
Year Ended
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
|
|
(Expressed
in U.S. Dollars)
|
|
|
Cost of goods sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vehicle
Sales
|
|
$
|
(4,895,457
|
)
|
|
|
69.21
|
%
|
|
$
|
(3,775,973
|
)
|
|
|
77.22
|
%
|
|
$
|
(2,506,744
|
)
|
|
|
67.75
|
%
|
|
Spare-part sales
|
|
|
(189,664
|
)
|
|
|
2.68
|
%
|
|
|
(100,853
|
)
|
|
|
2.06
|
%
|
|
|
(197,438
|
)
|
|
|
5.34
|
%
|
|
Other
sales
|
|
|
(722,380
|
)
|
|
|
10.21
|
%
|
|
|
(293,416
|
)
|
|
|
6.00
|
%
|
|
|
(36,225
|
)
|
|
|
0.98
|
%
|
|
Inventory write-down
|
|
|
(1,265,890
|
)
|
|
|
17.90
|
%
|
|
|
(719,608
|
)
|
|
|
14.72
|
%
|
|
|
(959,334
|
)
|
|
|
25.93
|
%
|
|
Total cost of goods sold
|
|
$
|
(7,073,391
|
)
|
|
|
100.00
|
%
|
|
$
|
(4,889,850
|
)
|
|
|
100.00
|
%
|
|
$
|
(3,699,741
|
)
|
|
|
100
|
%
|
Cost of
goods sold for the year ended December 31, 2021 was approximately
$7.1 million, an increase of approximately $2.2 million or
approximately 44.7% from approximately $4.9 million for the year
ended December 31, 2020. The increase in cost of goods sold in 2021
was primarily attributed to an increase in the number of vehicles
sold to our channel partners, including an increase of
approximately 53.5% of Metro® units sold.
Inventory
write-downs for the year ended December 31, 2021 were approximately
$1.3 million, an increase of approximately $0.6 million or
approximately 75.9% from approximately $0.7 million for the year
ended December 31, 2020. The increase in inventory write-downs in
2021 primarily resulted from (i) the further assessment of
inventory following the relocation of the Shengzhou facility to
Changxing from March 2021 to April 2021 and (ii) technical upgrades
that resulted in the obsolescence of certain of our
inventory.
Cost of
goods sold for the year ended December 31, 2020 was approximately
$4.9 million, an increase of approximately $1.2 million or
approximately 32.2% from approximately $3.7 million for the year
ended December 31, 2019. The increase in cost of goods sold in 2020
was primarily attributable to the increase of number of vehicles
sold to our channel partners in 2020 compared to 2019, including an
increase of approximately 75.1% of Metro® units sold. The increase
in cost of goods sold for the year ended December 31, 2020 was
partially offset by a decrease in the write-downs of raw material
inventories, more cost-effective features in the production of the
Metro® in 2020, declining battery prices, and the retention of more
highly skilled manufacturing personnel.
Inventory
write-downs for the year ended December 31, 2020 were approximately
$0.7 million, a decrease of approximately $0.3 million or
approximately 25.0% from approximately $1.0 million for the year
ended December 31, 2019. The decrease in inventory write-downs in
2020 primarily resulted from less obsolete inventories and improved
inventory control based on aging and production requirements. In
the second half of the year ended December 31, 2018, we implemented
stricter inventory control policies, reducing the inventory
turnover cycle.
Gross Profit/(Loss)
Gross
profit for the year ended December 31, 2021 was approximately $1.5
million, an increase of approximately $0.9 million from
approximately $0.6 million of gross profit for the year ended
December 31, 2020. For the years ended December 31, 2021 and 2020,
our overall gross margin was approximately 17.5% and approximately
10.4%, respectively, and our gross margin for Metro® vehicle sales
was approximately 14.6% and approximately 9.7%, respectively. The
increase in our overall gross margin of approximately 7.1
percentage points in 2021 was primarily driven by (i) an increase
in sales volume of our Metro® vehicles especially in the US market
and (ii) an increase in service revenue.
