10-Q: Xos Reports Q3 2025 Results, Addresses Going Concern Doubt

Xos, Inc. reported a net income of $2.1 million for Q3 2025, a significant improvement from a net loss in the prior year, despite ongoing substantial doubt about its ability to continue as a going concern.

Summary

• Reported a net income of $2.123 million for the three months ended September 30, 2025, compared to a net loss of $10.512 million for the same period in 2024.
• Incurred a net loss of $15.568 million for the nine months ended September 30, 2025, an improvement from a net loss of $31.178 million for the same period in 2024.
• Total revenues increased by 4% to $16.5 million in Q3 2025 from $15.8 million in Q3 2024, driven by increased unit sales (98 vehicles and 32 powertrains/Hubs vs. 78 vehicles and 16 powertrains/Hubs).
• Total revenues decreased by 8% to $40.8 million for the nine months ended September 30, 2025, from $44.5 million in the same period in 2024, primarily due to product mix affecting average selling price.
• Gross profit decreased by 12% to $2.531 million in Q3 2025 and by 30% to $5.361 million for the nine months ended September 30, 2025.
• Operating expenses decreased significantly by 24% to $9.525 million in Q3 2025 and by 26% to $28.705 million for the nine months ended September 30, 2025.
• Recognized a $9.394 million gain on operating lease termination in Q3 2025 due to exiting the Mesa, Arizona manufacturing facility lease.
• Net cash provided by operating activities was $3.0 million for the nine months ended September 30, 2025, a substantial improvement from $52.1 million used in the prior year.
• Substantial doubt exists about the ability to continue as a going concern through the next 12 months.
• The repayment schedule for the $20.0 million Convertible Note was modified to ten quarterly installments from November 11, 2025, through February 11, 2028.
• Accrued interest of approximately $6.0 million on the Convertible Note was converted into 1,803,262 shares of Common Stock on August 25, 2025.
• Sold 730,000 shares of Common Stock in an at-the-market (ATM) offering for aggregate net proceeds of $2.4 million during the nine months ended September 30, 2025.
• Identified material weaknesses in internal control over financial reporting related to inventory management, revenue recognition, and information technology (IT) general controls.

Sentiment

Score: 4

Explanation: While Q3 2025 showed a net income and improved operating cash flow, largely due to a one-time gain from lease termination, the company explicitly states 'substantial doubt about our ability to continue as a going concern.' This fundamental risk, coupled with ongoing net losses for the nine-month period, declining gross profit, and identified material weaknesses in internal controls, indicates significant underlying challenges. The positive Q3 results are not indicative of sustained operational profitability without the one-time gain.

Positives

• Achieved a net income of $2.123 million in Q3 2025, a significant turnaround from a net loss of $10.512 million in Q3 2024.
• Reduced the net loss for the nine months ended September 30, 2025, by 50% to $15.568 million, compared to $31.178 million in the prior year.
• Total revenues increased by 4% in Q3 2025, driven by an increase in unit sales of vehicles and powertrains/Hubs.
• Operating expenses decreased substantially by 24% in Q3 2025 and 26% for the nine months ended September 30, 2025, reflecting effective cost reduction efforts.
• Realized a $9.394 million gain from the termination of the Mesa, Arizona manufacturing facility operating lease, improving financial results.
• Generated $3.0 million in net cash from operating activities for the nine months ended September 30, 2025, a significant improvement from $52.1 million used in the prior year.
• Successfully extended the maturity of the $20.0 million Convertible Note, spreading repayments over ten quarterly installments until February 2028, enhancing liquidity management.
• Converted $6.0 million of accrued interest on the Convertible Note into 1,803,262 shares of Common Stock, reducing cash obligations.
• Favorable changes in inventory reserves of $2.1 million for the nine months ended September 30, 2025.

Negatives

• Substantial doubt exists about the ability to continue as a going concern for the next 12 months.
• Total revenues decreased by 8% for the nine months ended September 30, 2025, primarily due to a less favorable product mix and lower average selling price.
• Gross profit declined by 12% in Q3 2025 and by 30% for the nine months ended September 30, 2025.
• Cost of goods sold increased by 8% in Q3 2025, partly due to $1.0 million in identifiable tariff charges.
• A significant portion of revenue (72% in Q3 2025, 61% for nine months ended Sep 30, 2025) is derived from a single customer, posing a concentration risk.
• Highly dependent on single-source suppliers, which creates supply chain risk and potential for disruptions.
• Identified material weaknesses in internal control over financial reporting related to inventory management, revenue recognition, and IT general controls.
• Access to capital under the Standby Equity Purchase Agreement (SEPA) is currently unavailable and limited by registration statement capacity, and the SEPA expires in February 2026.
• Other (expense) income, net, increased to an expense of $1.5 million for the nine months ended September 30, 2025, from an income of $0.3 million in the prior year, mainly due to the absence of duty drawback receivable income.
• Anticipates additional pressure on loss from operations in Q4 2025 due to expected changes in product mix and increased tariff costs on parts and commodities.

