20-F: Elong Power Faces Steep Losses, Nasdaq Delisting Risk

Elong Power Holding Limited reported a significant net loss of $30.1 million in 2024, alongside a sharp revenue decline and Nasdaq delisting warnings, raising substantial doubt about its going concern ability.

Summary

• Reported a net loss of $30.1 million for the year ended December 31, 2024, a substantial increase from $7.4 million in 2023.
• Revenue decreased significantly by 87.5% to $0.4 million in 2024, down from $3.2 million in 2023.
• The company's operating loss increased to $29.1 million in 2024, compared to $7.9 million in 2023.
• Adjusted gross margin (excluding idle capacity) worsened to -225.0% in 2024 from -12.5% in 2023.
• Identified three material weaknesses in internal controls over financial reporting, including lack of an experienced accounting team, inadequate IT environment controls, and insufficient controls for third-party warehouse inventories.
• Received notices from Nasdaq regarding non-compliance with the minimum market value of listed securities ($50 million) and minimum bid price ($1.00) requirements, indicating potential delisting.
• Management has expressed substantial doubt about the company's ability to continue as a going concern.
• Completed a business combination with TMT Acquisition Corp on November 21, 2024, becoming a public company listed on Nasdaq under the symbol ELPW.
• Secured $7.0 million in PIPE financing concurrently with the business combination.
• Issued 36,831,228 Class A Ordinary Shares on October 29, 2024, upon the exercise of Elong Warrants.
• A significant energy storage equipment sales agreement worth RMB480,000,000 (USD 67,605,633) had its delivery postponed to 2025 due to customer's incomplete government approval documents.
• Incurred a $10.4 million impairment of property, plant, and equipment in 2024 due to plans to upgrade and replace certain aged production equipment.
• Provision for credit losses increased to $2.8 million in 2024, primarily due to uncollectible receivables from key customers involved in litigation over battery quality issues.
• The company is involved in ongoing legal proceedings with an estimated aggregate amount of approximately $5.78 million (RMB 42.2 million) related to contractual disputes and product quality claims.

Sentiment

Score: 2

Explanation: The company reported a substantial increase in net loss, a drastic drop in revenue, and significant financial deficits, coupled with Nasdaq delisting warnings and material weaknesses in internal controls. While there's a strategic shift to energy storage and some capital raised, the current financial performance and operational challenges are severe.

Positives

• Successfully completed a business combination with TMT Acquisition Corp, resulting in a Nasdaq listing.
• Secured $7.0 million in PIPE financing, providing capital for operations.
• Strategic redirection of resources towards the rapidly growing energy storage systems business, which management expects to drive long-term growth.
• Possesses advanced battery technology with ultra-fast charging capabilities (80% in 9-30 minutes), long lifespans (up to 30,000 cycles), and enhanced safety features.
• Maintains strong R&D capabilities and a vertically integrated approach from battery cell development to battery pack system manufacturing.
• Established stable cooperative relationships with major customers in the commercial vehicle sector, including Yutong Bus and Nanjing Golden Dragon Bus.
• Boasts an experienced management team with extensive industry and technical backgrounds.
• A shareholder has committed to supporting the company's operations with cash for a minimum of twelve months, aiming to improve the cash position.

Negatives

• Reported a significant net loss of $30.1 million in 2024, a substantial increase from $7.4 million in 2023.
• Revenue declined drastically by 87.5% to $0.4 million in 2024, attributed to product upgrades, production line modifications, and a strategic shift that temporarily reduced battery cell sales.
• The adjusted gross margin (excluding idle capacity) worsened significantly to -225.0% in 2024, indicating severe profitability issues.
• Operating loss increased by 268.4% to $29.1 million in 2024.
• As of December 31, 2024, the company had a working capital deficit of $9.9 million, a shareholders' deficit of $16.5 million, and an accumulated deficit of $68.9 million.
• Received Nasdaq notices for failing to meet the minimum market value of listed securities ($50 million) and minimum bid price ($1.00), posing a risk of delisting.
• Identified three material weaknesses in internal controls over financial reporting, which could lead to significant misstatements or fraud.
• Incurred a substantial impairment of property, plant, and equipment totaling $10.4 million in 2024.
• Provision for doubtful accounts and credit losses increased to $2.8 million in 2024 due to uncollectible receivables and customer litigation.
• A major energy storage equipment sales agreement (USD 67.6 million) had its delivery postponed to 2025 due to the customer's incomplete government approval documents.
• Faces ongoing legal proceedings with an estimated aggregate amount of $5.78 million (RMB 42.2 million) for contractual disputes and product quality issues.
• The dual-class share structure concentrates 84.7% of voting control with the CEO and Chairwoman, Ms. Xiaodan Liu, limiting the influence of other shareholders.
• Reliance on dividends from PRC subsidiaries is subject to statutory reserve requirements and foreign exchange regulations, potentially restricting cash transfers out of China.

