Aeva Technologies, Inc. (AEVA)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the Consolidated Financial Statements and related notes that are included elsewhere in this report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this report.

On March 18, 2024, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation (the “Amendment”) with the Secretary of State of the State of Delaware to effect a 1-for-5 reverse stock split (the “Reverse Stock Split”) of shares of common stock, $0.0001 par value (the “common stock”). Pursuant to the Reverse Stock Split, every five (5) shares of issued and outstanding shares of common stock were combined into one (1) share of common stock. All share and per share amounts presented herein have been retroactively adjusted to reflect the Reverse Stock Split. There was no change to the shares authorized or in the par value per share of common stock of $0.0001.

The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s equity. The Company did not issue fractional shares in connection with the Reverse Stock Split. Stockholders who were otherwise entitled to fractional shares of common stock were instead entitled to receive a proportional cash payment. The number of shares of common stock issuable under our equity incentive plans and exercisable under the outstanding warrants were also proportionately adjusted.

A discussion and analysis regarding our financial condition, results of operations and cash flows for the year ended December 31, 2024 compared to the year ended December 31, 2023 is presented below. Discussion regarding our financial condition and results of operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022 is not included in this Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2024.

Overview

Our vision is to bring perception to broad applications. Through our FMCW sensing technology, we believe we are introducing the world’s first 4D LiDAR-on-chip that, along with our proprietary software applications, has the potential to enable the adoption of LIDAR across broad applications.

Founded in 2017 by former Apple engineers Soroush Salehian and Mina Rezk and led by a multidisciplinary team of engineers and operators experienced in the field of sensing and perception, Aeva’s mission is to bring the next wave of perception technology to broad applications from automated driving to industrial automation, consumer device and security applications. Our 4D LiDAR-on-chip combines silicon photonics technology that is proven in the telecom industry with precise instant velocity measurements and long-range performance for commercialization.

As a development stage company, we work closely with our customers on the development and commercialization of their programs and the utilization of our products in such programs. Thus far, virtually all of our customers have purchased prototype products and engineering services from us for use in their research and development programs. We are expanding our manufacturing capacity through third-party manufacturers to meet our customers’ anticipated demand for the production of our products.

Unlike legacy 3D LiDAR, which relies on Time-of-Flight (“ToF”) technology and measures only depth and reflectivity, Aeva’s solution leverages a proprietary FMCW technology to measure velocity in addition to depth, reflectivity and inertial motion. We believe the ability of Aeva’s solution to measure instant velocity for every pixel is a major advantage over ToF-based sensing solutions. Furthermore, Aeva’s technology is free from interference from other LiDAR and sunlight, and our core innovations within FMCW are intended to enable autonomous vehicles to see at significantly higher distances of up to 500 meters.

We believe Aeva is uniquely positioned to provide a superior solution with the potential to enable higher level of automation for vehicles. Furthermore, we believe the advantages of our 4D LiDAR-on-chip allow us to provide

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the first LiDAR solution that is fully integrated onto a chip with superior performance at scale, with the potential to drive new categories of perception across industrial automation, consumer devices, and security markets.

Key Factors Affecting Aeva’s Operating Results

We believe that our future performance and success depends to a substantial extent on our ability to capitalize opportunities, which in turn is subject to significant risks and challenges, including those discussed below and in the section of this Annual Report on Form 10-K entitled “Risk Factors.”

Pricing, Product Cost and Margins. Our pricing and margins will depend on the volumes and the features as well as specific market applications of the solutions we provide to our customers. We have customers with technologies in various stages of development across different market segments. We anticipate that our prices will vary by market and application due to market-specific product and commercial requirements, supply and demand dynamics and product lifecycles.

Our future performance will depend on our ability to deliver on economies of scale. Our customers will require that our perception solutions be manufactured and sold at per-unit prices that are competitive. Our ability to compete in key markets will depend on the success of our efforts to efficiently and reliably produce cost-effective perception solutions that are competitively priced and affordable for our commercial-stage customers.

Additionally, the macroeconomic conditions in the industry, the growing emergence of competition in advanced assisted driving sensing and software technologies globally can negatively impact pricing, margins and market share. Our business is impacted by various macroeconomic factors, including inflation, interest rates, levels of consumer confidence and consumer debt, fuel and energy costs, and other economic conditions. In addition, we are susceptible to supply chain disruptions, which may be exacerbated by changes to tariffs and trade policies. Given the nature of these macroeconomic factors, we cannot predict whether or for how long certain trends will continue, nor can we predict to what degree these trends will impact us in the future. If we do not generate the margins we expect upon commercialization of our perception solutions, we may be required to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous to Aeva’s stockholders.

Commercialization of LiDAR-based Applications. We expect that our results of operations, including revenue and gross margins, will fluctuate on a quarterly basis for the foreseeable future as our customers continue on research and development projects and begin to commercialize advanced driver assist, autonomous and industrial automation solutions that rely on LiDAR technology. The development cycles of our products with new customers varies widely depending on the application, market, customer and the complexity of the product, and can vary from several months to seven or more years depending on the industry. These development cycles result in us investing our resources prior to realizing any revenue from the commercialization or obtaining any firm commitments of pricing, volume or timing of purchases of our products by our customers. As customers reach the commercialization phase and as the market for LiDAR solutions matures, these fluctuations in our operating results may become less pronounced.

Sales Volume. Each product program will have an expected range of sales volumes, depending on the end market demand for our customers’ products as well as market application. This can depend on several factors, including market penetration, product capabilities, size of the end market that the product addresses and our end customers’ ability to sell their products. In addition to end market demand, sales volumes also depend on whether our customer is in the development or production phase. In certain cases, we may provide volume discounts or strategic customer pricing on sales of our solutions, which may or may not be offset by lower manufacturing costs related to higher volumes which in turn could adversely impact our gross margins. Our ability to ultimately achieve profitability is dependent upon progression of existing relationships to production and our ability to meet required volumes and required cost targets and gross margins. Delays in our current and future customers’ programs could result in us being unable to achieve our revenue targets and profitability in the time frame we anticipate. Such delays could result in us requiring to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous to Aeva’s stockholders.

Basis of Presentation

We currently conduct our business through one operating segment.

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Components of Results of Operations

Revenue

Revenue consists of sales of perception solutions or sensing systems and non-recurring engineering services.

We are engaged in the design, manufacturing and sale of LiDAR sensing systems and related perception and autonomy-enabling software solutions serving customers in automotive, industrial, and other markets. Under our customer agreements, we deliver a specified number of sensing systems at a fixed price under customary terms and conditions. The sensing system units sold under these agreements are typically prototypes that are used by the customer for its research, development, evaluation, pilot, or testing purposes. We also enter into non-recurring engineering service arrangements with certain of our customers to customize Aeva’s perception solution to meet customer specific requirements.

Cost of revenue and gross profit

Cost of revenue principally includes direct material, direct labor and allocation of overhead associated with manufacturing operations, including inbound freight charges and depreciation expense. Cost of revenue also includes the direct cost and appropriate allocation of overhead involved in execution of non-recurring engineering services. Gross profit equals total revenue less total cost of revenue.

Operating expenses

Research and development

Our research and development efforts are focused on enhancing and developing additional functionality for our existing products and on new product development. Research and development expenses consist primarily of:

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Personnel-related expenses, including salaries, benefits, and stock-based compensation expense, for personnel in our research and engineering functions; and

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Expenses related to materials, software licenses, supplies, and third-party services.

We expense research and development costs as incurred.

General and administrative expenses

General and administrative expenses consist of personnel and personnel-related expenses, including salaries, benefits, and stock-based compensation expense of our executive, finance, information systems, human resources, and legal, as well as legal and accounting fees for professional and contract services.

Selling and marketing expenses

Selling and marketing expenses consist of personnel and personnel-related expenses, including salaries, benefits, and stock-based compensation expense of our business development team as well as advertising and marketing expenses. These include the cost of trade shows, promotional materials, and public relations.

We expect that our operating expenses in fiscal 2025 will decrease as compared to fiscal 2024.

Interest income and Interest expense

Interest income consists primarily of income earned on our cash equivalents and investments in marketable securities. Interest income will vary based on our cash equivalents and marketable securities balance and changes in interest rates.

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Other income and expense

Other income and expense primarily consist of changes in the fair value of Series A warrants, fair value of private placement warrants and foreign currency transaction gains and losses, as well as realized gains and losses on marketable securities.

Results of Operations

Comparison of Year Ended December 31, 2024 and 2023

The following table sets forth our results of operations for the periods presented:

Revenue

Revenue increased by $4.8 million, or 110%, to $9.1 million during the year ended December 31, 2024, from $4.3 million for the year ended December 31, 2023. This increase was primarily due to an increase in the sale of prototype units sold in 2024 as compared to 2023, and activity related to non-recurring engineering services which is dependent upon the timing of the work performed for our customers.

Cost of revenue

Cost of revenue increased by $2.7 million, or 26%, to $12.9 million during the year ended December 31, 2024, from $10.2 million for the year ended December 31, 2023. The increase was primarily due to an increase in the number of units sold in 2024 and also due to an increase in non-recurring engineering services during 2024 as compared to 2023.

Operating expenses

Research and development

Research and development expense increased slightly by $0.2 million, to $102.7 million during the year ended December 31, 2024, from $102.5 million for the year ended December 31, 2023. Research and development expenses increased primarily due to a $3.0 million increase in professional expenses, a $1.0 million increase in subscription expenses, a $0.4 million increase in miscellaneous expenses and a $0.4 million increase in depreciation expense; this was partially offset by a $3.0 million decrease in research and development material cost, a $0.6

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million decrease in facility expenses, a $0.4 million decrease in legal expenses, a $0.3 million decrease in lab supplies, a $0.2 million decrease in payroll and other employee related expenses, and a $0.1 million decrease in travel expenses.