Gross
profit for the year ended December 31, 2020 was approximately $0.6
million, an increase of approximately $0.7 million from
approximately $0.1 million of gross loss for the year ended
December 31, 2019. For the years ended December 31, 2020 and 2019,
our overall gross margin was approximately 10.4% and approximately
(3.5)%, respectively, and our gross margin for Metro® vehicle sales
was approximately 25.0% and approximately 22.3%, respectively. The
increase in our overall gross margin of approximately 13.9
percentage points in 2020 was primarily driven by an increase of
sales volume of our Metro® vehicles, a reduction of the cost of
goods sold per vehicle primarily attributable to declining battery
prices and a decrease of obsolete inventory.
Selling and Marketing Expenses
Selling
and marketing expenses for the year ended December 31, 2021 were
approximately $1.0 million, an increase of approximately $0.2
million or approximately 32.0% from approximately $0.8 million for
the year ended December 31, 2020. The increase in selling and
marketing expenses in 2021 was primarily attributed to an increase
in freight costs of $0.2 million primarily related to shortages
caused by COVID-19 and an increase in marketing expenses of
approximately $0.3 million in connection with our efforts to expand
our product market and develop additional channel partners. The
increase in selling and marketing expense was offset by the
decrease in share-based compensation of approximately $0.2 million
related to the non-recurrence of vesting related to options grants
to sales personnel under our 2016 Option Plan in 2021.
Selling
and marketing expenses for the year ended December 31, 2020 were
approximately $0.8 million, a decrease of approximately $0.2
million or approximately 18.7% from approximately $1.0 million for
the year ended December 31, 2019. The decrease in selling and
marketing expenses in 2020 was primarily attributed to reduced
freight costs and traveling expenses, particularly in light of
COVID-19 and a decrease in salary expense of approximately $0.1
million, $0.1 million, and $0.1 million, respectively. In 2020, the
vast majority of our Metro® vehicles (including vehicle kits) were
sold into the European Union and U.S. markets based on FOB terms
where freight costs are borne by our channel partners, compared
with sales in Asia especially in China where usually shipping
expenses are borne by us. In 2019, we incurred initial marketing
expenses related to the launch of the Metro®, including trade shows
and establishing relationships with our channel partners that were
not repeated in 2020.
General and Administrative Expenses
General
and administrative expenses for the year ended December 31, 2021
were approximately $15.0 million, an increase of approximately $6.2
million or approximately 71.5% from approximately $8.7 million for
the year ended December 31, 2020. The increase in general and
administrative expenses in 2021 was primarily attributable to
increases in expenses related to (i) an increase in fees and
expenses of approximately $6.7 million related the Combination and
Cenntro’s potential IPO, and (ii) salaries of approximately $2.1
million as the Company expanded its administrative operations in
the US. This increase in general and administrative expenses in
2021 was offset by the decrease in (i) depreciation expense of $1.2
million, resulting from the disposal of the Company’s land use
rights, plant and properties related to the Shengzhou facility for
the year ended December 31, 2020, and (ii) share-based compensation
of $1.6 million related to the non-recurrence of vesting related to
options grants to sales personnel under our 2016 Option Plan in
2021.
General
and administrative expenses for the year ended December 31, 2020
were approximately $8.7 million, a decrease of approximately $2.3
million or approximately 20.3% from approximately $11.0 million for
the year ended December 31, 2019. The decrease in general and
administrative expenses in 2020 was primarily attributable to a
decrease in salary and other related expenses of approximately $0.6
million and a decrease in share-based compensation expense of
approximately $1.6 million, as material portions of the options
granted to our employees in 2016 were fully vested during the year
ended December 31, 2019. The decrease in salary and related
expenses in 2020 was primarily attributable to our efforts to
maintain effective and efficient levels of personnel and improved
operating efficiencies, particularly in light of the COVID-19
pandemic.
