20-F: Zapp Electric Vehicles Group Limited Files 20-F Annual Report, Cites Liquidity Concerns

Zapp Electric Vehicles Group Limited's 20-F filing reveals ongoing losses and liquidity challenges, alongside progress in vehicle homologation and micro-factory development.

Summary

• Zapp Electric Vehicles Group Limited reported a net loss of $9.0 million for the fiscal year ended September 30, 2024, a significant decrease from the $222.1 million loss in the previous year.
• The company's operating loss also decreased to $6.2 million from $7.8 million year-over-year.
• Revenue for the year was minimal at $17,440, derived from initial vehicle sales.
• The company faces significant liquidity constraints and requires additional external capital to fund operations, debt service, and other obligations.
• Zapp has implemented cash conservation strategies, including delaying payments to key suppliers, resulting in trade and other payables totaling $20.7 million.
• The company anticipates increased operating cash outflows in 2025 compared to 2024, and expects that cash flows from operating activities will be insufficient to cover operating expenses and interest payments.
• Zapp has access to significant liquidity under a new standby equity purchase agreement, but may require additional financing to settle overdue payables.
• The company's independent auditor has included an explanatory paragraph in their report relating to Zapp's ability to continue as a going concern.
• Zapp has completed homologation in Thailand and submitted an application for European Community Whole Vehicle Type Approval (ECWVTA) to sell its i300 electric motorcycle in Europe.
• A new micro-factory reference site in Thailand has been opened, with a capacity of up to 21,500 units per year.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there are positive developments such as the completion of homologation in Thailand and the opening of a new micro-factory, the company's financial situation is concerning, with significant losses, liquidity issues, and a going concern warning from its auditor. The need for additional capital raises and the delay in commercial launch also contribute to a negative sentiment.

Positives

• The company's net loss decreased significantly year-over-year, from $222.1 million to $9.0 million.
• Operating loss also decreased, indicating improved cost management.
• Zapp has completed homologation in Thailand, a key market for P2W vehicles.
• The company has submitted an application for ECWVTA, which will allow sales in Europe.
• A new micro-factory has been opened in Thailand, with a capacity of up to 21,500 units per year.
• Zapp has access to significant liquidity under a new standby equity purchase agreement.

Negatives

• The company faces significant liquidity constraints and requires additional external capital to fund operations.
• Zapp has delayed payments to key suppliers, resulting in substantial trade and other payables.
• The company anticipates increased operating cash outflows in 2025.
• Cash flows from operating activities are expected to be insufficient to cover operating expenses and interest payments.
• The company's independent auditor has included an explanatory paragraph in their report relating to Zapp's ability to continue as a going concern.

Risks

• The company may not be able to obtain additional financing on commercially reasonable terms, or at all.
• If Zapp is unable to secure further extensions or forbearance in respect of its obligations to its suppliers, it may not have sufficient liquidity to continue operations beyond the middle of 2025.
• The company may be required to reduce the scope of, delay or eliminate some or all of its business plans if it is unable to obtain additional funding.
• The company's ability to achieve profitability depends on the successful development, commercial introduction and consumer acceptance of its vehicles.
• The global P2W market is highly competitive, and Zapp will be competing with both ICE and EV-focused companies.
• The company may experience delays in the design, manufacture, production, and launch of its vehicles.
• Zapp depends on key suppliers to deliver vehicle components according to schedules, prices, quality, and volumes that are acceptable to the company.
• The company may be subject to product liability claims, which could harm its financial condition and liquidity.
• Zapp is subject to cybersecurity risks to its various systems and software, and any material failure could prevent the company from effectively operating its business.
• The company may be involved in legal proceedings in the ordinary course of its business, and adverse outcomes could affect its business, results of operations and financial condition.
• The company has identified a material weakness in its internal control over financial reporting.

Future Outlook

The company expects to finance its operations and working capital requirements for the next 12 months from a combination of the issuance of securities, borrowings, cash generated through operations following its commercial rollout and a continued delay in settling payment obligations to a number of suppliers related to the Business Combination. The company anticipates increased operating cash outflows in 2025 compared to 2024, and expects that cash flows from operating activities will be insufficient to cover operating expenses and interest payments.

