{"url_path":"/sec/ucar/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 OPERATING AND FINANCIAL REVIEW AND PROSPECTS**","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1939780/0001213900-26-057792-index.html","accession_number":"0001213900-26-057792","cik":"0001939780","ticker":"UCAR","issuer_name":"U Power Ltd","edgar_url":"https://www.sec.gov/Archives/edgar/data/1939780/0001213900-26-057792-index.html","primary_entity_key":"0001939780","primary_entity_name":"U Power Ltd"},"word_count":8809,"has_tables":true,"body_markdown":"**Item\n5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS** \n\n \n\n*The\nfollowing discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated\nfinancial statements and the related notes included elsewhere in this annual report. This discussion contains forward-looking statements\nreflecting our current expectations that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements”\nfor a discussion of the uncertainties, risks, and assumptions associated with these statements. Actual results and the timing of events\ncould differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth\nunder “Risk Factors” and elsewhere in this annual report.*\n\n* *\n\n**A.**\n**Operating Results**\n\n \n\nSince\nour commencement of operations in 2013, we have principally engaged in the provision of vehicle sourcing services in China. In addition\nto our vehicle sourcing service, we aspire to becoming an EV market player primarily focused on UOTTA technology, which is an intelligent\nmodular battery-swapping technology designed to provide a comprehensive battery power solution for EVs. As a vehicle sourcing service\nprovider, we broker sales of vehicles between automobile wholesalers and buyers, including SME dealers and individual customers primarily\nlocated in the lower-tier cities in China. To that end, we have focused on building business relationships with our sourcing partners\nand have developed a vehicle sourcing network. As of the date of this annual report, our vehicle sourcing network consisted of approximately\n100 wholesalers and 30 SME dealers located in lower-tier cities in China.\n\n \n\nBeginning\nin 2020, we gradually shifted our focus from the vehicle sourcing business to the development of our proprietary battery-swapping technology,\nor UOTTA technology. Through our research and development efforts, we have developed an intellectual property portfolio centered on our\nUOTTA technology. Our plan is to develop a comprehensive EV battery power solution based on UOTTA technology, including: (i) UOTTA-powered EVs,\nwhich we jointly develop with two major automobile manufacturers in China by adapting selected EV models with our UOTTA technology; (ii) UOTTA\nbattery swapping stations, which are compatible with our UOTTA-powered EVs; and (iii) a UOTTA data management platform which\ncollects and synchronizes real-time information that connects UOTTA-powered EVs with UOTTA battery-swapping stations.\n\n \n\nFor\nthe fiscal years ended December 31, 2023, 2024 and 2025, our total revenues were RMB19.8 million, RMB44.3 million and RMB41.1 million\n(US$5.9 million), respectively. Revenue in fiscal year 2025 remained stable compared to revenue in fiscal year 2024. The increased revenue\nin fiscal year 2024 was primarily due to the increased product sales of battery swapping stations which had been completed in our established\nmarket regions in fiscal year 2023.\n\n** **\n\n**Key\nFactors Affecting Our Results of Operations**\n\n \n\nOur\nresults of operations have been, and are expected to continue to be, affected by various factors, which primarily include the following:\n\n** **\n\n**General\nmarket*** **conditions***\n\n  \n\nGeneral\nmarket conditions affecting our operations include:\n\n \n\n●China’s\nmacroeconomic conditions, the growth of China’s overall auto market, the commercial EV market and the government policy on promoting\nthe electrification of commercial vehicles;\n\n \n\n●penetration\nrate of EVs and battery-swapping stations in China’s commercial EV market;\n\n \n\n●development,\nand customer acceptance and demand, of UOTTA-powered EVs and battery-swapping stations; and\n\n \n\n●government\npolicies and regulations on the EV and battery-swapping station industries in China.