Research and Development Expenses
Research
and development expenses for the year ended December 31, 2021 were
approximately $1.5 million, an increase of approximately $0.1
million or approximately 8.3% from approximately $1.4 million for
the year ended December 31, 2020. The increase in research and
development expenses in 2021 was primarily due to increases in the
design and development expenses and salary expenses of
approximately $0.5 million and $0.1 million, respectively. This
increase in research and development expenses was offset by a
decrease of share-based compensation expense of approximately $0.5
million.
Research
and development expenses for the year ended December 31, 2020 were
approximately $1.4 million, a decrease of approximately $0.8
million or approximately 36.3% from approximately $2.2 million for
the year ended December 31, 2019. The decrease in research and
development expenses in 2020 was primarily due to reduced salary
and employee benefit expenses of approximately $0.5 million and
decreased product inspection and testing expenses of approximately
$0.3 million. We incurred research and development expenses in 2019
related to internal road testing for the lithium-ion
battery-powered Metro® ECV that was not repeated in 2020. Research
and development expenses included share-based compensation expense
of approximately $0.6 million for each of the years ended December
31, 2020 and 2019.
Provision for doubtful accounts
Provision
for doubtful accounts for the year ended December 31, 2021 was
approximately $0.5 million, an increase of approximately $0.2
million or approximately 46.9% from approximately $0.3 million for
the year ended December 31, 2020. The increase in the provision for
doubtful accounts in 2021 primarily resulted from the additional
provision of approximately $0.4 million provided to the accounts
receivable related to a single customer, offset by the decrease of
provisions provided to accounts receivable of our general customer
base as the Company adopted stricter policies related to accounts
receivable collection and higher deposit requirements for sales
orders with shorter receivable terms.
Provision
for doubtful accounts for the year ended December 31, 2020 was
approximately $0.3 million, a decrease of approximately $3.3
million or approximately 91.1% from approximately $3.6 million for
the year ended December 31, 2019. The decrease in the provision for
doubtful accounts in 2020 primarily resulted from the nonrecurrence
of provision for doubtful accounts in 2019 related to the low
probability of collection of a $2.4 million non-refundable deposit
and $1.0 million of accounts receivable related to sales to a
single customer in 2018. The $2.4 million provision in 2019 related
to the low probability of collection of a non-refundable deposit
Hangzhou Ronda Tech Co., Limited (“Ronda”) made to participate in
the bankruptcy process of Anhua Automotive Co. Ltd., (“Anhua”) in
2018. We participated in the bankruptcy in an effort to further
develop production capacity in China. However, due to the
deterioration of Anhua’s operations and our focus on sales into the
European Union and North America markets, we ceased further
participation in the bankruptcy process in December 2019. As a
result, we recorded full provision of the $2.4 million deposit for
the year ended December 31, 2019. The $1.0 million provision to
accounts receivable in 2019 was mainly related to the sales to a
single customer in 2018, following our commercially reasonable
efforts to collect the outstanding receivable. In the second half
of 2018, we adopted stricter policies related to accounts
receivable collection and required higher deposit requirements for
sales orders with shorter receivable terms.
Interest expense, net
Interest
expense, net, consists of interest on outstanding loans and other
borrowings. Net interest expense was approximately $1.1 million for
the year ended December 31, 2021, a decrease of approximately $0.3
million or approximately 24.2% compared to the approximately $1.4
million in net interest expense for the year ended December 31,
2020. The decrease was primarily attributable to the non-recurrence
of interest expense of approximately $0.8 million for the year
ended December 31, 2020 relating to bank loans that we fully repaid
in November 2020 and was offset by interest expense of
approximately $0.5 million that accrued to NBG prior to the closing
of the Combination. In connection with the Combination, NBG
provided Cenntro with a $30 million bridge loan (the “NBG Bridge
Loan”). Following the closing of the Combination, the NBG Bridge
Loan became intercompany indebtedness and, as a result, has been
eliminated in the consolidation of the Company’s financial
results.