Risks

• Future growth is highly dependent on the adoption of electric vehicles by commercial and specialty vehicle operators and consumers.
• Difficulty in evaluating business prospects and successfully expanding operations or managing growth as a new market entrant.
• Certain battery components pose safety risks, which could lead to accidents, liability, manufacturing delays, and adverse market acceptance.
• Expectation of continued operating and net losses in the future.
• Exposure to significant price fluctuations of raw materials, which accounted for 91% of production costs in 2024.
• Failure to develop and maintain an effective system of internal controls over financial reporting could lead to inaccurate financial results or fraud.
• Inability to meet future capital requirements could limit growth and materially adversely affect financial position and operations.
• Demand for batteries is sensitive to the attractiveness of fossil fuel alternatives; extended periods of low oil prices could reduce demand for electric vehicles.
• Intense competition from other battery manufacturers, many with significantly greater resources, may hinder competitive position.
• Developments in alternative battery technologies (e.g., fuel cells, solid-state batteries) could adversely affect demand for current products.
• Significant costs may be incurred due to product warranties (typically one to eight years).
• Inability to timely develop and commercialize new products at favorable margins could impact competitiveness.
• Failure to cost-effectively manufacture batteries in quantities and to specifications could damage customer relationships and lead to lost business opportunities.
• Reliance on complex machinery for operations carries risks of malfunctions, operational performance issues, and costs associated with upgrades.
• Battery packs rely on highly technical software and hardware, which may contain errors, bugs, or vulnerabilities, adversely affecting business.
• Inability to secure a stable and timely supply of key raw materials and components from third parties.
• Quarterly and annual operating results are subject to fluctuations due to market conditions and other factors.
• Success depends on the ability to attract, train, and retain highly-skilled employees and key personnel.
• Impediments to moving cash out of the PRC, due to regulatory restrictions, could hamper growth and diversification efforts.
• Planned expansion into new applications and markets (U.S., Europe, Southeast Asia) poses additional risks, including regulatory differences and currency fluctuations.
• Operations expose the company to litigation, environmental, health, and safety, and other legal compliance risks, including increased climate change legislation.
• Products, as components of electric vehicles, are subject to motor vehicle safety standards; failure to satisfy these could adversely affect demand.
• Connected products, website, systems, and data are vulnerable to intentional disruption, security incidents, or alleged violations of data handling laws.
• Social media platforms present risks to brand and reputation, potentially leading to negative publicity or liability.
• Success depends on the ability to obtain, maintain, and protect intellectual property rights; challenges in trademark and patent protection exist.
• Risk of incurring substantial costs from claims of infringement of third-party intellectual property rights.
• Reliance on unpatented proprietary technology makes it more difficult to protect and enforce intellectual property rights.
• Difficulties in transferring and communicating technology globally and obtaining personnel visas could impact efficiency and training.
• Uncertainties exist regarding the impact of the PRC Foreign Investment Law on the viability of the current corporate structure and operations.
• Procedural requirements for foreign regulatory bodies to conduct investigations or inspections of operations in China.
• Business is subject to evolving and complex laws and regulations in China, which differ from those in the United States, leading to uncertainties in interpretation and enforcement.
• The PRC government may exercise significant oversight and control over operations, potentially influencing business decisions and the value of shares.
• Difficulty for shareholders to enforce foreign judgments or bring actions in China against the company or its management.
• PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent the use of offshore fund-raising proceeds.
• Approval and filing with the CSRC and CAC may be required for future offerings or capital raising activities, with uncertain timelines and outcomes.
• PRC regulations relating to investments in offshore companies by PRC residents may subject beneficial owners or PRC entities to liability or penalties.
• Reliance on dividends and other distributions from PRC subsidiaries, with limitations on their ability to make payments due to statutory reserves and debt restrictions.
• Requirements and legal procedures of currency conversion may limit the effective utilization of Renminbi revenues.
• Risk of delays and/or failures in obtaining and renewing relevant PRC governmental approvals, licenses, or permits for new construction/expansion projects.
• Dividends payable to foreign investors and gains on the sale of Class A Ordinary Shares by foreign investors may become subject to PRC tax law.
• Shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by non-PRC holding companies.
• Securities may be prohibited from trading in the United States under the HFCAA if the PCAOB is unable to inspect or investigate the company's auditor for two consecutive years.
• Fluctuations in the value of the Renminbi may materially adversely affect investment returns.
• The market price of Class A Ordinary Shares may be volatile, leading to losses for investors and potential securities litigation.
• The dual-class share structure concentrates voting control with the CEO and Chairwoman, limiting the ability of other Class A shareholders to influence corporate matters.
• As a 'controlled company' under Nasdaq rules, the company may elect not to comply with certain corporate governance requirements, potentially affording less protection to shareholders.
• No expectation of paying dividends in the foreseeable future, as earnings will be reinvested in business growth.
• An active trading market for Class A Ordinary Shares may not be sustained, affecting liquidity and share price.
• Risk of securities or industry analysts publishing inaccurate or unfavorable research, leading to a decline in share price.
• Significant legal, accounting, insurance, and compliance expenses associated with being a public company, particularly with Sarbanes-Oxley Act requirements.
• As an emerging growth company, taking advantage of certain exemptions from disclosure requirements could make securities less attractive to investors.
• As a foreign private issuer incorporated in the Cayman Islands, shareholders may face difficulties in protecting their interests and limited ability to protect rights through U.S. Federal courts.