General and administrative

General and administrative expense increased by $1.5 million, or 5%, to $33.3 million during the year ended December 31, 2024, from $31.8 million for the year ended December 31, 2023. General and administrative expense increased primarily due to a $2.2 million increase in payroll and other employee related expenses, a $0.7 million increase in stock based compensation, a $0.5 million increase professional expenses, a $0.2 million increase in travel expense, a $0.2 increase in facility expenses, and $0.1 million increase in other expenses; this was partially offset by a $1.1 million decrease in insurance expenses, a $0.7 million decrease in legal expenses, a $0.3 million decrease in depreciation and a $0.3 million decrease in recruiting expense.

Selling and marketing

Selling and marketing expense decreased by $0.4 million, or 6%, to $7.2 million during the year ended December 31, 2024, from $7.6 million for the year ended December 31, 2023. Selling and marketing expense decreased due to a $0.3 million decrease in travel expenses, a $0.2 million decrease in recruiting expenses, and a $0.1 million decrease in marketing program expenses; this was partially offset by a $0.2 million increase in payroll and other employee related expenses.

Litigation settlement, net

During the year ended December 31, 2024, we recorded a litigation settlement expense (net) of $11.5 million, related to the Delaware Stockholder Litigation (as defined in Note 15 to our consolidated financial statements included elsewhere in this report).

Interest income

Interest income decreased by $1.2 million during the year ended December 31, 2024. The decrease was due to a decrease in the overall balance of interest-bearing cash equivalents and marketable securities.

Other income (expense), net

Other income (expense), net decreased by $9.0 million for the year ended December 31, 2024. In 2023 we issued Series A Warrants of $6.7 million and paid $3.8 million in financing transaction fees for the Facility Agreement (as defined below). In 2024 we recorded a change in fair value of Series A warrants of $1.5 million.

Liquidity and Capital Resources

General

Our capital requirements depend on many factors, including production capacity and sales volume, the timing and spending to support research and development efforts, investments in information technology, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features.

On November 8, 2023, we entered into subscription agreements providing for the purchase of common stock resulting in net proceeds of $20.6 million. Also on November 8, 2023, we entered into a Standby Equity Purchase Agreement (as amended from time to time, the “Facility Agreement”) with entities affiliated with Sylebra. Pursuant to the Facility Agreement, we have the right, but not the obligation, to sell to Sylebra up to $125.0 million of shares of preferred stock, at our request until November 8, 2026, subject to the terms of the Facility Agreement and the satisfaction of certain conditions as described in Note 10 to our consolidated financial statements included elsewhere in this report. Each sale we request under the Facility Agreement may be for a number of shares of preferred stock with an aggregate value of at least $25.0 million but not more than $50.0 million (except with Sylebra’s consent). We paid Sylebra a facility fee of $2.5 million, an origination fee of $0.6 million, and an administrative fee of $0.3

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million and reimbursed $0.4 million to Sylebra for its fees and expenses. In addition, we issued to Sylebra Series A warrants to purchase 3,000,000 shares of common stock at an exercise price of $5.00.

On July 2, 2024, Aeva and the parties to the Delaware Stockholder Litigation entered into a term sheet, and on December 6, 2024 entered into a formal settlement agreement, which will be subject to court approval, to fully and finally resolve the Delaware Stockholder Litigation. In connection with the settlement, we have agreed to pay a total settlement cost of $14.0 million in exchange for a release of all claims related to the business combination and expect to recover $2.5 million from insurance carrier. The settlement is being paid pursuant to our indemnification obligations and from available director and officer insurance policies. As of December 31, 2024, we have accrued a contingent liability of $14.0 million connection with the settlement of the Delaware Stockholder Litigation, and a $2.5 million insurance recovery. See Note 15 to our consolidated financial statements included elsewhere in this report for more information about the Delaware Stockholder Litigation.

To date, we have incurred negative cash flows from operating activities and incurred losses from operations as reflected in our accumulated deficit of $611.9 million as of December 31, 2024. We expect to continue to incur operating losses due to continued investments that we intend to make in our business, including development of products. As of December 31, 2024, we had cash and cash equivalents and marketable securities totaling $112.0 million. We also have the ability to draw on the Facility Agreement up to $125.0 million through November 8, 2026 in exchange for the issuance of preferred shares, and we intend to draw down on the Facility Agreement if and as required by our capital needs. As of December 31, 2024, all conditions to draw under the Facility Agreement were met. We believe that our liquidity, including financing available to us through the Facility Agreement, will be sufficient to fund our operating and capital expenditure for at least 12 months from the date of issuance of the consolidated financial statements included elsewhere in this report.

Cash Flow Summary

The following table summarizes our cash flows for the periods presented:

Operating Activities

Net cash used in operating activities during the year ended December 31, 2024 of $106.9 million, was primarily attributable to a $152.3 million net loss, partially offset by a $13.0 million net change in net operating assets and liabilities and by $32.3 million of non-cash charges. Non-cash charges primarily consisted of $23.7 million in stock-based compensation, $5.5 million in depreciation of property, plant and equipment and amortization of intangibles, $3.5 million in amortization of right-of-use assets, $1.5 million in change in the fair value of warrant liabilities, and $1.1 million in impairment of inventory, partially offset by $3.5 million in accretion of discount on available for sale securities. The net change in operating assets and liabilities of $13.0 million was primarily due to a $16.6 million increase in other current liabilities arising from a $14.0 million accrual for litigation settlement cost, a $2.3 million increase in accrued liabilities, a $1.8 million increase in accounts payable and a 0.3 million decrease in other noncurrent assets; partially offset by $3.6 million decrease in lease liability, a $1.1 million increase in inventories, a $0.6 million increase in accounts receivable, a $2.6 million increase in other current assets, and a $0.3 million decrease in accrued employee cost.

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Investing Activities

Net cash provided by investing activities during the year ended December 31, 2024 of $97.9 million, was attributable to $183.0 million of cash received from the maturity and sale of available-for-sale investments, partially offset by $80.0 million used in the purchase of investments, and $5.1 million used for the purchase of property, plant and equipment.

Financing Activities

Net cash used in financing activities during the year ended December 31, 2024 of $0.7 million, was attributable to a $0.8 million payment of taxes withheld on net settled vesting of restricted stock units, partially offset by $0.1 million of proceeds from stock option exercises.

Off-Balance Sheet Arrangements

As of December 31, 2024, we have not engaged in any off-balance sheet arrangements.

Critical Accounting Estimates

We prepare our financial statements in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates, assumptions and judgments that can significantly impact the amounts we report as assets, liabilities, revenue, costs and expenses and the related disclosures. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Our actual results could differ significantly from these estimates under different assumptions and conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance as these policies involve a greater degree of judgment and complexity.

Stock-Based Compensation

We recognize the cost of stock-based awards granted to our employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. We elected to recognize the effect of forfeitures in the period they occur. The fair value of the RSUs is equal to the closing price of Aeva’s common stock on the grant date. We determined the fair value of each stock option grant using the Black-Scholes option-pricing model, which is impacted by the following assumptions:

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Expected term is the length of time the grant is expected to be outstanding before it is exercised or terminated. This number is calculated as the midpoint between the vesting term and the original contractual term (contractual period to exercise). If the option contains graded vesting, then the vesting term would be based on the vesting pattern.

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The volatility is based on a benchmark of comparable companies within the automotive and energy storage industries.

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The dividend rate used is zero as we have never paid any cash dividends on our common stock and do not anticipate doing so in the foreseeable future.

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The interest rates used are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.

We also grant performance based restricted stock units (the “PBRSUs”) to executives and our leadership team. PBRSUs have vesting conditions either based on pre-established performance goals of the Company or the performance of the Company’s total shareholder return. For the former, the fair value is determined based on the closing quoted price of Aeva’s common stock on the grant date and the fair value is recognized using the graded-vesting attribution method over the requisite service period. For the latter, we use a Monte Carlo simulation model to determine the fair value on the grant date and the fair value is recognized using the graded-vesting attribution method over the requisite service period.

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Revenue

The most critical accounting policy estimates and judgments required in applying ASC 606, Revenue Recognition of Contracts from Customers, and our revenue recognition policy relate to the identification of performance obligations and accounting for certain contracts recognized over time. In certain contracts, the determination of our distinct performance obligations requires significant judgment. As our business and offerings to customers change over time, the products and services we determine to be distinct performance obligations may change. Such changes may adversely impact the amount of revenue and gross margin we report in a particular period. Revenue from product sales is recognized upon transfer of control of promised products. Revenue is recognized in an amount that reflects the consideration that Aeva expects to receive in exchange for those products and services. Product sales to certain customers may require customer acceptance, in which case revenue recognition is deferred until acceptance takes place. For service projects, revenue is recognized as services are performed and amounts are earned in accordance with the terms of contract at estimated collectible amounts.

For certain custom products that require engineering and development based on customer specifications, we recognize revenue over time using a cost-to-cost measure of progress which we believe faithfully depicts the transfer of control of the goods or services to the customer. Amounts billed to customers for shipping and handling are included in revenue. Some of our arrangements provide software embedded in hardware, and promises to update the software represent immaterial promises in contracts with customers. Taxes collected from customers and remitted to governmental authorities are excluded from revenue.

Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.

Warrant Liabilities

We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to Aeva’s common stock, among other conditions for equity classification. This assessment requires the use of professional judgment, and is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as a liability at fair value on the date of issuance, and each balance sheet date thereafter.

We utilize the Black-Scholes option pricing model to value the liabilities classified warrants at each reporting period. The key assumptions in the option pricing model utilized include the following:

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The expected volatility assumption is based on Aeva's historical equity volatility or a blend of guideline public companies equity volatility.

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The expected term of the warrants is assumed to be the expected period until the expiry of the contractual term.

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The risk-free interest rate is based on the U.S. Treasury rate for the applicable expected terms.

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The dividend yield is based on the historical rate, which we anticipate to remain at zero.

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Recent Accounting Pronouncements

See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the consolidated financial statements included elsewhere in this report for a full description of recent accounting pronouncements including the respective expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the Consolidated Financial Statements and related notes that are included elsewhere in this report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this report.

A discussion and analysis regarding our financial condition, results of operations and cash flows for the year ended December 31, 2023 compared to the year ended December 31, 2022 is presented below. Discussion regarding our financial condition and results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021 is not included in this Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2023.