Net
interest expense was approximately $1.4 million for the year ended
December 31, 2020, an increase of approximately $0.3 million or
approximately 33.3% compared to the approximately $1.1 million in
interest expense for the year ended December 31, 2019. The increase
was primarily attributable to additional interest accrued related
to financings from related parties and third parties.
Gain from disposal of land use rights and properties
There was
no gain from the disposal of land use rights and properties for the
year ended December 31, 2021.
For the
year ended December 31, 2020, Shengzhou Cenntro Machinery Co.,
Limited (“Shengzhou Machinery”) recognized a gain of approximately
$7.0 million resulting from the sale of land use rights and
properties relating to our Shengzhou facility. Our initial
acquisition cost of land use rights and properties was $37.4
million and the net value of such land use rights and properties,
after depreciation and amortization, was approximately $28.8
million. As of December 31, 2021, we received all the consideration
from the sale of land use rights and properties of approximately
$36.7 million.
Income (loss) from and impairment on equity method
investments
Income
from equity method investments was $0.02 million for the year ended
December 31, 2021, representing an increase of approximately $0.4
million or approximately 104.6% from a loss due to the impairment
on equity method investments of approximately $0.3 million for the
year ended December 31, 2020. The income from equity method
investments for the year ended December 31, 2021 is primarily
attributable to (i) profits related to our 20% equity interest
investment in Hangzhou Hezhe Energy Technology Co., Ltd. for the
year ended December 31, 2021 and (ii) the non-recurrence of
impairment charges recognized for the year ended December 31, 2020
of approximately $0.3 million.
Loss from
and impairment on equity method investments decreased approximately
$0.9 million or approximately 73.3% from approximately $1.2 million
for the year ended December 31, 2019 to approximately $0.3 million
for the year ended December 31, 2020. The decrease in 2020
primarily resulted from various investments made in 2018 in
industry-related long-term ventures that required impairment in
2019. Since 2019, we have significantly reduced outbound
investments in long-term industry-related ventures.
Other income, net
Other
income, net for the year ended December 31, 2021 was approximately
$1.1 million, representing an increase of approximately $0.9
million or approximately 527.9 % compared to approximately $0.2
million for the year ended December 31, 2020. The increase of other
income in 2021 compared to 2020 was primarily attributable to
increases of approximately $0.5 million resulting from the disposal
of our investment in Zhejiang Doohan Tech. Co. Ltd. in 2021, gain
on disposal of low-value consumables of approximately $0.3 million
in 2021, and gain on disposal of machinery and equipment of
approximately $0.1 million in 2021.
Other
income, net for the year ended December 31, 2020 was approximately
$0.2 million, representing a decrease of approximately $0.4 million
or approximately 70.1% compared to approximately $0.6 million for
the year ended December 31, 2019. The decrease of other income in
2020 compared to 2019 was primarily attributable to the
nonrecurrence of gain on investments of approximately $0.8 million
from the sale of our 6.6% shareholdings in one of our long-term
ventures, offset by an increase in rental income of $0.3 million
and a reduced loss on obsolete asset disposal of $0.1
million.
Non-GAAP
Financial Measures and Non-IFRS Financial Information
Adjusted EBITDA for the Years Ended December 31, 2021, 2020 and
2019
In
addition to our results determined in accordance with U.S. GAAP, we
believe Adjusted EBITDA, a non-GAAP measure is useful in evaluating
operational performance. We use Adjusted EBITDA to evaluate ongoing
operations and for internal planning and forecasting purposes. We
believe that non-GAAP financial information, when taken
collectively, may be helpful to investors in assessing operating
performance.
Adjusted
EBITDA is a supplemental measure of our performance that is not
required by, or presented in accordance with, U.S. GAAP. Adjusted
EBITDA is not a measurement of our financial performance under U.S.