Future Outlook

Management expects the strategic repositioning towards energy storage systems to establish a foundation for long-term growth, despite the short-term revenue decline experienced in 2024. The company plans to continue significant investments in R&D for high-performance battery technology and new innovations to reduce costs, focusing on lighter weight modules, advanced cooling methods, and battery chemistry. The global power battery market is projected to grow rapidly, with demand for electric vehicle batteries potentially reaching 5.3TWh by 2035, and the new energy commercial vehicle market is expected to reach $162.4 billion by 2029. The company intends to expand its business globally, particularly in Southeast Asia, and further penetrate the energy storage market. Production capacity is expected to increase with planned expansions at the Ganzhou factory (2.3GWh of battery cells annually) and Zibo factory (3GWh of lithium battery PACK systems annually), alongside increased reliance on automated production. The company will continue to monitor its tax status regarding PRC resident enterprise classification and does not anticipate paying cash dividends in the foreseeable future, opting to reinvest earnings into business development and growth. Equity investment will be sought in 2025, and a shareholder has committed to providing cash support for at least 12 months.

Management Comments

• Management expects the repositioning toward energy storage systems to provide a foundation for long-term growth.
• Management believes that, compared to new entrants in the marketplace, those that entered the field earlier and possess core technologies will obtain a competitive advantage.
• Our diverse and accomplished team positions our company with seasoned leadership and industry-specific knowledge across critical areas of operations, finance and technology.
• We believe that our ability to provide higher performance batteries and battery systems depends on the rapid and effective transfer of the technology developed in our research and development laboratory to large-scale production facilities.
• We believe that we have established a robust framework to protect against cybersecurity threats, mitigate risks, preserve customer trust and reputation, and support the sustainable growth of our Company.

Industry Context

The global electric vehicle battery market is experiencing rapid growth, with demand increasing by approximately 65% in 2022, led by China. Electric bus and truck sales are also gaining momentum globally, with Chinese manufacturers dominating. The electrification trend is extending to construction machinery, driven by cost-effectiveness and supportive government policies. The overall global power battery market is projected for rapid expansion, with demand for EV batteries potentially reaching 5.3TWh by 2035. The new energy commercial vehicle market is expected to grow to $162.4 billion by 2029, with a corresponding increase in demand for power batteries exceeding $56.8 billion. Governments worldwide are intensifying policy support and investing in charging infrastructure to promote sustainable energy. The energy storage systems (ESS) market is also rapidly expanding, with lithium-ion batteries being the dominant technology due to their cost-effectiveness and performance. This growth is expected to continue, with global installed capacity of new electrochemical energy storage projected to increase from 69.0 GWh in 2022 to 652.4 GWh in 2027. However, intensified market competition is anticipated as more enterprises enter the field.