Overview

Our vision is to bring perception to broad applications. Through our FMCW sensing technology, we believe we are introducing the world’s first 4D LiDAR-on-chip that, along with our proprietary software applications, has the potential to enable the adoption of LIDAR across broad applications.

Founded in 2017 by former Apple engineers Soroush Salehian and Mina Rezk and led by a multidisciplinary team of engineers and operators experienced in the field of sensing and perception, Aeva’s mission is to bring the next wave of perception technology to broad applications from automated driving to industrial automation, consumer device and security applications. Our 4D LiDAR-on-chip combines silicon photonics technology that is proven in the telecom industry with precise instant velocity measurements and long-range performance for commercialization.

On March 12, 2021, Aeva, Inc. consummated a business combination (the “Business Combination”) with InterPrivate Acquisition Corp. (the Company’s predecessor, which was originally incorporated in Delaware as a special purpose acquisition company (“IPV”)) pursuant to the Business Combination Agreement dated as of November 2, 2020 (the “BCA”), by and among IPV, WLLY Merger Sub Corp., a wholly owned subsidiary of IPV, and Aeva, Inc. Immediately upon the consummation of the Business Combination, WLLY Merger Sub Corp. merged with and into Aeva, Inc., with Aeva, Inc. surviving the merger as a wholly owned subsidiary of IPV. IPV changed its name to Aeva Technologies, Inc. and the pre-combination Aeva retained its name of Aeva, Inc.

As a development stage company, we work closely with our customers on the development and commercialization of their programs and the utilization of our products in such programs. Thus far, our customers have purchased prototype products and engineering services from us for use in their research and development programs. We are expanding our manufacturing capacity through third-party manufacturers to meet our customers’ anticipated demand for the production of our products.

Unlike legacy 3D LiDAR, which relies on Time-of-Flight (“ToF”) technology and measures only depth and reflectivity, Aeva’s solution leverages a proprietary FMCW technology to measure velocity in addition to depth, reflectivity and inertial motion. We believe the ability of Aeva’s solution to measure instant velocity for every pixel is a major advantage over ToF-based sensing solutions. Furthermore, Aeva’s technology is free from interference from other LiDAR and sunlight, and our core innovations within FMCW are intended to enable autonomous vehicles to see at significantly higher distances of up to 500 meters.

We believe Aeva is uniquely positioned to provide a superior solution with the potential to enable higher level of automation for vehicles. Furthermore, we believe the advantages of our 4D LiDAR-on-chip allow us to provide the first LiDAR solution that is fully integrated onto a chip with superior performance at scale, with the potential to drive new categories of perception across industrial automation, consumer devices, and security markets.

On January 9, 2024, Aeva announced that Daimler Truck AG (“Daimler Truck”) had selected Aeva as the supplier of long and ultra-long range LiDAR for its series production autonomous commercial vehicle program. The multi-year collaboration begins in the first quarter of 2024 with Aeva’s start of production expected by 2026 and Daimler Truck’s production ramping up anticipated by 2027.

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Business Combination and Public Company Costs

The Business Combination was accounted for as a reverse recapitalization, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Under this method of accounting, IPV was treated as the legal acquirer and accounting acquiree. Accordingly, the business combination was treated as the equivalent of Aeva, Inc, issuing stock for the net assets of IPV, accompanied by a recapitalization. The most significant change in the Company’s financial position and results of the business combination was an increase in cash of $513.1 million. Total non-recurring transaction costs incurred for this transaction were $47.7 million.

Upon the closing of the Business Combination, the Company’s common stock and warrants began trading under the ticker symbols “AEVA” and “AEVA.WS” on the New York Stock Exchange (the “NYSE”). We anticipate that we will continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have incurred and expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.

Key Factors Affecting Aeva’s Operating Results

Aeva believes that its future performance and success depends to a substantial extent on its ability to capitalize opportunities, which in turn is subject to significant risks and challenges, including those discussed below and in the section of this Annual Report on Form 10-K entitled “Risk Factors.”

Pricing, Product Cost and Margins. Our pricing and margins will depend on the volumes and the features as well as specific market applications of the solutions we provide to our customers. We have customers with technologies in various stages of development across different market segments. We anticipate that our prices will vary by market and application due to market-specific product and commercial requirements, supply and demand dynamics and product lifecycles.

Aeva’s future performance will depend on its ability to deliver on economies of scale. Our customers will require that our perception solutions be manufactured and sold at per-unit prices that are competitive. Our ability to compete in key markets will depend on the success of our efforts to efficiently and reliably produce cost-effective perception solutions that are competitively priced and affordable for our commercial-stage customers.

Additionally, the macroeconomic conditions in the industry, the growing emergence of competition in advanced assisted driving sensing and software technologies globally can negatively impact pricing, margins and market share. If Aeva does not generate the margins it expects upon commercialization of its perception solutions, Aeva may be required to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous to Aeva’s stockholders.

Commercialization of LiDAR-based Applications. We expect that our results of operations, including revenue and gross margins, will fluctuate on a quarterly basis for the foreseeable future as our customers continue on research and development projects and begin to commercialize advanced driver assist, autonomous and industrial automation solutions that rely on LiDAR technology. As more customers reach the commercialization phase and as the market for LiDAR solutions matures, these fluctuations in our operating results may become less pronounced.

Sales Volume. Each product program will have an expected range of sales volumes, depending on the end market demand for our customers’ products as well as market application. This can depend on several factors, including market penetration, product capabilities, size of the end market that the product addresses and our end customers’ ability to sell their products. In addition to end market demand, sales volumes also depend on whether our customer is in the development or production phase. In certain cases, we may provide volume discounts or strategic customer pricing on sales of our solutions, which may or may not be offset by lower manufacturing costs related to higher volumes which in turn could adversely impact our gross margins. Aeva’s ability to ultimately achieve profitability is dependent upon progression of existing relationships to production and our ability to meet required volumes and required cost targets and gross margins. Delays of our current and future customers’ programs could result in Aeva being unable to achieve its revenue targets and profitability in the time frame it anticipates.

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Such delays could result in Aeva requiring to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous to Aeva’s stockholders.

Basis of Presentation

Aeva currently conducts its business through one operating segment.

Components of Results of Operations

Revenue

Revenue consists of sales of perception solutions or sensing systems and non-recurring engineering services.

Aeva is engaged in design, manufacturing and sale of LiDAR sensing systems and related perception and autonomy-enabling software solutions serving customers in automotive, industrial, and other markets. Under the customer agreements, Aeva delivers a specified number of sensing systems at a fixed price under customary terms and conditions. The sensing system units sold under these agreements are typically prototypes that are used by the customer for its research, development, evaluation, pilot, or testing purposes. Aeva also enters into non-recurring engineering service arrangements with certain of its customers to customize Aeva’s perception solution to meet customer specific requirements.

Cost of revenue and gross profit

Cost of revenue principally includes direct material, direct labor and allocation of overhead associated with manufacturing operations, including inbound freight charges and depreciation expense. Cost of revenue also includes the direct cost and appropriate allocation of overhead involved in execution of non-recurring engineering services. Aeva’s gross profit equals total revenue less total cost of revenue.

Operating expenses

Research and development

Aeva’s research and development efforts are focused on enhancing and developing additional functionality for its existing products and on new product development. Research and development expenses consist primarily of:

•
Personnel-related expenses, including salaries, benefits, and stock-based compensation expense, for personnel in Aeva’s research and engineering functions; and

•
Expenses related to materials, software licenses, supplies, and third-party services.

Aeva expenses research and development costs as incurred.

General and administrative expenses

General and administrative expenses consist of personnel and personnel-related expenses, including salaries, benefits, and stock-based compensation expense of Aeva’s executive, finance, information systems, human resources, and legal, as well as legal and accounting fees for professional and contract services.

Selling and marketing expenses

Selling and marketing expenses consist of personnel and personnel-related expenses, including salaries, benefits, and stock-based compensation expense of Aeva’s business development team as well as advertising and marketing expenses. These include the cost of trade shows, promotional materials, and public relations. Aeva expects to increase its sales and marketing activities and expand customer relationships.

Aeva’s operating expenses will remain similar to the fiscal 2023 or slightly increase in 2024 as we continue to execute on our goals and product roadmap.

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Interest income and Interest expense

Interest income consists primarily of income earned on Aeva’s cash equivalents and investments in marketable securities. Interest income will vary based on Aeva’s cash equivalents and marketable securities balance and changes in the interest rates.

Other income and expense

Other income and expense primarily consist of warrants issuance cost, changes in the fair value of warrants, financing costs, foreign currency conversion gains and losses, and realized gain/loss on marketable securities.

Results of Operations

Comparison of Year Ended December 31, 2023 and 2022

The following table sets forth Aeva’s results of operations data for the periods presented:

Revenue

Revenue increased by $0.1 million, or 3%, to $4.3 million during the year ended December 31, 2023, from $4.2 million for the year ended December 31, 2022. This increase was primarily due to an increase in the sale of prototype units sold in 2023 as compared to 2022; this was partially offset by a decrease in the activity related to non-recurring engineering services which is dependent upon the timing of the work performed for our customers.

Cost of revenue

Cost of revenue increased by $1.8 million, or 21%, to $10.2 million during the year ended December 31, 2023, from $8.4 million for the year ended December 31, 2022. The increase in manufacturing overhead costs is due to the scaling of third-party contract manufacturing, and an increase in the number of units sold during the year ended December 31, 2023 as compared to the year ended December 31, 2022. This was partially offset by the lower cost related to the non-recurring services revenue and due to an inventory impairment of $1.7 million recorded during year ended December 31, 2022.

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Operating expenses

Research and development

Total research and development expense decreased by $7.1 million, or 6%, to $102.5 million during the year ended December 31, 2023, from $109.6 million for the year ended December 31, 2022. Research and development expenses decreased primarily due to a decrease in research and development material cost by $8.0 million, consulting cost decreased by $3.8 million, stock-based compensation expenses decreased by $0.8 million, lab supplies decreased by $0.5 million. This was partially offset by an increase in payroll cost by $4.1 million due to headcount increase and annual salary adjustment, facility expenses increased by $1.1 million, service expense increased by $0.5 million and depreciation expense increase by $0.3 million.