\n\n** **\n\n83\n\n \n\n**Our\ncooperation with auto manufacturers**\n\n** **\n\nAs\nof the date of this annual report, our UOTTA technology is in the process of being adapted to commercial-use electric vehicles,\nby cooperating with major auto manufacturers in China. We have entered into cooperating agreements with two car manufacturers to jointly\ndevelop the UOTTA-powered EV models. We expect that the expertise and industry know-how of such manufacturers will guide us\nin our efforts in entering the commercial EV market. We believe that we are able to develop such relationships with these major manufacturers,\ndue to our distinct industry experience, research and development capabilities, and industry reputation.\n\n** **\n\n**Our\nability to attract new customers and grow our customer base**\n\n** **\n\nOur\nability to attract and retain customers is critical to the continued success and growth of our business. Appropriate pricing is essential\nfor us to remain competitive in the China automotive market, while preserving our ability to achieve and maintain profitability in the\nfuture. Our ability to attract new customers also depends on the scale and efficiency of our sales network and marketing channels. We\nseek to attract new customers cost-efficiently by engaging in various marketing activities. Enhanced customer satisfaction will\nhelp to drive word-of-mouth referrals, which we expect may reduce our customer acquisition costs.\n\n**  **\n\n**Our\nability to deliver our UOTTA-powered EV and battery-swapping stations portfolio**\n\n \n\nOur\nability to deliver UOTTA-powered EV models and battery-swapping stations, and to provide battery-swapping services will\nbe an important contributor to our future growth. As of the date of this report, we are jointly developing our UOTTA-powered EV\nmodels with car manufacturers and have launched two models of UOTTA battery-swapping stations, Titan and Chipbox, by cooperating\nwith one battery-swapping station manufacturer in China. We expect our revenue growth to be driven in part by the launch of our\nUOTTA-powered EV and expansion of our battery-swapping stations portfolio.\n\n** **\n\n**Our\nability to innovate and retain talents**\n\n** **\n\nWe\nplan to focus on technological innovations and to continue developing and upgrading our proprietary UOTTA technology. Accordingly, we\ndedicate significant resources to research and development, and our research and development staff accounted for 12.6% of our total employees\nas of the date of this report. We expect our strategic focus on innovations to further differentiate us from our competitors, which may\nin turn enhance our competitiveness.\n\n** **\n\n**Impact\nof COVID-19 on our operations**\n\n** **\n\nThe\nCOVID-19 pandemic has caused a significant impact on the Chinese and global economy from early 2020 to 2022. Until the end of 2022,\nthe PRC government placed significant restrictions on traveling within China, which disrupted operations of many manufacturing facilities\nalong with supply chains. Although we resumed normal business operations in 2022, we experienced certain disruptions on our operations\nin the fiscal year ended December 31, 2022, because a substantial number of the Small and Medium Enterprise dealers in our sourcing\nnetwork were negatively impacted in terms of normal operation and business.\n\n \n\nAs\na result of the foregoing disruptions, some of our projects had to be postponed. In particular, we experienced the following with certain\nprojects:\n\n \n\ni)the\ninstallation and operation of the three UOTTA battery-swapping stations sold in the fiscal years of 2021 and 2022 had to be postponed\ndue to the extended lock-down and self-quarantine policies in China; and\n\n \n\nii)the\ndevelopment and launch of UOTTA-powered EV models were significantly delayed because we could not effectively communicate or advance\nour cooperation with cooperating manufacturers, resulting from the extended lock-down and self-quarantine policies in China.\n\n \n\n84\n\n \n\nOn\nDecember 7, 2022, the joint prevention and control mechanism of the State Council of China issued the Notice on Further Optimizing the\nImplementation of Covid Prevention and Control Measures, stipulating that the control measures for epidemic prevention are gradually\nreduced. On May 5, 2023, the World Health Organization declared that COVID-19 is now an established and ongoing health issue which no\nlonger constitutes a public health emergency of international concern. For fiscal year 2025, the impact of Covid-19 on our business operations\nwas immaterial. However, the extent of the impact of COVID-19 on our future financial results will be dependent on future developments,\nsuch as the length and severity of COVID-19, its potential resurgence, future government actions in response to, and the overall impact\nof, COVID-19 on the global economy and capital markets, among many other factors, all of which remain highly uncertain and unpredictable.