Risks

• Substantial doubt about the ability to continue as a going concern through the next 12 months.
• Limited operating history makes evaluating the business and future prospects difficult and may increase investment risk.
• The mix of offerings, such as the Xos Hub and Xosphere, is novel and has yet to be tested in the long term.
• An early-stage company with a history of losses and may incur significant expenses and continuing losses for the foreseeable future.
• Uncertainty in achieving positive operating cash flow for a full year, given projected funding needs.
• Financial results may vary significantly from period to period due to fluctuations in product development cycle, operating costs, and product demand.
• Business plans require a significant amount of capital, and future capital needs may require selling additional equity or debt securities that could dilute stockholders or introduce restrictive covenants.
• Substantial debt, including the $20.0 million Convertible Note, could impair flexibility and access to capital and adversely affect financial position if debt obligations cannot be serviced.
• Experienced and may in the future experience significant delays in the design, manufacturing, and wide-spread deployment of products.
• Previous restatement of financial statements and the perception of potential future restatements may adversely affect investor confidence, stock price, and ability to raise capital.
• Material weaknesses in internal control over financial reporting may cause failure to meet reporting obligations or result in material misstatements.
• Failure to successfully tool manufacturing facilities or inoperable facilities would prevent vehicle production and harm the business.
• Risks associated with strategic alliances or acquisitions, and potential inability to identify or form future strategic relationships.
• Derives a significant portion of revenue from a small number of customers; decreases or fluctuations in revenue from these customers could negatively affect business.
• Delay in providing sufficient charging solutions for vehicles has resulted in delayed vehicle deliveries to customers.
• Dependence on suppliers, some of which are limited or single-source, and their inability to deliver necessary components at acceptable prices and volumes could harm the business.
• Business and prospects depend significantly on the ability to build the Xos brand, which could be harmed by negative publicity.
• Failure to manage growth effectively may hinder successful design, development, manufacture, and marketing of products.
• Battery packs use lithium-ion battery cells, which have been observed to catch fire or vent smoke and flame.
• Experienced, and may again experience, increases in costs, disruption of supply, or shortage of materials, particularly for lithium-ion battery cells, semiconductors, and other key components.
• Relies on complex machinery for manufacturing, involving significant risk and uncertainty in operational performance and costs.
• May be unable to realize the opportunities expected from the acquisition of ElectraMeccanica Vehicles Corp.
• May face regulatory limitations on selling vehicles directly to consumers, including changes to tax incentive policies.
• Compliance obligations and/or actual or perceived failure to comply with data privacy and security laws could harm the business.
• Performance characteristics of products may vary due to factors outside of control, harming development, marketing, and deployment.
• May have insufficient reserves to cover future warranty or part replacement needs or other vehicle, powertrain, and battery pack repair requirements.
• Experienced product recalls and may experience future product recalls.
• Highly dependent on co-founders Dakota Semler and Giordano Sordoni, and other key personnel; inability to attract and retain qualified personnel could adversely affect competitiveness.
• The commercial vehicle market is highly competitive.
• Growth depends on the last-mile and return-to-base segments' willingness to adopt electric vehicles.
• Impacted by macroeconomic conditions, including supply chain disruption, trade policies and tariffs, health crises, inflation, uncertain credit and global financial markets, labor discord, and geopolitical events.

Future Outlook

The company expects to derive future revenue from sales of its vehicles, battery systems, and other product and service offerings, which are currently in development. Substantial additional capital will be required to continue developing products, achieve full commercialization, and fund operations for the foreseeable future, as net losses and cash outflows are anticipated to continue while scaling operations. Growth is expected to be supported by the expansion of e-commerce, last-mile delivery, and increasing regulatory and consumer interest in reducing climate change impacts. Management anticipates additional pressure on loss from operations in the fourth quarter of 2025 due to changes in product mix and increased tariff costs. Various strategies, including debt, non-dilutive, and equity financing (ATM, SEPA), are being evaluated to secure necessary funding. The company will continue to assess the impact of the One Big Beautiful Bill Act on its financial statements in future periods.

Management Comments

• Management plans to continue to seek opportunities to reduce costs and, in particular, cash expenditures, in a manner intended to minimize their adverse impact on our core operations.
• There can be no assurance that the measures described above, or any other cost-cutting measures we may implement in the future, will be sufficient to address our immediate or longer-term liquidity and working capital needs.
• Management, including the Chief Executive Officer and Chief Financial Officer, has reiterated its commitment to strengthening internal controls, fostering control consciousness, and maintaining a strong control environment to address material weaknesses.
• Notwithstanding these material weaknesses, Management has concluded that our unaudited condensed consolidated financial statements included in this Form 10-Q are fairly stated in all material respects in accordance with U.S. GAAP for each of the periods presented therein.