General and administrative

Total general and administrative expense increased by $0.7 million, or 2%, to $31.8 million during the year ended December 31, 2023, from $31.1 million for the year ended December 31, 2022. General and administrative expense increased primarily due to an increase in legal expenses. Legal expense increased by $2.1 million, depreciation and amortization increased by $0.4 million, other professional expense increased by $0.3 million, subscription expenses increased by $0.5 million, property and other taxes increased by $0.2 million and travel expense increased by $0.1 million; this was partially offset by decreases in payroll and other employee related expense by $1.0 million, insurance expense by $1.4 million, other expense by $0.3 million, recruiting expense by $0.2 million.

Selling and marketing

Total selling and marketing expense increased by $0.6 million, or 8%, to $7.6 million during the year ended December 31, 2023, from $7.0 million for the year ended December 31, 2022. Selling and marketing expense increased as we continued to grow our sales force and increase our marketing efforts. Marketing program cost increased by $0.5 million, payroll and other employee related expense increased by $0.2 million; this was partially offset by decrease in travel expenses by $0.1 million,

Interest income

Interest income increased by $5.2 million during the year ended December 31, 2023. The increase is due to the timing of the investment and increase in the interest rate in 2023 as compared to 2022.

Other income (expense), net

Other income (expense), net increased by $11.4 million for the year ended December 31, 2023, primarily due to fair value of Series A Warrants issued in 2023 of $6.8 million and payment of financing transaction fees of $3.8 million paid for the preferred financing agreement.

Liquidity and Capital Resources

Sources of Liquidity

Aeva’s capital requirements will depend on many factors, including sales volume, the timing and extent of spending to support research and development efforts, investments in information technology systems, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features. As of December 31, 2023, Aeva had cash and cash equivalents and marketable securities totaling $221.0 million.

On November 8, 2023, the Company entered into Subscription Agreements providing for the purchase of an aggregate of 36,802,299 shares of common stock resulting in net proceeds of $20.6 million (“November PIPE”). Also on November 8, 2023, the Company entered into a Standby Equity Purchase Agreement (the “Facility Agreement”) with entities affiliated with Sylebra. Pursuant to the Facility Agreement, the Company will have the right, but not the obligation, to sell to Sylebra up to $125.0 million shares of its preferred stock, at the Company’s request until November 8, 2026. Each sale the Company requests under the Facility Agreement may be for a number

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of shares of preferred stock with an aggregate value of at least $25.0 million but not more than $50.0 million (except with Sylebra’s consent). The Company paid Sylebra a facility fee in the amount of $2.5 million, an origination fee in the amount of $0.6 million, and an administrative fee in the amount of $0.3 million and reimbursed $0.4 million to Sylebra for its fees and expenses. In addition, the Company issued to Sylebra a Series A Warrants to purchase 15,000,000 shares of Common Stock at an exercise price of $1.00.

Aeva expects current cash, cash equivalents, and marketable securities will be sufficient to fund its near term cash needs but will be required to raise additional capital or draw on the Facility Agreement unless Aeva is able to generate sufficient revenue from the sale of its products to cover operating expense, working capital and capital expenditures.

Aeva has incurred negative cash flows from operating activities and losses from operations in the past as reflected in its accumulated deficit of $459.6 million as of December 31, 2023. Aeva expects to continue to incur operating losses due to continued investments that it intends to make in its business, including development of products. Aeva believes that existing cash and cash equivalent and marketable securities will be sufficient to fund operating and capital expenditure requirements through at least 12 months from the date of issuance of these financial statements.

Cash Flow Summary

The following table summarizes our cash flows for the periods presented:

Operating Activities

Net cash used in operating activities during the year ended December 31, 2023 of $118.8 million, was primarily attributable to a net loss of $149.3 million and a net change in net operating assets and liabilities of $4.8 million, partially offset by non-cash charges of $35.3 million. Non-cash charges primarily consisted of $23.7 million in stock-based compensation, $6.5 million in fair value at issuance of Series A Warrants, $4.6 million in depreciation and amortization of intangibles, $3.1 million in amortization of right-of-use assets, $0.2 million in change in the fair value of warrant liabilities, $0.2 million in impairment of inventory, partially offset by $3.0 million in accretion of discount on available for sale securities. The decrease in net operating assets and liabilities of $4.8 million was primarily due to a $6.4 million decrease in accrued liability, a $3.1 million decrease in lease liability, a $1.6 million decrease in accounts payable, and a $0.3 million increase in other noncurrent assets, partially offset by a $2.3 million decrease in accounts receivable due to timing of billing and cash collections, a $2.3 million increase in other current liabilities, a $1.3 million increase in accrued employee cost, a $0.4 million decrease in inventory, and a $0.3 million decrease in other current assets.

Investing Activities

Net cash provided by investing activities during the year ended December 31, 2023, was attributable to $232.7 million of cash received from the maturity and sale of available-for-sale investments, partially offset by cash used in purchase of investments of $152.4 million, $6.1 million used for purchase property, plant and equipment and $5.0 million used for purchase of non-marketable equity investments.

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Financing Activities

Net cash provided by financing activities during the year ended December 31, 2023, was attributable to a $20.6 million, net received from the private placement of common shares and a $0.2 million of proceeds from stock option exercises. partially offset by $0.2 million payment of taxes withheld on net settled vesting of restricted stock units.

Off-Balance Sheet Arrangements

As of December 31, 2023, Aeva has not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

Aeva prepares its financial statements in accordance with U.S. GAAP. The preparation of these financial statements requires the Company to make estimates, assumptions and judgments that can significantly impact the amounts Aeva reports as assets, liabilities, revenue, costs and expenses and the related disclosures. Aeva bases its estimates on historical experience and other assumptions that it believes are reasonable under the circumstances. Aeva’s actual results could differ significantly from these estimates under different assumptions and conditions. Aeva believes that the accounting policies discussed below are critical to understanding its historical and future performance as these policies involve a greater degree of judgment and complexity.

Stock-Based Compensation

Aeva recognizes the cost of stock-based awards granted to its employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. Aeva elected to recognize the effect of forfeitures in the period they occur. The fair value of the RSUs is equal to the closing price of the Company’s common stock on the grant date. The fair value of each stock option grant was determined by the Company using the Black-Scholes option-pricing model, which is impacted by the following assumptions:

•
Expected Term — Expected term is the length of time the grant is expected to be outstanding before it is exercised or terminated. This number is calculated as the midpoint between the vesting term and the original contractual term (contractual period to exercise). If the option contains graded vesting, then the vesting term would be based on the vesting pattern.

•
Expected Volatility — The volatility is based on a benchmark of comparable companies within the automotive and energy storage industries.

•
Expected Dividend Yield — The dividend rate used is zero as Aeva has never paid any cash dividends on its common stock and does not anticipate doing so in the foreseeable future.

•
Risk-Free Interest Rate — The interest rates used are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.

The Company also grants performance based restricted stock units (the “PBRSUs”) to executives and leadership team. PBRSUs have vesting conditions either based on pre-established performance goals of the Company or the performance of the Company’s total shareholder return. For the former, the fair value is determined based on the closing quoted price of the Company’s common stock on the grant date and the fair value is recognized using the graded-vesting attribution method over the requisite service period. For the latter, the Company uses a Monte Carlo simulation model to determine the fair value on the grant date and the fair value is recognized using the graded-vesting attribution method over the requisite service period.

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Revenue

The most critical accounting policy estimate and judgments required in applying ASC 606, Revenue Recognition of Contracts from Customers, and our revenue recognition policy relate to the identification of performance obligations and accounting for certain contracts recognized over time. In certain contracts, the determination of our distinct performance obligations requires significant judgment. As our business and offerings to customers change over time, the products and services we determine to be distinct performance obligations may change. Such changes may adversely impact the amount of revenue and gross margin we report in a particular period. Revenue from product sales is recognized upon transfer of control of promised products. Revenue is recognized in an amount that reflects the consideration that Aeva expects to receive in exchange for those products and services. Product sales to certain customers may require customer acceptance, in which case revenue recognition is deferred until acceptance takes place. For service projects, revenue is recognized as services are performed and amounts are earned in accordance with the terms of contract at estimated collectible amounts.

For certain custom products that require engineering and development based on customer specifications, the Company recognizes revenue over time using a cost-to-cost measure of progress which the Company believes faithfully depicts the transfer of control of the goods or services to the customer. Amounts billed to customers for shipping and handling are included in revenue. Some of the Company’s arrangements provide software embedded in hardware, and promises to update the Company’s software represent immaterial promises in contracts with customers. Taxes collected from customers and remitted to governmental authorities are excluded from revenue.

Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.

Warrant Liabilities

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) ASC 480, Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as a liability at fair value on the date of issuance, and each balance sheet date thereafter.

The Company utilizes the Black-Scholes option pricing model to value the liabilities classified warrants at each reporting period. The key assumptions in the option pricing model utilized include the following:

•
The expected volatility assumption is based on a blend of Aeva's historical equity volatility and guideline public companies equity volatility.

•
The expected term of the warrants is assumed to be the expected period until the expiry of the contractual term.

•
The risk-free interest rate is based on the U.S. Treasury rate for the applicable expected terms.

•
The dividend yield is based on the historical rate, which the Company anticipates to remain at zero.

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Recent Accounting Pronouncements

See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for a full description of recent accounting pronouncements including the respective expected dates of adoption and estimated effects, if any, on our Consolidated Financial Statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the Consolidated Financial Statements and related notes that are included elsewhere in this report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this report.

A discussion and analysis regarding our financial condition, results of operations and cash flows for the year ended December 31, 2022 compared to the year ended December 31, 2021 is presented below. Discussion regarding our financial condition and results of operations for the year ended December 31, 2021 as compared to the year ended December 31, 2020 is not included in this Form 10-K, and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K filed with the SEC on March 1, 2022.

