Executive Summary / Key Takeaways

• Record Performance Amidst Headwinds: Xos achieved its highest quarterly revenue and unit deliveries in Q2 2025, demonstrating strong operational execution and customer demand despite a challenging macroeconomic and tariff environment.
• Strategic Product Diversification: The company is strategically expanding into higher-margin offerings like the Xos Hub mobile charging solution and the new MDXT medium-duty chassis cab, leveraging existing technology for capital-efficient launches and broadening its addressable market.
• Improved Financial Discipline: Xos has shown consistent progress in cost reduction, achieving eight consecutive quarters of positive non-GAAP gross margins and its second-ever positive free cash flow quarter in Q2 2025, underscoring a commitment to sustainable financial health.
• Liquidity Management and Risk Mitigation: Proactive measures, including the restructuring of a significant convertible note and enhanced accounts receivable collections, are addressing liquidity concerns, though the "going concern" qualification and tariff impacts remain key areas of focus.
• Niche Market Leadership: Xos maintains a strong competitive position in the medium-duty commercial EV segment, particularly for last-mile delivery and specialty vehicles, outperforming many peers in deliveries and cost structure by offering integrated, end-to-end fleet electrification solutions.

The Road Ahead: Xos's Strategic Play in Commercial EV Electrification

Xos, Inc. is carving out a distinct position in the rapidly evolving landscape of commercial electric vehicles (EVs). Founded in 2016, the company has matured from an early-stage developer into a provider of comprehensive fleet electrification solutions, focusing on Classes 5 through 8 battery-electric commercial vehicles for last-mile, back-to-base routes. This strategic emphasis positions Xos to capitalize on the secular tailwinds of e-commerce growth and global decarbonization initiatives, which are driving a significant shift away from traditional internal combustion engine (ICE) fleets.

The company's overarching strategy revolves around offering an integrated ecosystem that extends beyond just vehicles. This includes its proprietary X-Platform chassis, X-Pack battery systems, Xos Energy Solutions for charging infrastructure (notably the Xos Hub), and the Xosphere fleet management software. This end-to-end approach aims to simplify the transition to electric for commercial operators, addressing common pain points like charging infrastructure and total cost of ownership. Xos’s journey, including its 2021 SPAC merger and the 2024 acquisition of ElectraMeccanica, has been instrumental in building its current capabilities and bolstering its liquidity for growth.

Technological Foundation and Competitive Edge

Xos's core technology forms the bedrock of its competitive advantage. The X-Platform, a proprietary, purpose-built vehicle chassis, and the X-Pack battery system are designed specifically for medium-duty commercial applications. This modular architecture allows for customization, enabling a lower total cost of ownership (TCO) for fleet operators compared to traditional diesel alternatives. The vehicles are engineered for reliability and durability, with powertrains that have accumulated "many years and millions of miles of on-road use."

A significant differentiator is the Xos Hub, a rapid-deployment mobile charger and energy storage solution. This technology directly addresses a critical bottleneck in EV adoption: the delays and complexities associated with installing permanent charging infrastructure. The Hub acts as a buffer between vehicles and the grid, requiring minimal impact on existing electrical infrastructure. Its value proposition was recently underscored by its approval for California's Clean Off-Road Equipment (CORE) Voucher Incentive Project, making it eligible for a $110,000 incentive. This effectively brings the Hub's cost to under $100,000, less than half the price of many equivalent DC fast charging systems which often exceed $200,000. Xos is also preparing a 2026 product update for the Hub, aiming to offer "greater power resilience, energy cost optimization and load balancing," which could unlock opportunities beyond fleet charging into broader backup power and energy management markets.