Industry Context

The company operates within the rapidly evolving fleet electrification solutions sector, focusing on battery-electric commercial vehicles for last-mile and back-to-base routes. This segment is poised for growth, driven by the expansion of e-commerce, shifts in consumer purchasing behavior, and ambitious greenhouse gas emission reduction goals set by governments and major corporations like FedEx, UPS, and Amazon. The company's proprietary offerings, such as the Xos Hub for charging infrastructure and Xosphere for fleet management, aim to address the unique challenges of transitioning to electric fleets by offering cost-efficient and seamless ownership experiences. However, the industry faces ongoing macroeconomic headwinds, including persistent supply chain disruptions, fluctuating tariffs, inflation, and geopolitical instability, which continue to impact sourcing, costs, and overall market conditions.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results for direct comparison to global benchmarks.
• The company's X-Platform is engineered to offer a lower total cost of ownership compared to traditional diesel fleets, aligning with a key industry driver for electric vehicle adoption.
• The company's focus on 'last-mile, back-to-base routes of up to 200 miles per day' targets a specific and growing niche within the commercial electric vehicle market.
• The company acknowledges that its integrated offerings, such as the Xos Hub and Xosphere, are 'novel in the industry and has yet to be tested in the long term,' indicating a lack of established industry benchmarks for these specific solutions.

Corporate Governance

Legal Proceedings

• On October 10, 2025, the Supreme Court of British Columbia issued a judgment in favor of a former employee of EMV for severance arrangements, estimated to require aggregate payments of approximately $0.5 million.

Related Party Transactions

• Lease agreements with Fitzgerald Manufacturing Partners, whose owner is a stockholder. Rent expense of $0.2 million for Q3 2025 and $0.5 million for the nine months ended September 30, 2025.
• Sold no Hubs to Xcel Energy in Q3 2025 and for the nine months ended September 30, 2025. A board member served as Senior VP, System Strategy and Chief Planning Officer of Xcel Energy through March 17, 2025. Management believes these transactions were conducted on arm's length terms.

Stakeholder Impact

• Shareholders face potential dilution from future equity raises (ATM, SEPA) and the conversion of $6.0 million accrued interest on convertible debt into 1,803,262 shares of Common Stock.
• Shareholders are exposed to the risk of complete or partial loss of investment due to substantial doubt about the company's ability to continue as a going concern.
• Employees have seen headcount reductions in G&A, R&D, and S&M functions, though stock-based compensation remains a component of remuneration.
• Customers may experience delays in vehicle deliveries due to insufficient charging solutions and face risks from past and potential future product recalls.
• Suppliers face risks due to the company's dependence on single-source suppliers and the impact of tariffs and supply chain disruptions.
• Creditors, particularly holders of the convertible debt, have seen the repayment schedule extended, providing more time for the company to meet obligations, but the going concern warning raises overall credit risk.

Next Steps

• Continue developing products and services, including vehicles, battery systems, Xos Hub, and Xosphere.
• Secure additional capital through various financing strategies to fund and scale operations.
• Implement financial reporting control changes to remediate material weaknesses in internal control over financial reporting related to inventory management, revenue recognition, and IT general controls.
• File a post-effective amendment to the Registration Statement on Form S-1 to enable access to the Standby Equity Purchase Agreement (SEPA).
• Monitor and adjust strategy in response to potential changes in trade policies and tariffs.
• Make 18 monthly payments totaling approximately $2.8 million for the Mesa Lease termination.
• Evaluate the impacts of the One Big Beautiful Bill Act on financial statements in future periods.
• Directors Dietmar Ostermann, Michael Richardson, and Alice Jackson have Rule 10b5-1 trading arrangements becoming effective no earlier than December 18, 2025, and December 29, 2025, respectively.

Key Dates

Recommendation

Despite a reported net income for Q3 2025, which was significantly boosted by a one-time gain from lease termination, the company explicitly states 'substantial doubt about our ability to continue as a going concern through the next 12 months.' This fundamental risk, coupled with ongoing net losses for the nine-month period, declining gross profit, and identified material weaknesses in internal controls, indicates severe financial instability. While cost-cutting measures and debt restructuring offer temporary relief, the long-term viability remains highly questionable. The heavy reliance on a few customers and single-source suppliers further exacerbates operational risks. A seasoned investor would likely view the going concern warning as a critical red flag, suggesting a 'sell' recommendation to mitigate potential capital loss.

Keywords

Electric Vehicles, Commercial Transportation, Fleet Electrification, Battery-Electric Vehicles, Last-Mile Delivery, Xos Hub, Xosphere, Powertrains, SEC 10-Q, Financial Results, Going Concern, Supply Chain, Tariffs, Internal Controls, Capital Raise, Convertible Debt, ElectraMeccanica