\nGiven this uncertainty, we are currently unable to predict or quantify any further anticipated impact of COVID-19 on our future operations,\nfinancial condition, liquidity and results of operations.\n\n \n\n**Key\nFinancial Performance Indicators**\n\n** **\n\n**Revenues**\n\n \n\nThe\nfollowing table sets forth a breakdown of our revenues, in absolute amounts and percentages of total revenues for the years presented:\n\n \n\n  \nFor\nthe Years Ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \nRMB  \n%  \nRMB  \n%  \nRMB  \nUS$  \n% \n\n  \n(in thousands,\nexcept for percentages) \n\nSourcing services \n 1,513  \n 7.7  \n 63  \n 0.1  \n 1,090  \n 155  \n 2.7 \n\nProduct sales \n 17,062  \n 86.3  \n 41,819  \n 94.5  \n 36,628  \n 5,211  \n 89.0 \n\nBattery-swapping services \n 1,189  \n 6.0  \n 1,177  \n 2.7  \n 402  \n 57  \n 1.0 \n\nTwo-wheeled\nvehicle battery-swapping services \n -  \n -  \n 1,231  \n 2.7  \n 3,005  \n 428  \n 7.3 \n\nTotal\nrevenues \n 19,764  \n 100.0  \n 44,290  \n 100.0  \n 41,125  \n 5,851  \n 100.0 \n\n \n\nWe\ngenerate revenues from vehicle sourcing services, products sales of battery-swapping stations, battery-swapping services and two-wheeled\nvehicle battery-swapping services. Battery-swapping services revenues represent the revenues generated from providing battery swapping\nservices for vehicle drivers, and station control system upgrading services for battery-swapping station owners.\n\n* *\n\n*Sourcing\nservices*\n\n \n\nFor\nvehicle sourcing business, we charge our customers for the service we provide in connection with their purchases of vehicles, where we\nare generally acting as an agent, and our performance obligation is to purchase the specified vehicles for our customers. We charge the\ncustomers a commission that is calculated based on the purchase price of each purchase order. Vehicle sourcing service fee revenues are\nrecognized on a net basis at the point in time when the service of purchase of the specified vehicles for our customers is completed,\ni.e., the specified vehicle for our customers is delivered. Payments are typically received in advance until delivery, at which point\nthe receipt in advance from customers is offset with the prepayment to the supplier and the difference representing the commission is\nrecognized as revenue.\n\n \n\nFor\nbattery sourcing service, we sell vehicle batteries. Once the needs are identified from the drivers, we order from suppliers, and the\nbatteries are directly couriered to customers by the suppliers, operating on an individual customer basis on the demand side. As we are\nable to fully decide the selling price, and have the right to decide to recall the product and cease the transaction prior to the delivery\nof the battery to the customer, we are able to control relevant risk and benefit during the whole service, acting as the principal. The\ntotal amount received from customers is recognized as revenue.\n\n* *\n\n*Product\nSales*\n\n \n\nWe\ngenerate revenue from sales of battery swapping stations. We identify the users who purchase battery swapping stations as our customers.\nThe revenue for battery swapping station sales is recognized at a point in time when the control of the product is transferred to our\ncustomers.\n\n* *\n\n*Battery-swapping\nservices*\n\n \n\nWe\ngenerate revenues from providing battery swapping services for vehicle drivers and station control system upgrading services for battery-swapping\nstation owners\n\n** **\n\n*Two-wheeled\nvehicle battery-swapping services*\n\n* *\n\nWe\nlaunched a new business in 2024. By providing battery swap cabinets, two-wheeled vehicle drivers can perform self-service battery swaps.\nWe charge the drivers a certain amount as revenue from the rent of battery.