Note 5 — Inventories

Inventories as of June 30, 2026 and December 31, 2025 were comprised of raw materials, work in process and finished goods related to the production of stepvans, powertrains, hubs, and other products for sale and finished goods inventory including vehicles in transit to fulfill customer orders, new vehicles, new vehicles awaiting final pre-delivery quality review inspection, and Xos Energy Solutions products available for sale. The remaining capitalized labor and overhead cost remaining in work in process and finished goods inventory is $0.7 million and $0.6 million as of June 30, 2026 and December 31, 2025, respectively.

Inventories are stated at the lower of cost or net realizable value. Cost is computed using average cost. Inventory write-downs are based on reviews for excess and obsolescence determined primarily by current and future demand forecasts. During the three months ended June 30, 2026 and 2025, the Company recorded a favorable change in our inventory reserves of $0.7 million and $1.7 million, respectively, to reflect inventories at their net realizable values and provide an allowance for any excess or obsolete inventories. During the six months ended June 30, 2026 and 2025, the Company recorded a favorable change in our inventory reserves of $0.9 million and $2.2 million, respectively, to reflect inventories at their net realizable values and provide an allowance for any excess or obsolete inventories.