Forward-Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words "expect," "anticipate," "intend," "believe," or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading "Risk Factors" in our Form S-1 Registration Statement filed on May 24, 2022. Readers are cautioned not to place undue reliance on these forward-looking statements.

Overview

Phoenix Motor Inc., doing business as "Phoenix Motorcars" through its wholly owned subsidiaries, Phoenix Cars LLC, Phoenix Motorcars Leasing LLC, and EdisonFuture Motor, Inc., currently designs, assembles, and integrates electric drive systems and light and medium duty electric vehicles ("EVs") and markets and sells electric vehicle chargers for the commercial and residential markets.

The Company operates two primary brands, "Phoenix Motorcars" focused on commercial products including medium duty electric vehicles, chargers and electric forklifts, and "EdisonFuture" which intends to offer light-duty electric vehicles. As an EV pioneer, we delivered our first commercial EV in 2014. We develop and integrate our proprietary electric drivetrain into the Ford Econoline Chassis (E-Series), specifically on the Ford E-450. The Ford E-Series is the dominant chassis in the medium duty Class 4 market in the U.S. in terms of market share and the range of configurations varying from shuttle buses, Type A school buses, utility trucks, service trucks, to flatbed trucks, walk-in vans, and cargo trucks. Since our inception, we have been developing light and medium duty commercial electric vehicles for various service and government fleet markets, including city fleets, campuses, municipalities and transit agencies and serve a broad spectrum of commercial fleet customers, such as airport shuttle operators, hotel chains, transit fleet operators, seaports, last-mile delivery fleets, and large corporations.

Basis of presentation, management estimates and critical accounting policies

Our unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") and include the accounts of our company, and all of our subsidiaries. We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. In order to understand the significant accounting policies that we adopted for the preparation of our condensed consolidated interim financial statements, readers should refer to the information set forth in Note 3 "Summary of significant accounting policies" to our audited financial statements in Form S-1 Registration Statement filed on May 24, 2022.

Principal Factors Affecting Our Results of Operations

We believe that the following factors have had, and we expect that they will continue to have, a significant effect on the development of our business, financial condition and results of operations.

COVID-19 and Global Economic Factors. The effect of the novel coronavirus

("COVID-19") has significantly impacted the United States and the global

? economy. COVID-19 and the measures taken by many countries in response have

adversely affected and could in the future materially adversely impact the

Group's business, results of operations, and financial




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condition. The ongoing worldwide economic situation, including the COVID-19

outbreak, economic sanctions, the outbreak of war in Ukraine, future weakness in

the credit markets, and significant liquidity problems for the financial

services industry may impact our financial condition in a number of ways. For

example, our current or potential customers, may delay or decrease spending with

us, or may not pay us, or may delay paying us for previously purchased products

and services. Also, we may have difficulties in securing additional financing.

Public health efforts to mitigate the impact of COVID-19 have included government actions such as travel restrictions, limitations on public gatherings, shelter in place orders, and mandatory closures. These actions are being lifted to varying degrees. However, the associated impact of COVID-19 closures and mobility restrictions on the economy are expected to continue to unfold. Supply chain disruptions, inflation, high energy prices, and supply-demand imbalances are expected to continue in 2022. The Group closely monitors customer accounts and has not experienced significant delays in the collection of accounts receivable.

The ultimate impact of COVID-19 and the outbreak of war in Ukraine on our business, results of operations, financial condition, and cash flows is dependent on future developments, including the duration of COVID-19 and the crisis in Ukraine, government responses and the related length of this impact on the economy, which are uncertain and cannot be predicted at this time.

Product Development and Scaling. Our results are impacted by our ability to

sell our electrification solutions and services to new and existing customers.

We have had initial success with selling to our fleet customers. We believe

continued reduction in costs, improvement in battery performance and increase

in production volumes will enable commercial vehicle customers to adopt

electrification more quickly. In order to sell additional products to new and

existing customers, we will require additional capital to develop our products

and services, ramp up production and support expansion. Until we can generate

sufficient revenue from vehicle sales, we expect to primarily finance our

? operations through proceeds from public or private stock offering, and/or debt

financings, and potentially federal and state incentive funding programs. The

amount and timing of our future funding requirements, will depend on many

factors, including the pace and results of our research and development efforts

and our ability to successfully manage and control costs and scale our

operations. If we fail to make the right investment decisions in our technology

and electrification solutions, including electrification and charging

solutions, if customers do not adopt our technology or our products and

services, or if our competitors are able to develop technology or products and

services that are superior to ours, our business, prospects, financial

condition, and operating results could be adversely affected.

BOM and Supply Chain. Purchased materials represent the largest component of

cost of goods sold in our products and we continue to explore ways to improve

cost structure of our products through better design, strategic alliances for

sourcing, supply chain optimization, and, in some cases vertical integration.

