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Cenntro Electric: Driving the Future of Commercial Vehicles

Overview

Cenntro Electric is an emerging designer, manufacturer, distributor, and service provider of commercial vehicles powered by electricity or hydrogen. The company has developed five series of commercial vehicle models - Metro®, Logistar™, Logimax™, Avantier™, and Teemak™ - to serve a variety of fleet and municipal organizations for city services, last-mile delivery, and other commercial applications.

Cenntro has also introduced iChassis™, a programmable “smart” chassis that can be controlled by third-party software for autonomous driving applications. The company’s mission is to provide sustainable commercial vehicles and build eco-chains to reduce carbon emissions for a better environment.

Trends in the Electric Vehicle Market

The global trend towards reducing internal combustion engine vehicles has made electric-battery and fuel cell technologies strong alternatives. Battery costs have significantly decreased over the past decade, and prices are expected to continue falling. According to research by Bloomberg NEF, lithium-ion battery pack prices dropped from over $1,200 per kilowatt-hour in 2010 to $132/kWh in 2021 - a decline of approximately 89%. Prices are forecast to fall below $100/kWh by 2026, further improving the economics of battery-powered electric commercial vehicles (ECVs) like Cenntro’s.

Manufacturing and Distribution Strategy

Cenntro has an asset-light, distributed manufacturing business model. The company manufactures vehicle kits in its facilities in China and leverages local assembly by third-party Original Equipment Manufacturers (OEMs) in the United States and Europe. This approach allows Cenntro to focus on vehicle design and technology while outsourcing manufacturing, assembly, and marketing to partners.

The company has also been shifting its distribution strategy away from relying mainly on third-party channel partners to a hybrid model combining wholly-owned EV Centers with local dealers. This change aims to improve operational efficiencies, product quality, brand value, market share, customer support, and service.

Financial Performance

Cenntro’s net revenues have grown significantly, from $10.4 million in 2023 to $31.3 million in 2024 - an increase of over 200%. This was driven primarily by a $19.3 million increase in vehicle sales, particularly in the U.S. market. The company sold 1,122 ECVs in 2024, up from 630 in 2023.

Gross profit also improved, from $1.6 million in 2023 to $7.6 million in 2024, with gross margins increasing from 15.5% to 24.3%. However, the company continued to incur operating losses, with a net loss of $44.9 million in 2024, down from $54.4 million in 2023.

The key components of Cenntro’s financial performance are:

Revenues

• Vehicle sales are the primary revenue driver, accounting for 89.9% of total revenues in 2024, up from 85.1% in 2023.
• Spare-part sales contributed 8.8% of revenues in 2024, down from 14.0% in 2023.
• Other sales, including battery inventory and technical services, made up the remaining 1.3% of revenues in 2024.

Cost of Goods Sold

• Cost of goods sold increased from $8.8 million in 2023 to $23.7 million in 2024, primarily due to higher vehicle sales and a $5.6 million increase in inventory write-downs.

Operating Expenses

• Selling and marketing expenses increased from $4.2 million in 2023 to $7.4 million in 2024, driven by higher service fees and marketing expenses.
• General and administrative expenses decreased from $33.0 million in 2023 to $26.7 million in 2024, due to reductions in share-based compensation, legal/professional fees, and other costs.
• Research and development expenses declined from $7.7 million in 2023 to $5.2 million in 2024, as design and development expenditures decreased.

Other Expenses

• Interest expense, net, was $0.2 million in 2024, compared to $0.4 million in interest income, net, in 2023.
• The company recognized a $2.2 million loss from early termination of lease contracts in 2024.
• Cenntro recorded a $1.0 million gain in the change in fair value of equity securities in 2024, compared to a $2.6 million loss in 2023.

Liquidity and Capital Resources

As of December 31, 2024, Cenntro had $12.5 million in cash and cash equivalents, down from $28.8 million at the end of 2023. Net cash used in operating activities was $21.4 million in 2024, an improvement from $58.5 million in 2023.

The company’s working capital decreased from $75.6 million in 2023 to $36.8 million in 2024, primarily due to reductions in cash, inventories, and assets held for sale, as well as increases in prepayments and contractual liabilities.

Cenntro plans to fund its current and future operations through cash on hand, cash flow from operations, lines of credit, and additional equity/debt financing as needed. The company’s long-term strategy includes regionalizing manufacturing and supply chains, expanding its channel partner network, and increasing investment in research and development.

Strengths and Weaknesses

Strengths:

• Innovative ECV technology and product portfolio
• Distributed manufacturing model that leverages partners
• Improving financial performance, with growing revenues and margins
• Shift towards direct sales and local dealer networks

Weaknesses:

• Continued operating losses and negative cash flow from operations
• Reliance on third-party partners for manufacturing and distribution
• Exposure to risks from early lease terminations and changes in fair value of investments

Outlook and Future Prospects

Cenntro is well-positioned to capitalize on the growing demand for electric commercial vehicles, driven by favorable market trends and government incentives. The company’s focus on technology, supply chain development, and regional expansion should help it improve operational efficiency and profitability over time.

However, Cenntro will need to carefully manage its liquidity and continue reducing operating expenses to achieve sustainable profitability. The success of its hybrid distribution strategy and ability to scale production will be critical factors in the company’s long-term success.

Overall, Cenntro Electric is an emerging player in the ECV market, leveraging innovative technology and a flexible business model to drive growth. While the company faces some near-term challenges, its long-term prospects appear promising as it works to establish itself as a leading provider of sustainable commercial transportation solutions.