\n\n \n\n85\n\n** **\n\n**Cost\nof Revenues**\n\n \n\nThe\nfollowing table sets forth the breakdown of our cost of revenues by category, both in absolute amount and as a percentage of the total\ncost of revenues, for the years presented:\n\n \n\n  \nFor\nthe Years Ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \nRMB  \n%  \nRMB  \n%  \nRMB  \nUS$  \n% \n\n  \n(in thousands,\nexcept for percentages) \n\nCosts\nof sourcing services \n 22  \n 0.3  \n 62  \n 0.2  \n 296  \n 42  \n 1.1 \n\nCosts\nof product sales \n 6,124  \n 80.6  \n 31,229  \n 92.3  \n 22,980  \n 3,270  \n 87.7 \n\nCosts\nof battery-swapping services \n 1,348  \n 17.8  \n 1,721  \n 5.1  \n 160  \n 23  \n 0.6 \n\nCost\nof two-wheeled vehicle battery-swapping services \n -  \n -  \n 584  \n 1.7  \n 2,743  \n 390  \n 10.5 \n\nOther\ncosts \n 98  \n 1.3  \n 231  \n 0.7  \n 28  \n 4  \n 0.1 \n\nTotal\ncost of revenues \n 7,592  \n 100.0  \n 33,827  \n 100.0  \n 26,208  \n 3,729  \n 100.0 \n\n  \n\nCosts\nof products sales mainly include the costs of sales of batter-swapping stations, which primarily include semi-finished goods purchased\nfrom suppliers, labor costs and manufacturing costs, mainly including depreciation of assets associated with production.\n\n \n\nCosts\nof battery-swapping services mainly include the electric charge costs and the rental costs of batteries for battery swapping services.\n\n \n\nCost\nof two-wheeled vehicle battery-swapping services mainly include the operator’s expenses.\n\n \n\nOther\nservice costs primarily include the taxes and surcharges costs in accordance with PRC laws.\n\n** **\n\n**Operating\nExpenses**\n\n \n\nThe\nfollowing table sets forth our operating expenses, both in absolute amount and as a percentage of the total operating expenses, for the\nyears presented:\n\n \n\n  \nFor\nthe Years Ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \nRMB  \n%  \nRMB  \n%  \nRMB  \nUS$  \n% \n\n  \n(in thousands,\nexcept for percentages) \n\nSales\nand marketing expense \n 2,477  \n 5.0  \n 2,789  \n 4.1  \n 3,362  \n 478  \n 4.6 \n\nGeneral\nand administrative expenses \n 41,222  \n 84.0  \n 46,910  \n 68.5  \n 52,627  \n 7,487  \n 71.9 \n\nResearch\nand development expenses \n 2,184  \n 4.5  \n 2,985  \n 4.4  \n 4,597  \n 654  \n 6.3 \n\nLoss\non impairment of long-lived assets and long-term investment \n 1,996  \n 4.1  \n 10,504  \n 15.3  \n -  \n -  \n - \n\nAllowance\nfor expected credit loss do \n 1,196  \n 2.4  \n 5,264  \n 7.7  \n 12,597  \n 1,792  \n 17.2 \n\nTotal\noperating expenses \n 49,075  \n 100.0  \n 68,452  \n 100.0  \n 73,183  \n 10,411  \n 100.0 \n\n \n\n86\n\n* *\n\n*General\nand administrative expenses*\n\n \n\nOur\ngeneral and administrative expenses primarily consist of (i) employee compensation, including salaries, benefits and bonuses for\nour general corporate staff; (ii) professional service fees; (iii) depreciation for office equipment; (iv) operating and\nlease expenses for our offices; (v) office utilities; and (vi) certain other expenses.\n\n \n\nOur\nselling, general and administrative expenses are mainly driven by the number of our sales, general corporate personnel, marketing and\npromotion activities and the expansion of our sales and service network.\n\n \n\n*Research\nand development expenses*\n\n \n\nOur\nresearch and development expenses consist primarily of personnel-related costs directly associated with research and development. Our\nresearch and development expenses are related to enhancing and developing UOTTA technology for our existing products and new product\ndevelopment. We expense research and development costs as incurred.\n\n \n\nOur\nresearch and development expenses are mainly driven by the number of our research and development personnel, as well as the stage and\nscale of our UOTTA-powered EVs and battery-swapping stations development.\n\n * *\n\n*Allowance\nfor expected credit loss*\n\n* *\n\nOur\nallowance for expected credit loss primarily consists of the provision of expected credit losses for accounts receivable, advance to\nsuppliers and other current assets after estimating that the collection for the full amount is no longer probable.\n\n* *\n\n*Taxation*\n\n \n\nCayman\nIslands\n\n \n\nWe\nare incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on individuals or corporations based upon profits,\nincome, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely\nto be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed\nin, or after execution, brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties\nthat are applicable to any payments made to or by our company. There are no exchange control regulations or currency restrictions in\nthe Cayman Islands.