Overview

Our vision is to bring perception to broad applications. Through our FMCW sensing technology, we believe we are introducing the world’s first 4D LiDAR-on-chip that, along with our proprietary software applications, has the potential to enable the adoption of LIDAR across broad applications.

Founded in 2017 by former Apple engineers Soroush Salehian and Mina Rezk and led by a multidisciplinary team of engineers and operators experienced in the field of sensing and perception, Aeva’s mission is to bring the next wave of perception technology to broad applications from automated driving to industrial automation, consumer device applications, and security. Our 4D LiDAR-on-chip combines silicon photonics technology that is proven in the telecom industry with precise instant velocity measurements and long-range performance for commercialization.

On March 12, 2021, Aeva, Inc. consummated a business combination (the “Business Combination”) with InterPrivate Acquisition Corp. (the Company’s predecessor, which was originally incorporated in Delaware as a special purpose acquisition company (“IPV”)) pursuant to the Business Combination Agreement dated as of November 2, 2020 (the “BCA”), by and among IPV, WLLY Merger Sub Corp., a wholly owned subsidiary of IPV, and Aeva, Inc. Immediately upon the consummation of the Business Combination, WLLY Merger Sub Corp. merged with and into Aeva, Inc., with Aeva, Inc. surviving the merger as a wholly owned subsidiary of IPV. IPV changed its name to Aeva Technologies, Inc. and the pre-combination Aeva retained its name of Aeva, Inc.

As a development stage company, we work closely with our customers on the development and commercialization of their programs and the utilization of our products in such programs. Thus far, our customers have purchased prototype products and engineering services from us for use in their research and development programs. We are expanding our manufacturing capacity through third-party manufacturers to meet our customers’ anticipated demand for the production of our products.

Unlike legacy 3D LiDAR, which relies on Time-of-Flight (“ToF”) technology and measures only depth and reflectivity, Aeva’s solution leverages a proprietary FMCW technology to measure velocity in addition to depth, reflectivity and inertial motion. We believe the ability of Aeva’s solution to measure instant velocity for every pixel is a major advantage over ToF-based sensing solutions. Furthermore, Aeva’s technology is free from interference from other LiDAR and sunlight, and our core innovations within FMCW are intended to enable autonomous vehicles to see at significantly higher distances of up to 500 meters.

We believe Aeva is uniquely positioned to provide a superior solution with the potential to enable higher level of automation for vehicles. Furthermore, we believe the advantages of our 4D LiDAR-on-chip allow us to provide the first LiDAR solution that is fully integrated onto a chip with superior performance at scale, with the potential to drive new categories of perception across industrial automation, consumer devices, and security markets.

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Business Combination and Public Company Costs

The Business Combination was accounted for as a reverse recapitalization, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Under this method of accounting, IPV was treated as the legal acquirer and accounting acquiree. Accordingly, the business combination was treated as the equivalent of Aeva, Inc, issuing stock for the net assets of IPV, accompanied by a recapitalization. The most significant change in the Company’s financial position and results of the business combination was an increase in cash of $513.1 million. Total non-recurring transaction costs incurred for this transaction were $47.7 million.

Upon the closing of the Business Combination, the Company's common stock and warrants began trading under the ticker symbols “AEVA” and “AEVA.WS” on the New York Stock Exchange (the “NYSE”). We anticipate that we will continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have incurred and expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.

COVID-19 Impact

The extent of the impact of the pandemic related to the novel coronavirus (“COVID-19”) on Aeva’s operational and financial performance will depend on various future developments, including the duration and spread of the outbreak and impact on its customers, suppliers, and employees, all of which is uncertain at this time. Aeva expects the COVID-19 pandemic to adversely impact revenue and results of operations, but Aeva is unable to predict at this time the size and duration of this adverse impact. For more information on Aeva’s operations and risks related to health epidemics, including the COVID-19 pandemic, please see the section of this Annual Report on Form 10-K entitled “Risk Factors.”

Key Factors Affecting Aeva’s Operating Results

Aeva believes that its future performance and success depends to a substantial extent on its ability to capitalize opportunities, which in turn is subject to significant risks and challenges, including those discussed below and in the section of this Annual Report on Form 10-K entitled “Risk Factors.”

Pricing, Product Cost and Margins. Our pricing and margins will depend on the volumes and the features as well as specific market applications of the solutions we provide to our customers. We have customers with technologies in various stages of development across different market segments. We anticipate that our prices will vary by market and application due to market-specific product and commercial requirements, supply and demand dynamics and product lifecycles.

Aeva's future performance will depend on its ability to deliver on economies of scale with lower product costs to enable industry adoption. Aeva believes its business model is positioned for scalability due to the ability to leverage the same product platform across markets and customer base, relationships with leading foundries and contract manufacturers. Our customers will require that our perception solutions be manufactured and sold at per-unit prices that are competitive. Our ability to compete in key markets will depend on the success of our efforts to efficiently and reliably produce cost-effective perception solutions that are competitively priced and affordable for our commercial-stage customers.

Additionally, the macroeconomic conditions in the industry, the growing emergence of competition in advanced assisted driving sensing and software technologies globally can negatively impact pricing, margins and market share. If Aeva does not generate the margins it expects upon commercialization of its perception solutions, Aeva may be required to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous to Aeva’s stockholders.

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Commercialization of LiDAR-based Applications. We expect that our results of operations, including revenue and gross margins, will fluctuate on a quarterly basis for the foreseeable future as our customers continue on research and development projects and begin to commercialize advanced driver assist, autonomous and industrial automation solutions that rely on LiDAR technology. As more customers reach the commercialization phase and as the market for LiDAR solutions matures, these fluctuations in our operating results may become less pronounced.

Sales Volume. Each product program will have an expected range of sales volumes, depending on the end market demand for our customers’ products as well as market application. This can depend on several factors, including market penetration, product capabilities, size of the end market that the product addresses and our end customers’ ability to sell their products. In addition to end market demand, sales volumes also depend on whether our customer is in the development or production phase. In certain cases, we may provide volume discounts or strategic customer pricing on sales of our solutions, which may or may not be offset by lower manufacturing costs related to higher volumes which in turn could adversely impact our gross margins. Aeva’s ability to ultimately achieve profitability is dependent upon progression of existing relationships to production and our ability to meet required volumes and required cost targets and gross margins. Delays of our current and future customers’ programs could result in Aeva being unable to achieve its revenue targets and profitability in the time frame it anticipates. Such delays could result in Aeva requiring to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous to Aeva’s stockholders.

Basis of Presentation

Aeva currently conducts its business through one operating segment.

Components of Results of Operations

Revenue

Revenue consists of sales of perception solutions or sensing systems and non-recurring engineering services.

Aeva is engaged in design, manufacturing and sale of LiDAR sensing systems and related perception and autonomy-enabling software solutions serving customers in automotive, industrial, and other markets. Under the customer agreements, Aeva delivers a specified number of sensing systems at a fixed price under customary terms and conditions. The sensing system units sold under these agreements are typically prototypes that are used by the customer for its research, development, evaluation, pilot, or testing purposes. Aeva also enters into non-recurring engineering service arrangements with certain of its customers to customize Aeva’s perception solution to meet customer specific requirements.

Cost of revenue and gross profit

Cost of revenue principally includes direct material, direct labor and allocation of overhead associated with manufacturing operations, including inbound freight charges and depreciation expense. Cost of revenue also includes the direct cost and appropriate allocation of overhead involved in execution of non-recurring engineering services. Aeva’s gross profit equals total revenue less total cost of revenue.

Operating expenses

Research and development

Aeva’s research and development efforts are focused on enhancing and developing additional functionality for its existing products and on new product development. Research and development expenses consist primarily of:

•
Personnel-related expenses, including salaries, benefits, and stock-based compensation expense, for personnel in Aeva’s research and engineering functions; and

•
Expenses related to materials, software licenses, supplies, and third-party services.

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Aeva expenses research and development costs as incurred. Aeva expects its research and development costs to remain at same level as fiscal 2022 or increase slightly in the foreseeable future as it continues to invest in research and development activities to achieve its product roadmap.

General and administrative expenses

General and administrative expenses consist of personnel and personnel-related expenses, including salaries, benefits, and stock-based compensation expense of Aeva’s executive, finance, information systems, human resources, and legal, as well as legal and accounting fees for professional and contract services. Aeva expects its general and administrative expenses to remain at same level as fiscal 2022 or increase slightly in the foreseeable future as it scales headcount with the growth of its business, and as a result of operating as a public company, including compliance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.

Selling and marketing expenses

Selling and marketing expenses consist of personnel and personnel-related expenses, including salaries, benefits, and stock-based compensation expense of Aeva’s business development team as well as advertising and marketing expenses. These include the cost of trade shows, promotional materials, and public relations. Aeva expects to increase its sales and marketing activities and expand customer relationships. Aeva expects that its sales and marketing expenses will remain at same level as fiscal 2022 or increase slightly over time as it continues to grow its sales force and increase marketing efforts.

Interest income and Interest expense

Interest income consists primarily of income earned on Aeva’s cash equivalents and investments in marketable securities. Interest income will vary based on Aeva’s cash equivalents and marketable securities balance and changes in the interest rates.

Other income and expense

Other income and expense primarily consist of changes in the fair value of private placement warrants, foreign currency conversion gains and losses, and realized gain/loss on marketable securities.

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Results of Operations

Comparison of Year Ended December 31, 2022 and 2021

The following table sets forth Aeva’s results of operations data for the periods presented:

Revenue

Revenue decreased by $5.1 million, or 55%, to $4.2 million during the year ended December 31, 2022, from $9.3 million for the year ended December 31, 2021. This decrease was primarily due to a decrease in the activity related to non-recurring engineering services which is dependent upon the timing of the work performed for our customers and also due to an adjustment of $3.9 million for an existing customer’s contract modification due to customers roadmap revision towards less customization. This was partially offset by increase in the sale of prototype units sold in 2022 as compared to 2021.

