v3.22.2.2
SHARE-BASED PAYMENT
 9 Months Ended
Sep. 30, 2022
Share-based Payment Arrangement [Abstract]  
SHARE-BASED PAYMENT SHARE-BASED PAYMENTOn July 21, 2021, the Company adopted the Microvast Holdings, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), effective upon the Closing Date. The 2021 Plan provides for the grant of incentive and non-qualified stock option, restricted stock units, restricted share awards, stock appreciation awards, and cash-based awards to employees, directors, and consultants of the Company. Options awarded under the 2021 Plan expire no more than 10 years from the date of grant. Concurrently with the closing of the Business Combination, the share awards granted under 2012 Share Incentive Plan of Microvast, Inc. (the "2012 Plan") were rolled over by removing original performance conditions and converting into options and capped non-vested share units with modified vesting schedules, using the Common Exchange Ratio of 160.3. The 2021 Plan reserved 5% of the fully-diluted shares of Common Stock outstanding immediately following the Closing Date plus the shares underlying awards rolled over from the 2012 Plan for issuance in accordance with the 2021 Plan’s terms.
On April 14, 2022, the Company's former Chief Financial Officer's ("Former CFO") employment with the Company terminated. Simultaneously, a transition services agreement was entered into between the Company and the Former CFO for the provision of advisory services to the Company with an initial term of 18 months commencing on the date of the Former CFO's termination of employment. Upon the Former CFO's termination of employment, all 1,122,100 stock options and 2,860,713 capped non-vested share units held by the Former CFO immediately vested in full and a $4,897 cash payment was made to the Former CFO related to the settlement of capped non-vested share units. The Former CFO's stock options remain exercisable until three months following the termination of his transition services agreement with the Company. Because he continues to provide advisory services to the Company, the Former CFO is an eligible person rendering services under the 2012 Plan, and the accelerated vesting and extended exercise period of his stock options were in accordance with the terms and conditions of the Former CFO's employment agreement and stock option award agreement. As such, the changes are not considered a modification under ASC 718. During the nine months ended September 30, 2022, $16,778 of share-based compensation expense was recognized in connection with the vesting of the Former CFO's awards.
Stock options
On April 14, 2022 and June 7, 2022, the Company granted 1,800,000 and 600,000 stock options to two new executive officers and two employees, subject to service conditions, respectively. The service conditions require the participant’s continued employment with the Company through the applicable vesting dates.

On July 7, 2022, the Company granted 500,000 stock options to an employee with an exercise price of $2.42. The vesting of these options is subject to a service condition of continued employment with the Company through the applicable vesting dates and performance condition which requires the achievement of certain performance criteria as defined in the award agreement. The criteria is probable to achieve and therefore related expenses were recognized.
The grant date fair value of the stock options was determined using the Black Scholes model with the following assumptions:
Nine months ended September 30, 2022
Exercise price $2.42 ~$5.69 
Expected terms (years) 6.00
Volatility 56.16 %~57.84 %
Risk-free interest rate2.79 %~3.02 %
Expected dividend yields 0.00%
Weighted average fair value of options granted$1.33 ~$3.19 

The exercise prices for each award were extracted from the option agreements. The expected terms for each award were derived using the simplified method, and is estimated to occur at the midpoint of the vesting date and the expiration date. The volatility of the underlying common stock during the lives of the options was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the expected term of the options. Risk-free interest rate was estimated based on the market yield of US Government Bonds with maturity close to the expected term of the options. The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the options.
During the three and nine months ended September 30, 2022, the Company recorded share-based compensation expense of $14,081 and $46,043 related to the option awards, respectively.
Stock options-continued
Stock options activity for the nine months ended September 30, 2021 and 2022 was as follows (all stock award activity was retroactively restated to reflect the conversion in July 2021):
Stock options lifeNumber of Shares Weighted Average Exercise Price
(US$)		Weighted Average Grant Date
Fair Value (US$)		Weighted Average Remaining
Contractual Life
Outstanding as of December 31, 202034,737,967 $6.19 $2.92 9.0
Forfeited(1,186,220)6.28 3.13 
Outstanding as of September 30, 2021
33,551,747 $6.19 $4.95 8.2
Expected to vest and exercisable as of September 30, 2021
33,551,747 $6.19 $4.95 8.2
Outstanding as of December 31, 202133,503,657 6.19 4.95 7.9
Grant2,900,000 4.81 2.69 
Vested(11,875,830)6.20 5.00 
Forfeited(227,092)6.28 4.86 
Outstanding as of September 30, 2022
24,300,735 $6.02 $4.70 7.0
Expected to vest and exercisable as of September 30, 2022
24,300,735 $6.02 $4.70 7.0
The total unrecognized equity-based compensation costs as of September 30, 2022 related to the stock options was $103,243, which is expected to be recognized over a weighted-average period of 1.9 years. The aggregate intrinsic value of the stock options as of September 30, 2022 was $0.
Capped Non-vested share units
The capped non-vested share units ("CRSUs") represent rights for the holder to receive cash determined by the number of shares granted multiplied by the lower of the fair market value and the capped price, which will be settled in the form of cash payments. The CRSUs were accounted for as liability classified awards.