Comparison to Industry Standards

• Our 6C fast charging batteries, launched in 2020, are considered at the forefront of the industry.
• The latest generation of our ultra-high power version batteries can achieve 80% charge in 9 minutes, offering energy densities up to 300 Wh/l and 100 Wh/kg, which is competitive in the market.
• Our regular high-power version batteries can charge 80% in 24 minutes.
• Our battery systems boast a lifespan of up to 30,000 charging/discharging cycles, designed to match the lifespan of commercial vehicles, reducing total cost of ownership.
• Our liquid-cooled smart energy storage products utilize large capacity 315Ah battery cells, offering over 10,000 cycles and improving total discharge capacity, which is expected to reduce electricity costs by approximately 30%.
• The energy density of our individual energy storage containers is 290kWh/m2.
• Our intelligent temperature control technology maintains cell temperature differences within 3°C, enhancing system life by over 20% and reducing overall energy consumption by about 20%.
• Lithium Iron Phosphate (LFP) batteries, which we utilize, are generally cheaper to produce and more suitable for mid-to-low-end markets compared to ternary lithium-ion batteries.
• Ternary lithium-ion batteries typically offer higher energy density (around 180Wh/kg for individual cells, 110Wh/kg after grouping) and higher charging/discharging efficiency (around 90%) compared to LFP batteries (120Wh/kg and 80Wh/kg, with 80% efficiency).
• Key competitors in the high-power lithium battery market include Panasonic, Samsung SDI, BYD, CATL, Tianjin Lishen, Boston-Power, Wanxiang Group, Amperex Technology, and LG Chem.
• Vehicle manufacturers like Volvo are increasingly entering the battery production market, as evidenced by Volvo's large battery plant in Sweden opened in 2022, indicating a trend towards vertical integration by OEMs.

Management Changes

Corporate Governance

Legal Proceedings

• Estimated aggregate amount related to ongoing litigations is approximately $5.78 million (RMB 42.2 million), comprising $3.03 million (RMB 22.1 million) in accounts payable to suppliers and $2.75 million (RMB 20.1 million) in accrued legal expenses.
• In April 2024, a customer filed a lawsuit against Ganzhou Yipeng in Gansu Province, seeking termination of a battery purchase contract and return of 126 undelivered battery packs (valued at $3.1 million, RMB 22.7 million). A court judgment requires Ganzhou Yipeng to return the amount and pay liquidated damages. A provision of $0.4 million (RMB 2.6 million) has been recognized, with negotiations and appeal preparations ongoing.
• In December 2024, a customer sued Huizhou Yipeng in Henan Province for battery repair costs. The court ordered Huizhou Yipeng to pay $0.4 million (RMB 3.1 million) for battery replacement and other expenses. A provision of $0.4 million (RMB 3.1 million) has been recognized, and Huizhou Yipeng has appealed. A preliminary oral settlement has been reached to continue the original contract and address quality issues.
• A 2021 lawsuit in Xianning, Hubei Province, against a customer and the company, resulted in a $1.0 million (RMB 7.5 million) lawsuit compensation charge. In July 2024, $0.1 million (RMB 0.97 million) was disbursed from frozen bank funds. The company accrued $0.9 million (RMB 6.49 million) in 2024 and $1.1 million (RMB 7.46 million) in 2023, with the appeal process ongoing.
• A 2022 lawsuit in Guizhou Province against Huizhou Yipeng and Ganzhou Yipeng for power battery replacement costs resulted in a court order for joint payment of $0.8 million (RMB 5.8 million). A provision of $0.8 million (RMB 5.8 million) has been recognized, with negotiations and appeal preparations ongoing.
• Numerous other contractual disputes and labor disputes are ongoing, with smaller amounts recorded in accounts payable or accrued legal expenses, as detailed in the filing's schedule of current legal proceedings.