Cost of revenue

Cost of revenue increased by $2.6 million, or 45%, to $8.4 million during the year ended December 31, 2022, from $5.8 million for the year ended December 31, 2021. The increase in costs was primarily due to an inventory impairment of $1.7 million, increase in manufacturing overhead costs due to scaling of third-party contract manufacturing, and increase in number of units sold during year ended December 31, 2022 as compared to the year ended December 31, 2021. This was partially offset by the lower cost of goods sold, and lower cost related to the non-recurring services revenue.

Operating expenses

Research and development

Total research and development expense increased by $34.8 million, or 47%, to $109.6 million during the year ended December 31, 2022, from $74.8 million for the year ended December 31, 2021. Research and development expenses increased primarily due to an increase in employee expenses related to product development headcount. Payroll expenses increased by $18.7 million, stock-based compensation expenses increased by $4.8 million, material, software licenses, and service related expenses increased by $4.6 million, consulting cost increased by $3.5 million, facility expenses increased by $1.5 million, depreciation increased by $0.9 million, and travel related expenses increased by $0.8 million.

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General and administrative

Total general and administrative expense increased by $2.7 million, or 9%, to $31.1 million during the year ended December 31, 2022, from $28.4 million for the year ended December 31, 2021. General and administrative expense increased primarily due to an increase in employee expenses as a result of increased headcount to support our growth and expansion. Payroll expenses increased by $2.4 million, other employee expenses increased by $0.9 million, depreciation and amortization increase by $0.9 million, other equipment and facility expenses increased by $0.6 million, insurance expenses increased by $0.5 million, recruiting and related expenses increased by $0.4 million, legal expenses increased by $0.4 million and miscellaneous expenses increased by $0.3 million; this was partially offset by decreases in stock-based compensation expenses by $2.7 million and accounting services expenses by $1.0 million.

Selling and marketing

Total selling and marketing expense increased by $2.6 million, or 59%, to $7.0 million during the year ended December 31, 2022, from $4.4 million for the year ended December 31, 2021. Selling and marketing expense increased as we continued to grow our sales force and increase our marketing efforts. Payroll expenses increased by $1.9 million, stock-based compensation expenses increased by $0.5 million, marketing program cost increased by $0.3 million, travel expenses increased by $0.3 million, and facility expense increase by $0.1 million; this was partially offset by decrease in conference expenses by $0.5 million as the timing of the events were impacted by COVID in the previous year.

Interest income

Interest income increased by $3.3 million during the year ended December 31, 2022. The increase is due to the timing of the investment and increase in the interest rate in 2022 as compared to 2021.

Other income (expense), net

Other income (expense), net decreased by $1.0 million for the year ended December 31, 2022, primarily due to decrease in the fair value of private placement warrant liability in 2022 as compared to 2021.

Liquidity and Capital Resources

Sources of Liquidity

Aeva’s capital requirements will depend on many factors, including sales volume, the timing and extent of spending to support research and development efforts, investments in information technology systems, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features. As of December 31, 2022, Aeva had cash and cash equivalents and marketable securities totaling $323.8 million. Prior to the Business Combination, Aeva’s principal sources of liquidity have been proceeds received from the issuance of equity.

Aeva expects the funds raised in the Business Combination, including the funds from the PIPE financing, to fund its near term cash needs but will be required to raise additional capital unless Aeva is able to generate sufficient revenue from the sale of its products to cover operating expense, working capital and capital expenditures. Any additional equity securities issued may provide for rights, preferences or privileges senior to those of holders of the Company’s common stock. If Aeva raises funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of common stockholders. The terms of debt securities or borrowings could impose significant restrictions on Aeva’s operations. The credit market and financial services industry have in the past, and may in the future, experience periods of uncertainty and other risks detailed in Part I, Item 1A titled “Risk Factors” that could impact the availability and cost of equity and debt financing.

Aeva has incurred negative cash flows from operating activities and losses from operations in the past as reflected in its accumulated deficit of $310.3 million as of December 31, 2022. Aeva expects to continue to incur operating losses due to continued investments that it intends to make in its business, including development of

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products. Aeva believes that existing cash and cash equivalent and marketable securities will be sufficient to fund operating and capital expenditure requirements through at least 12 months from the date of issuance of these financial statements.

Cash Flow Summary

The following table summarizes our cash flows for the periods presented:

Operating Activities

Net cash used in operating activities during the year ended December 31, 2022, of $109.9 million, was primarily attributable to a net loss of $147.3 million, partially offset by a net change in our net operating assets and liabilities of $5.9 million and by non-cash charges of $31.5 million. Non-cash charges primarily consisted of $24.3 million in stock-based compensation, $3.3 million in depreciation and amortization of intangibles, $2.9 million in amortization of right-of-use assets, $1.7 million in impairment of inventory, $0.4 million in accretion of discount on available for sale securities, partially offset by $1.0 million change in the fair value of warrant liabilities. The change in net operating assets and liabilities was primarily due to a $2.6 million increase in inventory, a $0.5 million increase in accounts receivable due to timing of billing and cash collections, a $5.0 million increase in accrued liability, a $1.3 million increase in accounts payable resulting primarily from expansion in our operating activities and a $2.5 million increase in accrued employee cost, partially offset by a $3.6 million decrease in other current assets, a $2.9 million decrease in lease liability and a $0.5 million decrease in other current liabilities.

Investing Activities

Net cash provided by investing activities during the year ended December 31, 2022, was attributable to $328.5 million of cash received from the maturity and sale of available-for-sale investments, partially offset by cash used in purchase of investments of $210.1 million and $7.4 million used for purchase property, plant and equipment.

Financing Activities

Net cash used in financing activities during the year ended December 31, 2022, was attributable to a $0.7 million payment of taxes withheld on net settled vesting of restricted stock units, partially offset by $0.4 million of proceeds from stock option exercises.

Off-Balance Sheet Arrangements

As of December 31, 2022, Aeva has not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

Aeva prepares its financial statements in accordance with U.S. GAAP. The preparation of these financial statements requires the Company to make estimates, assumptions and judgments that can significantly impact the amounts Aeva reports as assets, liabilities, revenue, costs and expenses and the related disclosures. Aeva bases its estimates on historical experience and other assumptions that it believes are reasonable under the circumstances. Aeva’s actual results could differ significantly from these estimates under different assumptions and conditions.

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Aeva believes that the accounting policies discussed below are critical to understanding its historical and future performance as these policies involve a greater degree of judgment and complexity.

Stock-Based Compensation

Aeva recognizes the cost of stock-based awards granted to its employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. Aeva elected to recognize the effect of forfeitures in the period they occur. The fair value of the RSUs is equal to the closing price of the Company’s common stock on the grant date. The fair value of each stock option grant was determined by the Company using the Black-Scholes option-pricing model, which is impacted by the following assumptions:

•
Expected Term — Expected term is the length of time the grant is expected to be outstanding before it is exercised or terminated. This number is calculated as the midpoint between the vesting term and the original contractual term (contractual period to exercise). If the option contains graded vesting, then the vesting term would be based on the vesting pattern.

•
Expected Volatility — The volatility is based on a benchmark of comparable companies within the automotive and energy storage industries.

•
Expected Dividend Yield — The dividend rate used is zero as Aeva has never paid any cash dividends on its common stock and does not anticipate doing so in the foreseeable future.

•
Risk-Free Interest Rate — The interest rates used are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.

Revenue

The most critical accounting policy estimate and judgments required in applying ASC 606, Revenue Recognition of Contracts from Customers, and our revenue recognition policy relate to the identification of performance obligations and accounting for certain contracts recognized over time. In certain contracts, the determination of our distinct performance obligations requires significant judgment. As our business and offerings to customers change over time, the products and services we determine to be distinct performance obligations may change. Such changes may adversely impact the amount of revenue and gross margin we report in a particular period. Revenue from product sales is recognized upon transfer of control of promised products. Revenue is recognized in an amount that reflects the consideration that Aeva expects to receive in exchange for those products and services. Product sales to certain customers may require customer acceptance, in which case revenue recognition is deferred until acceptance takes place. For service projects, revenue is recognized as services are performed and amounts are earned in accordance with the terms of contract at estimated collectible amounts.

For certain custom products that require engineering and development based on customer specifications, the Company recognizes revenue over time using a cost-to-cost measure of progress which the Company believes faithfully depicts the transfer of control of the goods or services to the customer. Amounts billed to customers for shipping and handling are included in revenue. Some of the Company’s arrangements provide software embedded in hardware, and promises to update the Company’s software represent immaterial promises in contracts with customers. Taxes collected from customers and remitted to governmental authorities are excluded from revenue.

Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.

Recent Accounting Pronouncements

See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for a full description of recent accounting pronouncements including the respective expected dates of adoption and estimated effects, if any, on our Consolidated Financial Statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the Consolidated Financial Statements and related notes that are included elsewhere in this report. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. . Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this report.

A discussion and analysis regarding our financial condition, results of operations and cash flows for the year ended December 31, 2021 compared to the year ended December 31, 2020 is presented below. A discussion regarding our financial condition, results of operations and cash flows for the year ended December 31, 2020 compared to the year ended December 31, 2019 is included in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Registration Statement on Form S-1 filed with the SEC on June 6, 2021.

Overview

Our goal is to bring perception to all devices. Through our Frequency Modulated Continuous Wave (“FMCW”) sensing technology, we believe we are introducing the world’s first 4D LiDAR-on-chip that, along with our proprietary software applications, enables the adoption of LIDAR across broad applications. We believe that our solutions will allow for the wide-scale adoption of autonomous driving. Furthermore, we believe that our proprietary 4D LiDAR technology has the potential to enable new categories for perception across consumer electronics, consumer health, industrial automation and security applications.

Founded in 2017 by former Apple engineers Soroush Salehian and Mina Rezk and led by a multidisciplinary team of engineers and operators experienced in the field of sensing and perception, Aeva’s mission is to bring the next wave of perception technology to broad applications from automated driving to consumer electronics, consumer health, industrial automation and security. Our 4D LiDAR-on-chip combines silicon photonics technology that is proven in the telecom industry with precise instant velocity measurements and long-range performance for commercialization.