We believe that an increase in volume and additional experience will allow us

to reduce our Bill of Materials ("BOM"), labor and overhead costs, as

a percentage of total revenue. By reducing material costs, increasing facility

utilization rates and improving overall economies of scale, we can reduce

prices while maintaining or growing gross margins of our products to improve

customers' total cost of ownership and help accelerate commercial electric

vehicle adoption. Our ability to achieve our cost-saving and

production-efficiency objectives could be negatively impacted by a variety of

factors including, among other things, lower-than-expected facility utilization

rates, manufacturing and production cost overruns, increased purchased material

? costs, and unexpected supply chain quality issues or interruptions. If we are

unable to achieve our goals, we may not be able to reduce price enough to

accelerate commercial vehicle electrification, and our cost of goods sold and

operating costs could be greater than anticipated, which would negatively

impact gross margin and profitability. Because we rely on third party suppliers

for the development, manufacture, and development of many of the key components

and materials used in our vehicles, we have been affected by industry-wide

challenges in logistics and supply chains. We often do not get informed of

delivery delays until or after the expected delivery dates, which does not

allow for adequate planning. We have also been experiencing shortages of

chassis and other components. While we increased our raw material inventories

and added new suppliers and continue to focus on mitigating risks to our

operations and supply chain in the current industry environment, we expect that

these industry-wide trends will continue to affect our ability and the ability

of our suppliers to obtain parts, components and manufacturing equipment on a

timely basis for the foreseeable future.

On July 30, 2022, our battery pack supplier Romeo Power, Inc. ("Romeo") entered into a Merger Agreement (the "Transaction") to be acquired by Nikola Corporation. ("Nikola"). Subsequently, we were notified by Romeo that they intend



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to stop taking additional purchase orders once they finish fulfilling our current purchase orders, until the Transaction closes. During the three months ended June 30, 2022, Romeo was the only supplier for our battery packs. We are dependent on the continued supply of battery packs by Romeo for the manufacturing of our current generation products and we have limited flexibility in changing battery pack supplier given the design of our current generation products. While we may be able to establish alternative supply relationships and obtain replacement, we may be unable to do so in the short term (or at all) at prices or quality levels that are favorable to us. While we're actively pursuing a mitigation plan to minimize impacts on our manufacturing process, including modifying the design of our current generation products, accelerating the development of next generation products and negotiating an exception with Nikola and Romeo management, the loss of Romeo as our battery supplier could cause a near-term disruption in our ability to timely deliver certain products, or increase costs, which may have a material adverse effect on our business, financial condition, and operating results.

Government Subsidies and Incentive Policies. With growing emphasis on improving

air quality around our communities, large states like California are mandating

key end user segments to switch to zero emission transportation options. Some

of the key regulations driving growth in our addressable market include -

requiring all transit buses in California to be zero emissions by 2040;

requiring all airport shuttles in California to be all electric by 2035,

requiring at least 50% of all medium-duty trucks sold in California to electric

by 2030, requiring specific end user segments like drayage and yard trucks to

go electric. Other states like New York, New Jersey and Massachusetts are also

expected to bring in regulatory requirements for key end user segments like,

transit agencies and school buses to switch to all electric transportation

options. Fifteen other states including Connecticut, Colorado, Hawaii, Maine,

Maryland, Massachusetts, New Jersey, New York, North Carolina, Oregon,

Pennsylvania, Rhode Island, Vermont, and Washington have committed to follow

California's Advanced Clean Trucks Regulation. Primarily driven by the urgent

need to meet carbon and greenhouse gas emission reduction targets, various

state and federal agencies are also supporting the switch to zero emission

transportation, providing a host of funding and incentive support to develop,

? demonstrate and deploy zero emission transportation solutions. Some of the key

funding / incentives driving adoption of electric medium duty vehicles include:

the California Hybrid and Zero- Emission Truck and Bus Voucher Incentive

Project, which offers a minimum of $60,000 per vehicle as incentive for Class 4

electric vehicles registered and operating in the state; the New York Truck

Voucher Incentive Program offering up to $100,000 per Class 4 electric vehicle;

funding from federal agencies like the Federal Transit Administration, covering

up to 80% of the cost of procuring electric transit buses and various funding

options covering up to 100% of the cost of procuring all electric school buses

across key states. Federal and various state agencies have established

incentives for setting up both public and private charging infrastructure.

Notably, the California Energy Commission and the California Public Utilities

Commission have approved funding up to 100% of the cost of setting up chargers

and related infrastructure. Large utilities like Southern California Edison,

Pacific Gas & Electric and San Diego Gas & Electric have 'Charge Ready'

programs that cover the entire cost of setting up charging infrastructure.

Other states like New York, Chicago, North Carolina, Tennessee, Texas and Ohio

have also introduced programs to support fleets with their charging

infrastructure requirements.




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