\n\n \n\nPayments\nof dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding will be required\non the payment of a dividend or capital to any holder of the shares, nor will gains derived from the disposal of the shares be subject\nto Cayman Islands income or corporation tax. \n\n \n\nBritish\nVirgin Islands\n\n \n\nOur\nsubsidiaries incorporated in the British Virgin Islands are not subject to tax on income or capital gains under the current laws of the\nBritish Virgin Islands. There are currently no withholding taxes in the BVI applicable to these subsidiaries.\n\n   \n\nHong\nKong\n\n \n\nOur\nsubsidiaries incorporated in Hong Kong, are subject to a two-tiered income tax rate for their taxable income earned in Hong Kong.\nThe first HK$2 million of profits earned by a company is subject to be taxed at an income tax rate of 8.25%, while the remaining\nprofits will continue to be taxed at the existing tax rate of 16.5%. No provision for Hong Kong profits tax has been made in the\nconsolidated financial statements as it has no assessable profit for the fiscal years ended December 31, 2023, 2024 and 2025, respectively.\n\n \n\n87\n\n \n\nPRC\n\n \n\nOur\nsubsidiaries in the PRC are subject to Enterprise Income Tax (“EIT”) on their taxable income in accordance with the relevant\nEIT Law. Pursuant to the EIT Law, which became effective on March 16, 2007 and was amended on December 29, 2018, a uniform\n25% enterprise income tax rate is generally applicable to both foreign-invested enterprises, or FIEs and domestic enterprises, except\nwhere a special preferential rate applies. The EIT is calculated based on the entity’s global income as determined under PRC tax\nlaws and accounting standards.\n\n \n\nUnder\nthe EIT Law, dividends generated after January 1, 2008 and payable by an Foreign-invested enterprise (“FIE”) in the\nPRC to its foreign investors who are non-resident enterprises are subject to a 10% withholding tax, unless any such foreign investor’s\njurisdiction of incorporation has a tax treaty with the PRC that provides for a different withholding arrangement. The Cayman Islands,\nwhere the Company was incorporated, does not have a tax treaty with the PRC. In accordance with the accounting guidance, all undistributed\nearnings are presumed to be transferred to the parent company and are subject to the withholding taxes. All FIEs are subject to the withholding\ntax from January 1, 2008. The presumption may be overcome if we have sufficient evidence to demonstrate that the undistributed dividends\nwill be re-invested and the remittance of the dividends will be postponed indefinitely. We did not record any dividend withholding\ntax, as we have no retained earnings for any of the years presented.\n\n \n\nThe\nEIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management\nbody” is located in the PRC be treated as a “resident enterprise” and consequently be subject to the PRC income tax\nat the rate of 25% for its global income. The EIT Law defines the location of the “de facto management body” as “the\nplace where the exercising, in substance, of the overall management and control of the production and business operation, personnel,\naccounting, properties and others of a non-PRC company is located.” Based on a review of surrounding facts and circumstances,\nwe do not believe that it is likely that our operations outside of the PRC will be considered a resident enterprise for PRC tax purposes.\nHowever, due to limited guidance and implementation history of the EIT Law, there is uncertainty as to the application of the EIT Law.\nIf our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a resident enterprise under\nthe EIT Law, it would be subject to enterprise income tax on its worldwide income at a uniform enterprise income tax rate of 25%.\n\n** **\n\n**Results\nof Operations**\n\n \n\nThe\nfollowing table sets forth a summary of our consolidated results of operations for the years presented, both in an absolute amount and\nas percentages of our total revenues. This information should be read together with our consolidated financial statements and related\nnotes included elsewhere in this report. The results of operations in any particular period is not indicative of our future trends.