On March 12, 2021, Aeva, Inc. consummated a business combination (the “Business Combination”) with InterPrivate Acquisition Corp. (the Company’s predecessor, which was originally incorporated in Delaware as a special purpose acquisition company (“IPV”)) pursuant to the Business Combination Agreement dated as of November 2, 2020 (the “BCA”), by and among IPV, WLLY Merger Sub Corp., a wholly owned subsidiary of IPV, and Aeva, Inc. Immediately upon the consummation of the Business Combination, WLLY Merger Sub Corp. merged with and into Aeva, Inc., with Aeva, Inc. surviving the merger as a wholly owned subsidiary of IPV. IPV changed its name to Aeva Technologies, Inc. and the pre-combination Aeva retained its name of Aeva, Inc.

As a development stage company, we work closely with our customers on the development and commercialization of their programs and the utilization of our products in such programs. Thus far, our customers have purchased prototype products and engineering services from us for use in their research and development programs. We are expanding our manufacturing capacity through third-party manufacturers to meet our customers’ anticipated demand for the production of our products.

Unlike legacy 3D LiDAR, which relies on Time-of-Flight (“ToF”) technology and measures only depth and reflectivity, Aeva’s solution leverages a proprietary FMCW technology to measure velocity in addition to depth, reflectivity and inertial motion. We believe the ability of Aeva’s solution to measure instant velocity for every pixel is a major advantage over ToF-based sensing solutions. Furthermore, Aeva’s technology is free from interference from other LiDAR or the beams and sunlight, and our core innovations within FMCW are intended to enable autonomous vehicles to see at significantly higher distances of up to 500 meters.

We believe Aeva is uniquely positioned to provide a superior solution to enable autonomous driving at scale. Furthermore, we believe the advantages of our 4D LiDAR-on-chip allow us to provide the first LiDAR solution that is fully integrated onto a chip with superior performance at scale, with the potential to drive new categories of perception across industrial automation, consumer electronics, consumer health, and security markets.

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Business Combination and Public Company Costs

The Business Combination was accounted for as a reverse recapitalization, in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Under this method of accounting, IPV was treated as the legal acquirer and accounting acquiree. Accordingly, the business combination was treated as the equivalent of Aeva, Inc, issuing stock for the net assets of IPV, accompanied by a recapitalization. The most significant change in the Company’s financial position and results of the business combination was an increase in cash of $513.1 million. Total non-recurring transaction costs incurred for this transaction were $47.7 million.

Upon the closing of the Business Combination, the Company's common stock and warrants began trading under the ticker symbols “AEVA” and “AEVA.WS” on the NYSE. We anticipate that we will continue to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We have incurred and expect to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.

COVID-19 Impact

The extent of the impact of the pandemic related to the novel coronavirus (“COVID-19”) on Aeva’s operational and financial performance will depend on various future developments, including the duration and spread of the outbreak and impact on its customers, suppliers, and employees, all of which is uncertain at this time. Aeva expects the COVID-19 pandemic to adversely impact revenue and results of operations, but Aeva is unable to predict at this time the size and duration of this adverse impact. Aeva is observing a larger trend of automakers shifting course in “make vs buy” decisions as it relates to autonomous solutions and software systems. As cash flows tighten, more automakers are looking to limit the potentially massive investments required to develop autonomous software and systems for which they may not necessarily have substantial expertise. As a result, automakers may be more open to and accepting of a model to incorporate full-stack hardware and software solutions from suppliers, which for autonomy is particularly relevant for Aeva. For more information on Aeva’s operations and risks related to health epidemics, including the COVID-19 pandemic, please see the section of this Annual Report on Form 10-K entitled “Risk Factors.”

Key Factors Affecting Aeva’s Operating Results

Aeva believes that its future performance and success depends to a substantial extent on its ability to capitalize on the following opportunities, which in turn is subject to significant risks and challenges, including those discussed below and in the section of this Annual Report on Form 10-K entitled “Risk Factors.”

Pricing, Product Cost and Margins. Our pricing and margins will depend on the volumes and the features as well as specific market applications of the solutions we provide to our customers. We have customers with technologies in various stages of development across different market segments. We anticipate that our prices will vary by market and application due to market-specific product and commercial requirements, supply and demand dynamics and product lifecycles.

Aeva's future performance will depend on its ability to deliver on economies of scale with lower product costs to enable industry adoption. Aeva believes its business model is positioned for scalability due to the ability to leverage the same product platform across markets and customer base, relationships with leading foundries and contract manufacturers. Our customers will require that our perception solutions be manufactured and sold at per-unit prices that are affordable. Our ability to compete in key markets will depend on the success of our efforts to efficiently and reliably produce cost-effective perception solutions that are competitively priced and affordable for our commercial-stage customers.

Additionally, the macroeconomic conditions in the industry, the growing emergence of competition in advanced assisted driving sensing and software technologies globally can negatively impact pricing, margins and market share. If Aeva does not generate the margins it expects upon commercialization of its perception solutions, Aeva may be required to raise additional debt or equity capital, which may not be available or may only be available on terms that are onerous to Aeva’s stockholders.

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Commercialization of LiDAR-based Applications. We expect that our results of operations, including revenue and gross margins, will fluctuate on a quarterly basis for the foreseeable future as our customers continue on research and development projects and begin to commercialize autonomous solutions that rely on LiDAR technology. As more customers reach the commercialization phase and as the market for LiDAR solutions matures, these fluctuations in our operating results may become less pronounced.

Sales Volume. Each product program will have an expected range of sales volumes, depending on the end market demand for our customers’ products as well as market application. This can depend on several factors, including market penetration, product capabilities, size of the end market that the product addresses and our end customers’ ability to sell their products. In addition to end market demand, sales volumes also depend on whether our customer is in the development or production phase. In certain cases, we may provide volume discounts or strategic customer pricing on sales of our solutions, which may or may not be offset by lower manufacturing costs related to higher volumes which in turn could adversely impact our gross margins. Aeva’s ability to ultimately achieve profitability is dependent upon progression of existing relationships to production and our ability to meet required volumes and required cost targets and gross margins. Delays of our current and future customers’ programs could result in Aeva being unable to achieve its revenue targets and profitability in the time frame it anticipates.

Basis of Presentation

Aeva currently conducts its business through one operating segment.

Components of Results of Operations

Revenue

Revenue consists of sales of perception solutions (sensing systems) and non-recurring engineering services.

Aeva is engaged in design, manufacturing and sale of LiDAR sensing systems and related perception and autonomy-enabling software solutions serving customers in automotive and other markets. Under the customer agreements, Aeva delivers a specified number of sensing systems at a fixed price under customary terms and conditions. The sensing system units sold under these agreements are typically prototypes that are used by the customer for its research, development, evaluation, pilot, or testing purposes. Aeva also enters into non-recurring engineering service arrangements with certain of its customers to customize Aeva’s perception solution to meet customer specific requirements. Revenue from such services is recognized as professional services in the consolidated statement of operations.

Cost of revenue and gross profit

Cost of revenue principally includes direct material, direct labor and allocation of overhead associated with manufacturing operations, including inbound freight charges and depreciation expense. Cost of revenue also includes the direct cost and appropriate allocation of overhead involved in execution of non-recurring engineering services. Aeva’s gross profit equals total revenue less total cost of revenue.

Operating expenses

Research and development

Aeva’s research and development efforts are focused on enhancing and developing additional functionality for its existing products and on new product development. Research and development expenses consist primarily of:

•
Personnel-related expenses, including salaries, benefits, and stock-based compensation expense, for personnel in Aeva’s research and engineering functions; and

•
Expenses related to materials, software licenses, supplies, and third-party services.

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Aeva expenses research and development costs as incurred. Aeva expects its research and development costs to increase for the foreseeable future as it continues to invest in research and development activities to achieve its product roadmap.

General and administrative expenses

General and administrative expenses consist of personnel and personnel-related expenses, including stock-based compensation of Aeva’s executive, finance, and information systems functions, as well as legal and accounting fees for professional and contract services. Aeva expects its general and administrative expenses to increase for the foreseeable future as it scales headcount with the growth of its business, and as a result of operating as a public company, including compliance with the rules and regulations of the Securities and Exchange Commission (the “SEC”), legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.

Selling and marketing expenses

Selling and marketing expenses consist of personnel and personnel-related expenses, including stock-based compensation of Aeva’s business development team as well as advertising and marketing expenses. These include the cost of trade shows, promotional materials, public relations, an allocated portion of facilities and depreciation. Aeva expects to increase its sales and marketing activities and expand customer relationships. Aeva also expects that its sales and marketing expenses will increase over time as it continues to grow its sales force and increase marketing efforts.

Interest income and Interest expense

Interest income consists primarily of income earned on Aeva’s cash equivalents and investments in marketable securities. Interest income will vary based on Aeva’s cash equivalents and marketable securities balance and changes in the interest rates.

Other income and expense

Other income and expense primarily consist of changes in the fair value of private placement warrants, foreign currency conversion gains and losses, and realized gain/loss on marketable securities.

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Results of Operations

Comparison of Year Ended December 31, 2021 and 2020

The following table sets forth Aeva’s results of operations data for the periods presented:

Revenue

Product

Product revenue increased by $0.2 million, or 16%, to $1.8 million during the year ended December 31, 2021, from $1.5 million for the year ended December 31, 2020. This increase was primarily due higher number of prototype units sold in 2021 as compared to 2020.

Professional Service

Professional services revenue increased by $4.2 million, or 126%, to $7.5 million for the year ended December 31, 2021, from $3.3 million for the year ended December 31, 2020. This increase was primarily due to an increase in activities related to research and development programs.

Cost of revenue and gross profit

Cost of product revenues increased by $0.6 million, or 90%, to $1.4 million during the year ended December 31, 2021, from $0.7 million for the year ended December 31, 2020. However, gross profit as a percentage of revenue decreased to 23% during the year ended December 31, 2021, from 53% for the year ended December 31, 2020, the change was primarily due to a lower average selling price for the prototype units sold during 2021.