GAAP and should not be considered as an alternative to net income
or any other performance measure derived in accordance with U.S.
GAAP. We define Adjusted EBITDA as net income (or net loss) before
net interest expense, income tax expense, and depreciation and
amortization, as further adjusted to exclude the impact of
stock-based compensation expense and other non-recurring or
extraordinary expenses, losses, charges or gains.
We
present Adjusted EBITDA because we consider it to be an important
supplemental measure of our performance and believe it is
frequently used by securities analysts, investors, and other
interested parties in the evaluation of companies in our industry.
Management believes that investors’ understanding of our
performance is enhanced by including this non-GAAP financial
measure as a reasonable basis for comparing our ongoing results of
operations. Management uses Adjusted EBITDA:
| |
• |
as a measurement of operating
performance because it assists us in comparing the operating
performance of our business on a consistent basis, as it removes
the impact of items not directly resulting from our core
operations;
|
| |
• |
to evaluate the performance and
effectiveness of our operational strategies; and
|
| |
• |
to evaluate our capacity to
expand our business.
|
By
providing this non-GAAP financial measure, together with the
reconciliation, we believe we are enhancing investors’
understanding of our business and our results of operations, as
well as assisting investors in evaluating how well we are executing
our strategic initiatives. We caution investors that amounts
presented in accordance with our definition of Adjusted EBITDA may
not be comparable to similar measures disclosed by our competitors
because not all companies and analysts calculate Adjusted EBITDA in
the same manner. Adjusted EBITDA has limitations as an analytical
tool, and should not be considered in isolation, or as an
alternative to, or a substitute for net income or other financial
statement data presented in our financial statements as indicators
of financial performance. Some of the limitations are:
| |
• |
such measures do not reflect our
cash expenditures;
|
| |
• |
such measures do not reflect
changes in, or cash requirements for, our working capital
needs;
|
| |
• |
although depreciation and
amortization are recurring, non-cash charges, the assets being
depreciated and amortized will often have to be replaced in the
future and such measures do not reflect any cash requirements for
such replacements; and
|
| |
• |
the exclusion of stock-based
compensation expense, which has been a significant recurring
expense and will continue to constitute a significant recurring
expense for the foreseeable future, as equity awards are expected
to continue to be an important component of our compensation
strategy.
|
Due
to these limitations, Adjusted EBITDA should not be considered as a
measure of discretionary cash available to us to invest in the
growth of our business. We compensate for these limitations by
relying primarily on our U.S. GAAP results and using these non-GAAP
measures only as supplemental information. As noted in the table
below, Adjusted EBITDA includes adjustments to exclude the impact
of stock-based compensation expense and other non-recurring or
extraordinary expenses, losses, charges or gains. It is reasonable
to expect that certain of these items will occur in future periods.
However, we believe these adjustments are appropriate because the
amounts recognized can vary significantly from period to period, do
not directly relate to the ongoing operations of our business and
may complicate comparisons of our internal operating results and
operating results of other companies over time. In addition,
Adjusted EBITDA may include adjustments for other items that we do
not expect to regularly occur in future reporting periods. Each of
the normal recurring adjustments and other adjustments described in
this paragraph and in the reconciliation table below help
management with a measure of our core operating performance over
time by removing items that are not related to day-to-day
operations.