On June 27, 2022, the Board of Directors and Compensation Committee approved a modification of the settlement terms of 20,023,699 CRSUs under the 2021 Plan from cash settlement to share settlement (the “Modification”). Pursuant to the Modification, on each vesting date, if the stock price is higher than the capped price, the number of shares to be issued will be calculated based on the following formula:

Number of shares to be issued = Capped price* Number of shares vested /Vesting date stock price

If the stock price is equal to or less than the capped price, the Company will grant a fixed number of shares on each vesting date based on the vesting schedule. All other terms of the CRSUs remain unchanged. The Modification resulted in a change of the CRSUs’ classification from liability to equity, as the predominant feature of the modified CRSUs was the granting of a fixed number of shares on each vesting date instead of a fixed monetary amount. The determination of the predominant feature was based on the estimated probability of how the awards will be settled using the Monte Carlo model.

At the Modification date, the Company reclassified the amounts previously recorded as a share-based compensation liability to additional paid-in capital. The modified CRSUs were accounted for as an equity award going forward from the date of the Modification with compensation expenses recognized for each tranche at the fair value measured on the modification date.
Capped Non-vested share units-continued

At the Modification date, the Company used the Monte Carlo valuation model in determining the fair value of the CRSUs with assumptions as follows:

Modification Date
Expected term (years)0.07~2.07
Volatility 50.93 %~73.89 %
Risk-free interest rate 1.15 %~3.05 %
Expected dividend yields 0.00%
Expected term was the time left (in years) from the Modification date to the vesting date based on the terms of the applicable award agreements. The volatility of the underlying common stock was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the expected term of the awards. Risk-free interest rate was estimated based on the market yield of US Government Bonds with maturity close to the expected term of the awards. The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the awards.

During the three and nine months ended September 30, 2022, the Company recorded share-based compensation expense of $4,367 and $29,481, respectively, related to these CRSUs awards.

CRSUs' activity for the nine months ended September 30, 2021 and 2022 was as follows (all award activity was retroactively restated to reflect the conversion in July 2021):
Number on
Non-Vested
Shares 		Weighted Average Grant
Date Fair Value
per Share (US$)
Outstanding as of December 31, 202023,027,399 $0.93 
Outstanding as of September 30, 202123,027,399 $8.74  1
Outstanding as of December 31, 202123,027,399 $8.74 
Vested(9,582,930)$4.37 
Outstanding as of September 30, 2022
13,444,469 $2.38 
The total unrecognized equity-based compensation costs as of September 30, 2022 related to CRSUs was $15,798.
Restricted Stock Units
Following the Business Combination, the Company granted 693,232 restricted stock units (“RSUs”) and 1,274,222 performance-based restricted stock unit (“PSU”) awards subject to service, performance and/or market conditions. The service condition requires the participant’s continued services or employment with the Company through the applicable vesting date, and the performance condition requires the achievement of the performance criteria defined in the award agreement. The market condition is based on the Company’s TSR relative to a comparator group during a specified performance period.
Restricted Stock Units-continued
The fair value of RSUs is determined by the market closing price of Common Stock at the grant date and is amortized over the vesting period on a straight-line basis. The fair value of PSUs that include vesting based on market conditions are estimated using the Monte Carlo valuation method. For PSU awards with performance conditions, share-based compensation expense is only recognized if the performance conditions become probable to be satisfied. Compensation cost for these awards is amortized on a straight-line basis over the vesting period based on the grant date fair value, regardless of whether the market condition is satisfied. Accordingly, the Company recorded share-based compensation expense of $345 and $1,048 related to these RSUs and $621 and $1,653 related to these PSUs during the three and nine months ended September 30, 2022, respectively.
The following assumptions were used for respective period to calculate the fair value of common stock to be issued under TSR awards on the date of grant using the Monte Carlo model:
Nine months ended September 30, 2022
Expected term (years) 2.68
Volatility 59.50 %
Risk-free interest rate 2.72 %
Expected dividend yields 0.00 %

Expected term was derived based on the remaining time from the grant date through the end of the performance period. The volatility of the underlying common stock during the lives of the awards was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the expected term of the awards. Risk-free interest rate was estimated based on the market yield of US Government Bond with maturity close to the expected term of the awards. The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the awards.
The non-vested shares activity for the nine months ended September 30, 2021 and 2022 was as follows:
Number of
Non-Vested
Shares 		Weighted
Average Grant
Date Fair Value
Per Share (US$)
Outstanding as of December 31, 2020— — 
Grant197,940 9.60 
Vested(6,157)8.52 
Outstanding as of September 30, 2021191,783 9.63 
Outstanding as of December 31, 2021671,441 9.08 
Grant1,239,854 $4.93 
Vested(86,996)$6.96 
Forfeited(58,126)$7.47 
Outstanding as of September 30, 20221,766,173 $6.33 
The total unrecognized equity-based compensation costs as of September 30, 2022 related to the non-vested shares was $7,213.
The following summarizes the classification of share-based compensation:
Three Months Ended
September 30, 2022		Nine Months Ended
September 30, 2022
Cost of revenues$1,964 $5,780 
General and administrative expenses12,834 55,528 
Research and development expenses3,193 10,981 
Selling and marketing expenses1,284 5,533 
Construction in process139 403 
Total$19,414 $78,225