The company's new MDXT medium-duty chassis cab further exemplifies its strategic innovation. Launched in Q1 2025 and targeting a production ramp by Q3 2026, the MDXT leverages over 90% commonality in commodity components with Xos's existing stepvan platform. This high degree of commonality translates into an "extremely capital efficient" launch, requiring "very little incremental investment" (less than a low seven-figure range) for production at its Tennessee plant. The MDXT targets a larger market segment (up to 100,000 units per year in Classes 5 and 6) where legacy players often price electric chassis cabs over $300,000, positioning Xos to offer a more affordable and reliable option.

Operational Execution and Market Leadership

Xos has demonstrated robust operational execution, particularly in its core vehicle and charging solutions. In Q2 2025, the company delivered 135 vehicles and 3 Hubs, alongside 4 powertrains, achieving its highest quarterly revenue of $18.4 million and unit deliveries in company history. This performance was driven by significant deliveries to major national carriers like UPS (UPS) and FedEx (FDX) ISP customers, including the commencement of a "200-plus unit order for a single customer," which stands as the largest order in Xos's history. The Tennessee plant has been running efficiently and at high utilization, producing a substantial number of chassis for these demanding fleets.

The company's "Powered by Xos" business, which supplies electrification kits to OEMs like Blue Bird Corporation (BBBG) for electric school buses and Winnebago (WGO) for specialty vehicles, is also gaining traction. Xos secured orders for nearly 20 powertrain units from Blue Bird in Q2 2025, with OEMs choosing Xos due to the proven reliability of its powertrains. This diversification into higher-margin powertrain and charging infrastructure products is a key strategy to enhance overall margins and reduce customer concentration over time.

Analyst observations highlight Xos's differentiated performance, noting that the company is "outperforming all of your competitors, big and small," including Rivian (RIVN) and Workhorse (WKHS), in terms of deliveries and cost structure. Xos proudly states its position as "the largest electric vehicle vendor for FedEx ground operators and the largest electric vehicle package car manufacturer for UPS's North American fleet," alongside leadership in uniform rental companies like Alsco, Cintas (CTAS), and UniFirst (UNF). This market leadership in specific, high-volume commercial segments underscores the effectiveness of its focused strategy.

Financial Performance and Strategic Discipline

Xos's financial trajectory reflects a concerted effort towards operational discipline and profitability. In Q2 2025, the company reported GAAP gross margin of 8.8% and a non-GAAP gross margin of 1.4%, marking its eighth consecutive quarter of positive non-GAAP gross margins. While the GAAP gross margin saw a sequential decline, this was attributed to a product mix featuring higher units delivered to national accounts with long-term structured pricing and the impact of unexpected tariff costs. Management views these large orders as foundational for future profitability through volume and repeat business.

For the first half of 2025, total revenues were $24.3 million, a decrease from $28.7 million in the same period last year. This was primarily due to a shift in product mix, particularly towards strip chassis, resulting in a lower average selling price despite an increase in units delivered year-over-year. However, the company's cost control initiatives have yielded substantial results. Operating expenses in Q2 2025 decreased by 35% year-over-year to $8.7 million, contributing to Xos's lowest operating loss since going public, approximately $7.1 million. Over the past 12 months (as of Q4 2024), Xos implemented over $10 million in cost reductions, with further reductions planned.

Liquidity Management and Capital Strategy

Liquidity remains a critical focus for Xos, an early-stage growth company with a history of net losses and cash outflows. As of June 30, 2025, cash and cash equivalents stood at $8.8 million. The company's financial statements indicate "substantial doubt about our ability to continue as a going concern" through the next 12 months, a common disclosure for growth companies in this phase.

However, Xos has made significant strides in improving its cash flow and capital structure. Q2 2025 marked a pivotal achievement with positive free cash flow of $4.6 million, the highest in company history and its second-ever positive free cash flow quarter. This represents a substantial improvement from negative $4.8 million in Q1 2025 and negative $26.1 million in Q2 2024, driven by record deliveries and strong working capital management.