The
following table reconciles Adjusted EBITDA to the most directly
comparable U.S. GAAP financial performance measure, which is net
loss:
|
|
|
Year
Ended December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2019
|
|
|
|
|
(Unaudited)
|
|
|
Net
loss
|
|
$
|
(16,421,807
|
)
|
|
$
|
(5,196,931
|
)
|
|
$
|
(19,505,470
|
)
|
|
Interest expense, net
|
|
|
1,069,581
|
|
|
|
1,411,558
|
|
|
|
1,058,795
|
|
|
Income tax expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Depreciation and amortization
|
|
|
632,256
|
|
|
|
1,840,980
|
|
|
|
2,071,269
|
|
|
Share-based compensation expense
|
|
|
1,128,325
|
|
|
|
3,364,217
|
|
|
|
4,923,509
|
|
|
Transaction expenses related to the Combination and proposed
IPO
|
|
|
6,559,095
|
|
|
|
-
|
|
|
|
-
|
|
|
Gain from disposal of land use rights and properties
|
|
|
-
|
|
|
|
(7,005,446
|
)
|
|
|
-
|
|
|
Adjusted EBITDA
|
|
$
|
(7,032,550
|
)
|
|
$
|
(5,585,622
|
)
|
|
$
|
(11,451,897
|
)
|
Presentation of U.S. GAAP financial information rather than IFRS
financial information
Our Audited Financial Statements have been prepared in accordance
with U.S. GAAP. As an Australian public limited company, we are
subject to the Corporations Act, which requires that financial
statements be prepared and audited in accordance with AAS and IFRS
and lodged with the Australian Securities and Investments
Commission (“ASIC”). The financial information in this Annual
Report (including the information in the Audited Financial
Statements) are not financial statements for the purposes of the
Corporations Act and is considered “non-IFRS financial information”
under the Australian Securities and Investment Commission’s
Regulatory Guide 230: ‘Disclosing non-IFRS financial information.’
Such non-IFRS financial information may not be comparable to
similarly titled information presented by other entities and should
not be construed as an alternative to other financial information
prepared in accordance with AAS or IFRS.
We
believe that our results determined in accordance with U.S. GAAP
(“GAAP Results”), as well as Adjusted EBITDA, a non-IFRS measure,
are useful in evaluating operational performance. We use GAAP
Results and Adjusted EBITDA to evaluate ongoing operations, for
internal planning and forecasting purposes and for informing our
investors based in the United States.
Our
GAAP Results are not a measurement of our financial performance
under IFRS and should not be considered as an alternative to
performance measures derived in accordance with IFRS.
By
providing this non-IFRS financial information, together with the
reconciliation, we believe we are enhancing investors’
understanding of our business and our results of operations, as
well as assisting investors in evaluating how well we are executing
our strategic initiatives. We caution investors that amounts
presented in accordance with U.S. GAAP may not be comparable to
similar measures presented in accordance with IFRS.
Adjusted EBITDA is not a measurement of our financial performance
under IFRS. See “-Non-GAAP Financial Measures and Non-IFRS
Financial Information- Adjusted EBITDA for the Years Ended December
31, 2021, 2020 and 2019.” The information presented thereunder as
to why management believes that investors’ understanding of our
performance is enhanced by its presentation (in addition to U.S.
GAAP financial measures), as well as the cautionary statements
thereunder, apply equally in relation to the fact that Adjusted
EBITDA is not a measurement of our financial performance under
IFRS.
The following U.S. GAAP to IFRS reconciliation tables include IFRS
information as of and for the years ended December 31, 2021 and
2020, which IFRS information was derived from the Company’s Annual
Report dated 31 December 2021 filed with ASIC in accordance with
the Corporations Act.
The following
table reconciles our audited balance sheet under U.S. GAAP with our
audited balance sheet under IFRS as of December 31, 2021 and 2020,
respectively:
|
|
|
For
the Year Ended
|
|
|
|
|
December 31, 2021
|
|
|
December 31, 2020
|
|
|
Balance Sheet:
|
|
U.S.
GAAP
|
|
|
IFRS
Difference
|
|
|
IFRS
|
|
|
U.S.