Management Comments

• Management believes that the new micro-factory system can be replicated in other regions with high demand for EVP2Ws.
• Management believes that the company's capital-efficient financing structure, together with its asset-light production arrangements, positions it to achieve positive free cash flow in a shorter time frame compared to other selected EV peers.
• Management believes that the i300 is ideally positioned in the current P2W landscape due to its superbike-like specifications, materials, and safety equipment all packaged in a competitively priced step-through form factor.

Industry Context

The document highlights the competitive nature of the global P2W market, with both ICE and EV-focused companies vying for market share. The document also notes the expected growth in the EVP2W sector, driven by increased demand and regulatory pushes for alternative fuel vehicles. Zapp is positioning itself as a premium brand in this evolving market.

Comparison to Industry Standards

• The document notes that the i300 has a low component count of less than 150 parts and a simplified assembly process of 105 steps, compared to other ICEP2W manufacturers that are estimated to require more than 2,000 components and up to 150 assembly steps.
• The document also notes that the i300 has acceleration times of 0 to 30mph in 2.3 seconds and 0 to 50mph in 5.0 seconds, which are comparable to larger step-over motorcycles.
• The document also notes that the i300 utilizes portable battery packs which do not require dedicated charging infrastructure, which is a differentiator from many other EV manufacturers.

Legal Proceedings

• Zapp UK is party to a civil action captioned SPAC Advisory Partners LLC v. Zapp Electric Vehicles Limited et al., No. 655171/2023, filed on October 19, 2023 in the Supreme Court of New York County, New York.
• Plaintiffs amended complaint in the action, filed March 26, 2024, asserts claims for breach of contract, account stated and supplemental claims arising from Zapp UKs alleged non-payment of $3,630,000 in fees allegedly due to plaintiff for advisory services rendered to Zapp UK in relation to the Business Combination.
• Plaintiffs amended complaint also purports to add the parent Company as a party defendant in the case.
• Zapp UK filed an answer to the operative complaint on May 8, 2024.
• On September 6, 2024, following service of the Amended Complaint upon it, the Company filed a motion to dismiss plaintiff's amended complaint as against it on various grounds, including that the court lacks personal jurisdiction over it.
• On October 8, 2024, plaintiffs counsel filed its opposition to the Companys motion to dismiss and, contrary to applicable procedural rules, included in such opposition a cross-motion for partial summary judgment against Zapp UK.
• On October 14, 2024, the Company filed a reply in further support of its motion to dismiss combined with Zapp UKs opposition to plaintiff's purported cross-motion for partial summary judgment.

Related Party Transactions

• ZTH leases property from Paragon Partners Company Limited, an entity controlled by Mr. Chatsuwan, with rent payments of $30,749 in 2024.
• On January 12, 2024, ZTH issued a promissory note to Patchara Rattakul, a director of the Company, with a value of THB 10.0 million, bearing interest at 15.0% per annum.
• On April 29, 2024, the Company paid $44,000 to Orakorn Laoharutanun, the wife of Kiattipong Arttachariya, for introducing new investors to the Company.
• On December 11, 2024, Zapp UK entered into certain agreements with Mr. Chatsuwan pursuant to which Mr. Chatsuwan became the owner of 51% of the registered share capital of ZTH, while concurrently agreeing that Zapp UK, as directed by the Company, shall maintain financial and operational control over ZTHs business notwithstanding such majority ownership.

Stakeholder Impact

• Shareholders face the risk of dilution from future equity issuances and potential loss of investment due to the company's financial instability.
• Employees may be affected by potential cost-cutting measures or delays in compensation.
• Customers may experience delays in vehicle deliveries or reduced service quality due to the company's financial challenges.
• Suppliers may face delays in payments or potential contract terminations.
• Creditors face the risk of non-payment or delayed payments due to the company's liquidity issues.

Next Steps

• The company plans to focus on commercial launch activities in Thailand.
• Zapp plans to activate strategic collaborations, pop-up locations, and brand awareness campaigns.
• The company expects to begin significant vehicle deliveries in fiscal year 2025.
• Zapp will continue working toward ECWVTA to sell its i300 electric motorcycle in Europe.

Key Dates

Keywords

electric vehicles, EV, motorcycles, Zapp, liquidity, manufacturing, homologation, financial results, capital raise, micro-factory