Cenntro Electric Group Limited (Nasdaq: CENN) — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing’s financial statements are prepared under U.S. GAAP. The 2021 comparison is for Cenntro’s predecessor operations before the December 2021 reverse recapitalization, so year-over-year comparisons may not be fully comparable. The registrant is Cenntro Electric Group Limited; the filing does not identify the issuer as “Cenntro Inc.”
Business context
Cenntro designs, manufactures, distributes and services electric and hydrogen-powered commercial vehicles, primarily for last-mile delivery, fleet and municipal uses. Its strategy combines third-party manufacturing and local assembly with a growing network of company-operated EV Centers and dealers. In 2022 it added vehicle models and invested in facilities, distribution, battery capabilities and technology.
Key financial metrics
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $8.94 million | $8.58 million |
| Gross profit (loss) | $(0.51) million; gross margin (5.7%) | $1.50 million; gross margin 17.5% |
| Operating loss | $(55.23) million | $(16.46) million |
| Net loss | $(112.15) million; $(0.42) per share | $(16.42) million; $(0.09) per share |
| Adjusted EBITDA (non-GAAP) | $(43.18) million | $(7.03) million |
| Net cash used in operating activities | $(69.40) million | $(21.48) million |
| Cash and cash equivalents at year-end | $153.97 million | $261.07 million |
| Working capital at year-end | $132.8 million | $254.7 million |
| Total liabilities at year-end | $95.96 million | $27.59 million |
Revenue increased 4.3%, but vehicle sales rose while units sold fell to 458 from 918; the average selling price increased from about $8,000 to $17,980. Vehicle sales were $8.24 million, or 92.1% of revenue. Europe provided 78.9% of revenue, compared with 51.1% in 2021. The filing reports vehicle-sales gross margin of (0.27%), down from 15.5%.
Cash used in investing activities was $56.88 million, including $30 million for equity securities, $16.46 million for land-use rights and property, and acquisition and equipment spending. Financing activities provided $19.45 million, principally reflecting $54.07 million of net proceeds from convertible notes, offset by repayments and other uses. Cash, cash equivalents and restricted cash fell by $107.57 million during the year.
At December 31, 2022, current assets were $203.01 million and current liabilities were $70.25 million. Current liabilities included $57.37 million of convertible notes. The notes had $61.215 million aggregate principal, carried 8% interest and were due July 19, 2023, subject to conversion and redemption provisions. The company reported that investors redeemed $39.58 million and $6.00 million of notes in January and April 2023, respectively; the filing does not state a clear remaining balance after those redemptions.
Material changes and unusual items
- Cost of goods sold rose 33.7% to $9.46 million, and inventory write-downs increased to $2.16 million from $1.27 million. The filing cites higher vehicle and shipping costs, delayed shipments, rust damage and weaker-than-expected demand for some new models.
- Operating expenses increased substantially, including selling and marketing expense of $6.53 million, general and administrative expense of $32.82 million, and R&D expense of $6.36 million. Doubtful-account provisions were $5.99 million, including a $4.6 million provision related to a loan to Bendon Limited.
- The net loss included a $37.77 million fair-value loss on convertible notes and derivative liabilities, $11.11 million goodwill impairment, $5.59 million convertible-bond issuance costs, and impairments of CAE-related assets. The company attributed CAE underperformance and impairments to lower-than-projected revenue amid European regional conflict and energy-price disruption.
- In March 2022, Cenntro acquired 65% of Cenntro Automotive Europe (formerly Tropos Motors Europe); it acquired the remaining 35% in January 2023. A $1.59 million litigation compensation accrual related to Sevic was recorded.
- The company sold 458 ECVs in 2022 versus 918 in 2021. It also reported three iChassis sales. Production and distribution expansion remained in progress.
Outlook, risks and contingencies
Management stated that cash and cash equivalents should be sufficient to execute its strategy for the 12 months following the report’s issuance. Plans include launching models in North America and Europe, establishing local assembly capacity and expanding the Changxing factory. No revenue, earnings or production guidance with specific targets is provided. Management also cited plans to control costs, strengthen budgeting and vendor review, and improve internal controls.
- Execution and funding: The company has a limited operating history, substantial losses and cash burn. Scaling production, new facilities, new models and its EV Center distribution strategy may require additional capital; financing may not be available on acceptable terms.
- Supply chain and demand: Risks include semiconductor, battery and raw-material shortages, shipping disruption and cost inflation, reliance on suppliers and some single-source components, and uncertain customer adoption and order volumes.
- Financial reporting: Management concluded a material weakness in internal control over financial reporting remained at year-end, despite remediation efforts. The auditor did not provide an opinion on internal control effectiveness.
- Legal and listing matters: Disclosed matters include Sevic claims and a Belgian judgment restricting Metro sales in Belgium, a Tropos-related arbitration claim, and an amended $19 million stock-option-related complaint. Cenntro reported Nasdaq minimum-bid-price deficiency notices and a compliance deadline of December 18, 2023.
- Cross-border risks: The filing highlights PRC regulatory and foreign-exchange uncertainty, limits on moving cash from PRC subsidiaries, currency exposure, and potential future HFCAA/PCAOB inspection and delisting risk. The PCAOB had vacated its China/Hong Kong determination in December 2022, but future inspection access remained uncertain.
The independent auditor issued an unqualified opinion on the FY2022 financial statements. The auditor was Guangzhou Good Faith CPA LTD, headquartered in China; it was engaged in 2023. The company states it did not expect to be identified under the HFCAA for FY2022 following the PCAOB’s 2022 inspection announcement.
Most important facts for investors to verify
- Reconcile the large GAAP net loss to operating cash burn and assess which unusual fair-value, impairment and issuance-cost items may recur.
- Confirm the amount and terms of convertible notes remaining after the $45.58 million of post-year-end redemptions, including any conversion, redemption or dilution effects.
- Track cash use, inventory recoverability and the ability to convert planned manufacturing and EV Center expansion into deliveries, revenue and improved gross margins.
- Review progress in remediating the material weakness and any subsequent auditor or internal-control developments.
- Check the status and financial exposure of the Sevic matters, the Chen complaint and Nasdaq listing compliance, as well as cash-transfer restrictions affecting PRC subsidiaries.