GAAP
|
|
|
IFRS
Difference
|
|
|
IFRS
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
261,069,414
|
|
|
|
-
|
|
|
$
|
261,069,414
|
|
|
$
|
4,549,034
|
|
|
|
-
|
|
|
$
|
4,549,034
|
|
|
Restricted cash
|
|
|
595,548
|
|
|
|
-
|
|
|
|
595,548
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Accounts receivable, net
|
|
|
2,047,560
|
|
|
|
-
|
|
|
|
2,047,560
|
|
|
|
463,333
|
|
|
|
-
|
|
|
|
463,333
|
|
|
Inventories
|
|
|
8,139,816
|
|
|
|
-
|
|
|
|
8,139,816
|
|
|
|
4,207,990
|
|
|
|
-
|
|
|
|
4,207,990
|
|
|
Prepayment and other current assets, net
|
|
|
7,989,607
|
|
|
|
-
|
|
|
|
7,989,607
|
|
|
|
2,087,756
|
|
|
|
-
|
|
|
|
2,087,756
|
|
|
Receivable from disposal of land use right and properties
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,724,138
|
|
|
|
-
|
|
|
|
7,724,138
|
|
|
Amount
due from related parties - current
|
|
|
1,232,634
|
|
|
|
-
|
|
|
|
1,232,634
|
|
|
|
1,101,144
|
|
|
|
-
|
|
|
|
1,101,144
|
|
|
Total current assets
|
|
|
281,074,579
|
|
|
|
-
|
|
|
|
281,074,579
|
|
|
|
20,133,395
|
|
|
|
-
|
|
|
|
20,133,395
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
investments
|
|
|
329,197
|
|
|
|
-
|
|
|
|
329,197
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Plants
and equipment, net
|
|
|
1,301,226
|
|
|
|
-
|
|
|
|
1,301,226
|
|
|
|
1,039,191
|
|
|
|
-
|
|
|
|
1,039,191
|
|
|
Intangible assets, net
|
|
|
3,313
|
|
|
|
-
|
|
|
|
3,313
|
|
|
|
45,430
|
|
|
|
-
|
|
|
|
45,430
|
|
|
Right-of-use assets , net
|
|
|
1,669,381
|
|
|
|
-
|
|
|
|
1,669,381
|
|
|
|
423,304
|
|
|
|
-
|
|
|
|
423,304
|
|
|
Amount
due from related parties - non-current
|
|
|
4,834,973
|
|
|
|
|
|
|
|
4,834,973
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Other
non-current assets, net
|
|
|
2,151,700
|
|
|
|
-
|
|
|
|
2,151,700
|
|
|
|
1,117,648
|
|
|
|
-
|
|
|
|
1,117,648
|
|
|
Total non-current assets
|
|
|
10,289,790
|
|
|
|
|
|
|
|
10,289,790
|
|
|
|
2,625,573
|
|
|
|
|
|
|
|
2,625,573
|
|
|
Total assets
|
|
$
|
291,364,369
|
|
|
|
|
|
|
$
|
291,364,369
|
|
|
$
|
22,758,968
|
|
|
|
|
|
|
$
|
22,758,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
3,678,823
|
|
|
|
-
|
|
|
|
3,678,823
|
|
|
|
3,722,686
|
|
|
|
-
|
|
|
|
3,722,686
|
|
|
Accrued
expense and other current liabilities
|
|
|
4,183,263
|
|
|
|
-
|
|
|
|
4,183,263
|
|
|
|
5,743,323
|
|
|
|
-
|
|
|
|
5,743,323
|
|
|
Contractual liabilities
|
|
|
1,943,623
|
|
|
|
-
|
|
|
|
1,943,623
|
|
|
|
1,690,837
|
|
|
|
-
|
|
|
|
1,690,837
|
|
|
Operating lease liabilities, current
|
|
|
839,330
|
|
|
|
-
|
|
|
|
839,330
|
|
|
|
131,014
|
|
|
|
-
|
|
|
|
131,014
|
|
|
Amount
due to related parties
|
|
|
15,756,028
|
|
|
|
-
|
|
|
|
15,756,028
|
|
|
|
3,248,777
|
|
|
|
-
|
|
|
|
3,248,777
|
|
|
Total current liabilities
|
|
|
26,401,067
|
|
|
|
|
|
|
|
26,401,067
|
|
|
|
14,536,637
|
|
|
|
|
|
|
|
