Microvast May Need More Juice To Reward Patient Investors

Microvast (NASDAQ:MVST) is an overlooked player in the electric vehicle ecosystem. The company operates as a vertically integrated manufacturer of lithium-ion batteries and satisfies a vital role across various stages of battery production.  

The company caters to a diverse customer base that includes commercial, passenger, and specialty electric vehicles (EVs), as well as heavy equipment. Additionally, Microvast is involved in manufacturing energy storage systems (ESS), which are gaining traction due to incentives provided by the Biden administration’s Inflation Reduction Act that encourages companies to invest in and onshore energy storage solutions. 

The landscape for electric vehicles is both complex and straightforward. Legacy automakers have already invested billions of dollars adapting their manufacturing facilities for EV production, implying it is setting the stage for many decades of production.  

But, the growth in the EV market hinges on several factors: time, the expansion of a reliable charging infrastructure, and advancements in battery technology. Microvast’s contributions are particularly significant in the latter category, enhancing battery solutions that are central to the EV industry’s expansion. 

In its fourth quarter and full-year earnings report for 2024, released on April 1, Microvast announced record-breaking revenue of $104.6 million. Over the full year, the company recorded revenue of $307 million, representing a 61% increase year-over-year (YOY). Additionally, Microvast disclosed a large order backlog worth $276.4 million, implying it has already secured enough orders to nearly match the prior year’s revenue with plenty of time left to pursue new clients and generate impressive year-over-year growth.  

The company experienced its most notable growth in the Europe, Middle East, and Africa (EMEA) region, where it reported a 400% YOY increase in revenue, totaling $84 million for the year. While this growth is impressive, it is important to note that Microvast remains unprofitable.  

However, the company is evidently progressing toward profitability, driven by robust revenue growth and a strong backlog, which may soon ease any financial burdens. 

Microvast Would Benefit From A Rate Cut 

Microvast has encountered a significant obstacle in the construction of its manufacturing facility in Clarksville, Tennessee. The project, expected to be fully funded from cash reserves, appears to be coming in at a higher price tag. As such, a funding shortfall comes at a particularly challenging time as the company seeks new financing options amid high interest rates. While this is unfortunately a common challenge impacting the entire industry and one that is against Microvast’s control, it is nevertheless an obstacle that needs to be overcome. 

Microvast faces an uphill battle in securing financing, given it is both unprofitable and a small-cap stock which comes with higher degrees of shareholder risk. Notably, the potential for share dilution is a reality as the company needs access to capital.    

Compounding these financial challenges, Microvast received a delisting notice from NASDAQ in late March. This notification was issued because the company’s stock price traded below $1 per share for 30 consecutive days.  

A typical strategy to address this issue is the approval of a reverse stock split to artificially lift the stock price back above the NASDAQ’s minimum threshold. Despite its short history on the public market since 2019, Microvast has never performed a reverse stock split.  

While such measures are generally not favorable for companies due to shareholder frustration, the consequences of failing to maintain NASDAQ listing standards—namely delisting—are considerably more severe. 

Other Risks With MVST Stock 

If you are a trader, it might be wise to exercise caution with Microvast (MVST) stock, unless you have experience in short selling. Short interest in the stock rose in March, following a brief decline in the first two months of the year. The uptick in a negative sentiment was mostly driven by a short seller report from JCapital Research, which targeted the company for what it believes to be financial reporting discrepancies. 

One significant allegation from the JCapital report is that Microvast has been falsifying sales figures in China which accounts for more than half of the company’s sales. If true, these claims would severely impact Microvast’s financial stability and perhaps damage investor’s confidence for good. Furthermore, the report highlights the risk of technological obsolescence for Microvast, noting that emerging battery technologies, such as solid-state batteries, would imply an inferior offering for Microvast and potentially large market share declines. 

Despite these well communicated concerns, analysts have maintained bullish stances on Microvast’s stock, although with lower price targets. Currently trading as a penny stock, MVST offers potential as a multi-bagger investment for those with a long-term perspective and a high tolerance for risk.