Related Party Transactions

• Purchased raw materials from Phylion Battery Co.,Ltd for $12,570 in 2024.
• Leased company vehicles from Ms. Xiaodan Liu (CEO) for $55,588 in 2024.
• Received $13,897 in proceeds from a loan from Mr. Xiusheng Wang (senior management) in 2024.
• Short-term loans payable to Beijing Xinlongmai Enterprise Management Co., Ltd. (affiliate) and Huizhou Highpower Technology Co., Ltd. (affiliate) totaling $410,999 and $136,999 respectively as of December 31, 2024, with extensions to October 20, 2025, and November 8, 2025.
• Short-term loan payable to Mr. Xiusheng Wang for $13,700 as of December 31, 2024.
• Ms. Xiaodan Liu (CEO) had an employee advance deposit of $68,500 due from the company as of December 31, 2024.
• Amounts due to Ms. Xiaodan Liu (CEO) for employee reimbursement ($1,119) and vehicle lease ($54,780) as of December 31, 2024.
• Amounts due to Phylion Battery Co.,Ltd for raw material purchases on behalf of the company for $14,204 as of December 31, 2024.
• Amounts due to Shenzhen High-power Technology Co., Ltd. (affiliate) for expenses paid on behalf of the company for $42,686 as of December 31, 2024.
• In April 2025, the company entered into several loans with Ms. Xiaodan Liu totaling $0.21 million, bearing zero interest rate and payable on demand.

Stakeholder Impact

• Shareholders face significant risks including potential dilution from future equity raises, concentrated voting power with the CEO, the risk of Nasdaq delisting, no expected dividends, and a potential substantial decrease in share value. Their ability to enforce rights may be limited due to the company's Cayman Islands incorporation and PRC operations.
• Employees may be impacted by workforce reductions (e.g., in R&D), facility relocations, and compliance with evolving PRC labor laws and social insurance contributions.
• Customers are affected by product quality issues leading to lawsuits, potential delays in product delivery, and reliance on the company's ability to meet demand and provide adequate technical support.
• Suppliers face risks related to contractual disputes and the company's ability to settle accounts payable, especially given the company's financial distress.
• Creditors are exposed to heightened risk due to the company's going concern doubt, working capital deficit, and accumulated deficit, which raise concerns about the company's ability to meet its payment obligations.

Next Steps

• Regain compliance with Nasdaq listing rules, specifically the minimum market value of listed securities ($50 million) by September 15, 2025, and the minimum bid price ($1.00) by September 16, 2025.
• Remediate identified material weaknesses in internal controls over financial reporting by hiring qualified accounting personnel, implementing IT security controls, establishing accounting record systems, and improving management of third-party inventories.
• Continue to invest in research and development of high-performance battery technology and seek new innovations to further reduce costs.
• Expand business globally, particularly in the Southeast Asian market, and further increase presence in the energy storage market.
• Complete the delivery of the RMB480 million energy storage equipment sales agreement in 2025, which was previously postponed.
• Seek more equity investment in 2025 to meet future capital requirements.
• Continue negotiations and appeal processes for ongoing legal proceedings to mitigate potential liabilities.
• Implement the 2024 Equity Incentive Plan, with 8,000,000 ordinary shares reserved for issuance to eligible service providers.

Key Dates

Recommendation

The company's financial health is severely deteriorated, marked by a substantial net loss of $30.1 million, an 87.5% revenue decline, and significant working capital and shareholder deficits. The explicit 'going concern' doubt and active Nasdaq delisting warnings (for both market value and bid price) indicate immediate and critical risks to the company's public trading status. While a strategic shift to energy storage and a $7.0 million PIPE financing offer some long-term potential, these are overshadowed by current operational challenges, material weaknesses in internal controls, and ongoing legal liabilities. The concentrated voting power further limits minority shareholder influence. Given the severe financial distress and high uncertainty, a seasoned investor would likely recommend a strong sell to mitigate further losses.

Keywords

Lithium-ion batteries, Energy storage systems, Electric vehicles, Commercial vehicles, Fast charging, Battery management system, LFP batteries, Ternary batteries, China, SEC filing, 20-F, Nasdaq, Delisting risk, Going concern, SPAC merger, Reverse recapitalization, Corporate governance, Financial performance, Raw materials, Internal controls, Capital raise, Legal proceedings, PRC regulations, Foreign private issuer, Emerging growth company