14,536,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
non-current liabilities
|
|
|
700,000
|
|
|
|
|
|
|
|
700,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Operating lease liabilities, non-current
|
|
|
489,997
|
|
|
|
|
|
|
|
489,997
|
|
|
|
356,143
|
|
|
|
|
|
|
|
356,143
|
|
|
Total non-current liabilities
|
|
|
1,189,997
|
|
|
|
|
|
|
|
1,189,997
|
|
|
|
356,143
|
|
|
|
|
|
|
|
356,143
|
|
|
Total liabilities
|
|
$
|
27,591,064
|
|
|
|
|
|
|
$
|
27,591,064
|
|
|
$
|
14,892,780
|
|
|
|
|
|
|
$
|
14,892,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares (No par value; 261,256,254 shares issued and
outstanding as of December 31, 2021)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
1,000
|
|
|
Additional paid-in capital
|
|
|
374,901,939
|
|
|
|
186,157,104
|
(1) |
|
|
561,059,043
|
|
|
|
103,112,793
|
|
|
|
(22,144,502
|
)
|
|
|
80,969,291
|
|
|
Accumulated other comprehensive loss
|
|
|
(1,392,699
|
)
|
|
|
1,392,699
|
|
|
|
-
|
|
|
|
(1,904,839
|
)
|
|
|
1,904,839
|
|
|
|
-
|
|
|
Reserves
|
|
|
-
|
|
|
|
21,880,128
|
(2) |
|
|
21,880,128
|
|
|
|
-
|
|
|
|
20,239,663
|
(3)
|
|
|
20,239,663
|
|
|
Accumulated deficit
|
|
|
(109,735,935
|
)
|
|
|
(209,429,931
|
)
|
|
|
(319,165,866
|
)
|
|
|
(93,314,128
|
)
|
|
|
-
|
|
|
|
(93,314,128
|
)
|
|
Total Stockholders’ Equity
|
|
|
263,773,305
|
|
|
|
|
|
|
|
263,773,305
|
|
|
|
7,894,826
|
|
|
|
|
|
|
|
7,894,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(28,638
|
)
|
|
|
-
|
|
|
|
(28,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
263,773,305
|
|
|
|
|
|
|
|
263,773,305
|
|
|
|
7,866,188
|
|
|
|
|
|
|
|
7,866,188
|
|
|
Total Liabilities and Equity
|
|
$
|
291,364,369
|
|
|
|
|
|
|
$
|
291,364,369
|
|
|
$
|
22,758,968
|
|
|
|
|
|
|
$
|
22,758,968
|
|
|
(1) |
Includes $(23,272,827) in
share-based compensation payments and additional equity of
$209,429,931 recognized from the difference between the deemed
transaction price and net assets acquired related to the
Combination under IFRS.
|
|
(2) |
Includes (i) a restatement of
Accumulated other comprehensive loss under U.S. GAAP of
$(1,392,699) to Reserves and (ii) $23,272,827 in share-based
compensation payments under IFRS.
|
|
(3) |
Includes (i) a restatement of
Accumulated other comprehensive loss under U.S. GAAP of
$(1,904,839) to Reserves and (ii) $22,144,502 in share-based
compensation payments under IFRS.
|
The following table
reconciles our statement of operations under U.S. GAAP with our
statement of operations under IFRS for the years ended December 31,
2021 and 2020, respectively:
|
|
|
For
the Year Ended
|
|
|
|
|
December 31, 2021
|
|
|
December 31, 2020
|
|
|
Statement of Operations:
|
|
U.S.
GAAP
|
|
|
IFRS
Difference
|
|
|
IFRS
|
|
|
U.S.
GAAP
|
|
|
IFRS
Difference
|
|
|
IFRS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
revenues
|
|
$
|
8,576,832
|
|
|
|
-
|
|
|
$
|
8,576,832
|
|