Lithium battery manufacturer, Microvast (NASDAQ:MVST) first caught investors attention after the completion of their highly anticipated merger with SPAC company Tuscan Holdings (NASDAQ:THCB). Microvast Stock has struggled since its debut on Wallstreet, currently trading below its PIPE offering price of $10.
Nevertheless, the bulls are confident Microvast’s positioning as a global leader in providing next generation battery technologies for Electric vehicles will continue to benefit them over the next decade. So why is Microvast stock trading higher today?
Microvast stock jumps after market wide recovery
From a fundamental standpoint, the rise of MVST stock this morning is correlated with a wider market recovery with merged companies in the EV sector including Fisker (NYSE:FSR) and Lucid Motors (NASDAQ:LCID) gaining momentum this morning. MVST stock is coming off a relatively flat quarter of trading, losing 7% in value with the stock reaching a height of $13.70 in early August.
The jump in today’s share price can be explained by a shift in sentiment, after a relatively bearish year for SPAC traded companies. As discussed in our recent Polestar merger article, the 2020 peak of SPAC interest has since faded and left some combined companies still trading below their PIPE offering price.
What the recent merger means for MVST stock?
Firstly, the benefit of the THCB merger is the combined company has raised capital from PIPE investors to fund their future expansion strategies. Microvast plan to utilise the $700 Million cash raised to achieve three main objectives.
1) Microvast aim to expand their Manufacturing facility buildout both in the US and Europe.
2) Fulfillment of current customer demand which includes a pipeline of contracted revenue worth between $1 Billion – $1.5 Billion according to the company.
3) Lastly, the company aims to use the proceeds to reduce the current Debt.
Microvast’s current partnerships equate to over $1.5 Billion in contracted revenue through 2027. The strong visibility of contracted revenue is a driving factor in positive investor sentiment.
Microvast Q2 report breakdown
In August, Microvast released their first quarterly statement as a combined company. The company generated $33.4 million in revenue, representing a neat YOY increase of 53.8%. The companies cost of revenues exceeded the revenue however, at $40.146 Million, meaning the companies gross profit is currently negative. If taking into account capital expenditures, the company reported a net loss of $27 Million which increased YOY by roughly $20 Million.
A net loss is not uncommon in the EV space, especially for companies expanding their operations, manufacturing plants and investing heavily into R&D. With strong revenue in the pipeline, investors will be looking forward to seeing the companies profit/loss margin thinning over time. Microvast forecasted in their Investor presentation in July, that the company will generate $2.3 Billion in revenue by 2025. Interestingly, 60% of this 2025 revenue will derive from Electric Vehicle battery sales. Hence, the strong correlation with the EV market.
“Microvast posted solid revenue growth in Q2 2021 and we are excited to see continued growth in demand for our products. The closing of our recent business combination with Tuscan provided us with more than $700 million in net proceeds to execute our business plan and capitalize on the global shift to electrification… We continue to expand our core customer base of leading OEMs producing a wide range of commercial vehicles and look forward to reaching new milestones.”said Yang Wu, Microvast’s Chief Executive Officer.
The Bottom Line – Why is Microvast Stock trading higher?
In summary, Microvast stock is trading higher today as its fellow post-SPAC stocks including Fisker and Lucid gain momentum. The $700 Million boost in cash will provide Microvast the funding needed to address manufacturing, demand of its technology and to reduce the companies debt.
Lastly, the companies Q2 report shows textbook signs of a EV battery start up, and investors can expect capital expenditures to increase as the company scales its manufacturing process. The consensus on Wallstreet expects Microvast to generate $143.53 Million in the 2021 Calendar year, while Microvast’s guidance suggests revenues between $145.0 million to $155.0 million.
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The content above is strictly for informational purposes only and is not financial advice nor does it constitute a recommendation. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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