Key actions supporting liquidity include:

• Convertible Note Amendment: On August 8, 2025, the $20 million convertible note with Aljomaih Automotive Co. was restructured. Principal repayment is now spread over ten quarterly installments from November 2025 through February 2028, rather than a lump sum due in August 2025. Approximately $6 million in accrued interest will be converted into common stock, making Aljomaih the largest shareholder. This amendment frees up capital for sustainable growth.

• Accounts Receivable & Inventory: Accounts receivable decreased to $18.1 million in Q2 2025 from $22.2 million in Q1 2025, with strong collections of $22.8 million. Inventory also declined to $31 million from $38 million, reflecting strong sales outpacing production and improved inventory management. The company is actively streamlining the collection of state incentives, which had a backlog exceeding $25 million as of Q3 2024.
• Cost-Cutting & Asset Management: Xos has implemented headcount reductions, temporary salary reductions for senior executives, and is actively subleasing portions of its facilities (including those from the ElectraMeccanica acquisition) to reduce operational expenses.

Outlook, Guidance, and Future Growth Drivers

Xos reaffirmed its full-year 2025 guidance for revenue between $50.2 million and $65.8 million, and unit deliveries between 320 and 420 units. The non-GAAP operating loss guidance, however, was revised to a range of $24.4 million to $26.9 million (from an initial range of $17.2 million to $14 million). This revision reflects an anticipated shift in product mix towards lower-margin national account deliveries in the second half of the year, as well as increased costs from new tariff structures on parts and commodities, the full impact of which was not known when original guidance was provided. Tariffs are estimated to impact average selling prices by 5% to 15%, depending on the product.

Management emphasizes that demand for its products remains strong, with a backlog exceeding current guided orders. The primary constraint on unit deliveries is often the readiness of charging infrastructure at customer sites. Xos's strategic response includes the continued development and deployment of the Xos Hub and the MDXT. The MDXT, with its broad market appeal and capital-efficient launch, is expected to be a significant growth driver post-2026. The planned 2026 update for the Xos Hub, focusing on enhanced power resilience and energy management, further positions the company to tap into a wider market beyond just fleet charging.

Risks and Mitigation

Despite positive momentum, Xos faces several risks. The "going concern" qualification highlights the ongoing need for additional capital to fund operations. While the Aljomaih note amendment provides significant relief, access to the full $119.4 million under the Standby Equity Purchase Agreement (SEPA) remains contingent on an effective registration statement, which currently covers only 3.33 million shares.

Tariffs and supply chain disruptions pose ongoing challenges. Fluctuating tariff regimes, particularly on power electronics and battery components, introduce volatility. Xos is mitigating this through supply base diversification, renegotiating terms, strategic stockpiling, and exploring reshoring components to North America. Customer concentration, with one customer accounting for 70% of Q2 2025 revenue, is another risk that Xos aims to address through product diversification and expanding its customer base. Finally, identified material weaknesses in internal controls related to inventory management, revenue recognition, and IT general controls are being actively remediated through increased resources and enhanced procedures.

Conclusion

Xos, Inc. is demonstrating a compelling narrative of disciplined growth and strategic adaptation within the dynamic commercial EV market. The company's record Q2 2025 performance, marked by its highest-ever revenue and unit deliveries, coupled with its lowest operating loss since going public, underscores a growing operational maturity. Xos's competitive advantage is rooted in its integrated fleet electrification solutions, proprietary technology, and a strategic focus on the medium-duty segment, where it has established clear leadership in key customer categories.

While the "going concern" qualification and the impact of tariffs present real challenges, Xos is actively addressing these through proactive liquidity management, including the crucial restructuring of its convertible note, and robust cost reduction initiatives. The strategic expansion into higher-margin products like the Xos Hub and the capital-efficient launch of the MDXT chassis cab are critical steps in diversifying revenue, enhancing profitability, and building a resilient business model. For investors, Xos represents an opportunity to participate in the electrification of commercial transportation through a company that is not only delivering vehicles but also building a comprehensive ecosystem, with its technological differentiators and operational discipline positioning it for sustained growth in a market ripe for disruption.