Cost of professional service revenues increased by $2.4 million, or 121%, to $4.5 million during the year ended December 31, 2021, from $2.0 million for the year ended December 31, 2020, primarily due to the higher employee costs related to professional services. However, gross profit as a percentage of revenue increased marginally to 40% during the year ended December 31, 2021, from 39% for the year ended December 31, 2020.

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Operating expenses

Research and development

Total research and development expense increased by $54.3 million, or 265%, to $74.8 million during the year ended December 31, 2021, from $20.5 million for the year ended December 31, 2020. Research and development expenses increased primarily due to an increase in material, software licenses and payroll expenses due to continued expansion for product development and head count increase. Material, software licenses, and service related expenses increased by $20.6 million, payroll expenses increased by $18.8 million, stock-based compensation expenses increased by $10.9 million, facility expenses increased by $1.8 million, consulting cost increased by $1.1 million, and equipment cost, depreciation and other employee costs increased by $1.1 million.

General and administrative

Total general and administrative expense increased by $22.7 million, or 402%, to $28.4 million during the year ended December 31, 2021, from $5.7 million for the year ended December 31, 2020. General and administrative expense increased primarily due to an increase in employee expenses as a result of increased headcount to support our growth and expansion. Payroll expenses increased by $5.7 million, stock-based compensation expenses increased by $6.2 million, professional fees increased by $5.3 million, insurance expenses increased by $3.5 million, other equipment and facility expenses increased by $1.0 million, recruiting and other employee expenses increased by $0.6 million, depreciation and amortization increase by $0.2 million and taxes paid increased by $0.2 million.

Selling and marketing

Total selling and marketing expense increased by $2.7 million, or 164%, to $4.4 million during the year ended December 31, 2021, from $1.7 million for the year ended December 31, 2020. Selling and marketing expense increased as we continue to grow our sales force and increase our marketing efforts. Marketing program cost increased by $1.2 million, payroll expenses increased by $0.9 million, stock-based compensation expenses increased by $0.3 million, recruiting and other employee expenses increased by $0.2 million and facility expense increase by $0.1 million.

Interest income

Interest income increased by $0.2 million during the year ended December 31, 2021. The increase is due to higher balance of cash and cash equivalent and marketable securities during the year ended December 31, 2021 as compared to December 31, 2020, partially offset by a decrease in interest rate yield in the current year as compared to last year.

Other income (expense), net

Other income (expense), net increased by $2.0 million during the year ended December 31, 2021, primarily due to decrease in the fair value of private placement warrant liability which was recorded as other income.

Liquidity and Capital Resources

Sources of Liquidity

Aeva’s capital requirements will depend on many factors, including sales volume, the timing and extent of spending to support research and development efforts, investments in information technology systems, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features. As of December 31, 2021, Aeva had cash and cash equivalents and marketable securities totaling $445.0 million. Prior to the Business Combination, Aeva’s principal sources of liquidity have been proceeds received from the issuance of private equity.

Until Aeva can generate sufficient revenue from its sale of products to cover operating expenses, working capital and capital expenditures, Aeva expects the funds raised in the Business Combination, including the funds

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from the PIPE financing, to fund its near term cash needs. Any additional equity securities issued may provide for rights, preferences or privileges senior to those of holders of the Company’s common stock. If Aeva raises funds by issuing debt securities, these debt securities would have rights, preferences and privileges senior to those of common stockholders. The terms of debt securities or borrowings could impose significant restrictions on Aeva’s operations. The credit market and financial services industry have in the past, and may in the future, experience periods of uncertainty and other risks detailed in Part I, Item 1A titled “Risk Factors” that could impact the availability and cost of equity and debt financing.

Aeva has incurred negative cash flows from operating activities and losses from operations in the past as reflected in its accumulated deficit of $163.0 million as of December 31, 2021. Aeva expects to continue to incur operating losses due to continued investments that it intends to make in its business, including development of products. Aeva believes that existing cash and cash equivalent and marketable securities will be sufficient to fund operating and capital expenditure requirements through at least 12 months from the date of issuance of these financial statements.

Cash Flow Summary

The following table summarizes our cash flows for the periods presented:

Operating Activities

Net cash used in operating activities during the year ended December 31, 2021 of $82.1 million, was attributable to a net loss of $101.9 million and a net change in our net operating assets and liabilities of $5.1 million, partially offset by non-cash charges of $24.9 million. Non-cash charges primarily consisted of $22.2 million in stock-based compensation, $1.1 million in depreciation and amortization expense, $1.9 million in amortization of right of use, $1.5 million in accretion of discount on available for sale securities, partially offset by $2.0 million change in the fair value of warrant liabilities. The change in net operating assets and liabilities was primarily due to a $7.3 million increase in other current assets, a $2.2 million increase in accounts receivable due to timing of billing and cash collections, a $0.8 million increase in inventory, a $0.8 million increase in other non-current assets, a $3.2 million increase in accrued liability, a $2.7 million increase in accounts payable resulting primarily from expansion in our operating activities and a $1.5 million increase in accrued employee cost, partially offset by a $1.8 million decrease in lease liability.

Net cash used in operating activities during the year ended December 31, 2020 of $21.2 million, was attributable to a net loss of $25.6 million and a net change in our net operating assets and liabilities of $0.3 million, partially offset by non-cash charges of $4.6 million. Non-cash charges primarily consisted of $3.8 million in stock-based compensation and $0.8 million in depreciation expense. The change in net operating assets and liabilities was primarily due to a $3.5 million increase in other current assets, a $0.9 million increase in inventory, a $2.3 million increase in accrued liability, a $1.4 million increase in accounts payable resulting primarily from expansion in our operating activities and a $0.3 million increase in accrued employee cost, this was partially offset by a $0.2 million decrease in accounts receivable.

Investing Activities

Net cash used in investing activities during the year ended December 31, 2021, was attributable to $571.9 million used to purchase marketable securities, $4.5 million used in connection with the asset acquisition and $3.9

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million used to purchase property and equipment, partially offset by maturity and sale of available-for-sale investments of $191.7 million.

Net cash used in investing activities during year ended December 31, 2020, attributable to 0.9 million used to purchase property and equipment.

Financing Activities

Net cash provided by financing activities during the year ended December 31, 2021, was attributable to net proceeds of $513.3 million from the Business Combination and PIPE financing and proceeds of $0.9 million from stock option exercises, this was partially offset by $1.3 million paid for taxes withheld on restricted stock units.

Net cash provided by financing activities during year ended December 31, 2020, was attributable to proceeds from stock option exercise.

Off-Balance Sheet Arrangements

As of December 31, 2021, Aeva has not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

Aeva prepares its financial statements in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that can significantly impact the amounts Aeva reports as assets, liabilities, revenue, costs and expenses and the related disclosures. Aeva bases its estimates on historical experience and other assumptions that it believes are reasonable under the circumstances. Aeva’s actual results could differ significantly from these estimates under different assumptions and conditions. Aeva believes that the accounting policies discussed below are critical to understanding its historical and future performance as these policies involve a greater degree of judgment and complexity.

Stock-Based Compensation

Aeva recognizes the cost of stock-based awards granted to its employees and directors based on the estimated grant-date fair value of the awards. Cost is recognized on a straight-line basis over the service period, which is generally the vesting period of the award. Aeva elected to recognize the effect of forfeitures in the period they occur. The fair value of the RSUs is equal to the closing price of the Company’s common stock on the grant date. The fair value of each stock option grant was determined by the Company using the Black-Scholes option-pricing model, which is impacted by the following assumptions:

•
Expected Term — Expected term is the length of time the grant is expected to be outstanding before it is exercised or terminated. This number is calculated as the midpoint between the vesting term and the original contractual term (contractual period to exercise). If the option contains graded vesting, then the vesting term would be based on the vesting pattern.

•
Expected Volatility — The volatility is based on a benchmark of comparable companies within the automotive and energy storage industries.

•
Expected Dividend Yield — The dividend rate used is zero as Aeva has never paid any cash dividends on its common stock and does not anticipate doing so in the foreseeable future.

•
Risk-Free Interest Rate — The interest rates used are based on the implied yield available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.

The grant date fair value of Aeva's common stock, prior to the closing of BCA was determined using valuation methodologies that utilize certain assumptions, including probability weighting of events, volatility, time to liquidation, a risk-free interest rate, and an assumption for a discount for lack of marketability (Level 3 inputs).

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Subsequent to the closing of BCA the valuation of Aeva common stock was determined using the closing share price as reported on the NYSE.

Revenue

The most critical accounting policy estimate and judgments required in applying ASC 606, Revenue Recognition of Contracts from Customers, and our revenue recognition policy relate to the identification of performance obligations and accounting for certain contracts recognized over time. In certain contracts, the determination of our distinct performance obligations requires significant judgment. As our business and offerings to customers change over time, the products and services we determine to be distinct performance obligations may change. Such changes may adversely impact the amount of revenue and gross margin we report in a particular period. Revenue from product sales is recognized upon transfer of control of promised products. Revenue is recognized in an amount that reflects the consideration that Aeva expects to receive in exchange for those products and services. Product sales to certain customers may require customer acceptance, in which case revenue recognition is deferred until acceptance takes place. For service projects, revenue is recognized as services are performed and amounts are earned in accordance with the terms of contract at estimated collectible amounts.

For certain custom products that require engineering and development based on customer specifications, the Company recognizes revenue over time using a cost-to-cost measure of progress which the Company believes faithfully depicts the transfer of control of the goods or services to the customer. Amounts billed to customers for shipping and handling are included in revenue. Some of the Company’s arrangements provide software embedded in hardware, and promises to update the Company’s software represent immaterial promises in contracts with customers. Taxes collected from customers and remitted to governmental authorities are excluded from revenue.

Changes in judgments with respect to these assumptions and estimates could impact the timing or amount of revenue recognition.

Recent Accounting Pronouncements

See “Note 1. Description of Business and Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” for a full description of recent accounting pronouncements including the respective expected dates of adoption and estimated effects, if any, on our Consolidated Financial Statements.