\n\n \n\n  \nFor the Years Ended December 31, \n\n  \n2023  \n2024  \n2025 \n\n  \nRMB  \n%  \nRMB  \n%  \nRMB  \nUS$  \n% \n\n  \n(in thousands, except for percentages) \n\nRevenues \n   \n   \n   \n   \n   \n   \n  \n\nSourcing services \n 1,513  \n 7.7  \n 63  \n 0.1  \n 1,090  \n 155  \n 2.7 \n\nProduct sales \n 17,062  \n 86.3  \n 41,819  \n 94.5  \n 36,628  \n 5,211  \n 89.0 \n\nBattery-swapping services \n 1,189  \n 6.0  \n 1,177  \n 2.7  \n 402  \n 57  \n 1.0 \n\nTwo-wheeled vehicle battery-swapping services \n -  \n -  \n 1,231  \n 2.7  \n 3,005  \n 428  \n 7.3 \n\nTotal revenues \n 19,764  \n 100.0  \n 44,290  \n 100.0  \n 41,125  \n 5,851  \n 100.0 \n\nCost of revenues \n (7,592) \n (38.4) \n (33,827) \n (76.4) \n (26,208) \n (3,729) \n (63.7)\n\nGross profit \n 12,172  \n 61.6  \n 10,463  \n 23.6  \n 14,917  \n 2,122  \n 36.3 \n\n  \n    \n    \n    \n    \n    \n    \n   \n\nOperating expenses \n    \n    \n    \n    \n    \n    \n   \n\nSelling expenses \n (2,477) \n (12.5) \n (2,789) \n (6.3) \n (3,362) \n (478) \n (8.2)\n\nGeneral and administrative expenses \n (41,222) \n (208.6) \n (46,910) \n (105.9) \n (52,627) \n (7,487) \n (128.0)\n\nResearch and development expenses \n (2,184) \n (11.1) \n (2,985) \n (6.7) \n (4,597) \n (654) \n (11.2)\n\nLoss on impairment of long-lived assets and long-term investment \n (1,996) \n (10.1) \n (10,504) \n (23.7) \n -  \n -  \n - \n\nAllowance for expected loss \n (1,196) \n (6.1) \n (5,264) \n (11.9) \n (12,597) \n (1,792) \n (30.6)\n\nTotal operating expenses \n (49,075) \n (248.3) \n (68,452) \n (154.6) \n (73,183) \n (10,411) \n (178.0)\n\n  \n    \n    \n    \n    \n    \n    \n   \n\nOperating loss \n (36,903) \n (186.7) \n (57,989) \n (130.9) \n (58,266) \n (8,289) \n (141.7)\n\n  \n    \n    \n    \n    \n    \n    \n   \n\nInterest income \n 562  \n 2.8  \n 742  \n 1.7  \n 2,829  \n 402  \n 6.9 \n\nInterest expenses \n (1,860) \n (9.4) \n (1,402) \n (3.2) \n (188) \n (27) \n (0.5)\n\nOther income \n 16,927  \n 85.6  \n 5,612  \n 12.7  \n 3,072  \n 437  \n 7.5 \n\nOther expense \n (1,579) \n (8.0) \n (3,325) \n (7.5) \n (24,344) \n (3,463) \n (59.2)\n\nLoss before income tax \n (22,853) \n (115.7) \n (56,362) \n (127.3) \n (76,897) \n (10,940) \n (187.0)\n\nIncome tax expenses \n (2,613) \n (13.2) \n -  \n -  \n (3,581) \n (509) \n (8.7)\n\nNet loss \n (25,466) \n (128.9) \n (56,362) \n (127.3) \n (80,478) \n (11,449) \n (195.7)\n\n \n\n88\n\n \n\n**Year\nended December 31, 2025 compared to year ended December 31, 2024**\n\n* *\n\n*Revenues*\n\n \n\nOur\nrevenues decreased by approximately 7.1% from RMB44.3 million for the year ended December 31, 2024 to RMB41.1million (US$5.9 million)\nfor the year ended December 31, 2025. The decrease was primarily due to the decreased product sales of battery swapping stations. * *\n\n \n\n*Cost of\nrevenues*\n\n \n\nOur\ntotal cost of revenues decreased by approximately 22.5% from approximately RMB33.8 million to RMB26,2 million (US$3.7 million) for the\nyears ended December 31, 2024 and 2025, respectively. The decrease in 2025 was primarily due to the decreased cost of product sales of\nbattery swapping stations in 2025.\n\n* *\n\n*Gross\nProfit*\n\n \n\nAs\na result of the factors set out above, our gross profit increased by approximately 33.8% from RMB10.5 million for the year ended December\n31, 2024 to RMB14.9 million (US$2.1 million) for the year ended December 31, 2025.\n\n* *\n\n*Sales\nand marketing expenses*\n\n \n\nOur\nsales and marketing expenses increased by approximately 20.5% from RMB2.8 million for the year ended December 31, 2024 to RMB3.4 million\n(US$0.5 million) for the year ended December 31, 2025, primarily attributable to increased sales and marketing expenditures incurred\nfor business expansion initiatives.\n\n* *\n\n*General\nand administrative expenses*\n\n \n\nOur\ngeneral and administrative expenses increased by approximately 12.2% from RMB46.9 million for the year ended December 31, 2024 to RMB52.6\nmillion (US$7.5 million) for the year ended December 31, 2025. The increase was primarily driven by increased administrative personnel\ncosts and material consumption associated with the Group’s business expansion.\n\n* *\n\n*Research\nand development expenses*\n\n \n\nOur\nresearch and development expenses significantly increased by approximately 54.0% from RMB3.0 million for the year ended December 31,\n2024 to RMB4.6 million (US$0.7 million) for the year ended December 31, 2025, primarily due to the increased UOTTA technology innovation\nactivities related to research and development programs.\n\n* *\n\n*Loss on\nimpairment of long-lived assets*\n\n* *\n\nNo\nloss on impairment of long-lived assets was recognized for the year ended December 31, 2025, compared to RMB10.5 million recognized for\nthe year ended December 31, 2024. The impairment in 2024 was primarily due to the impairment of a long-unused production line and the\nimpairment of a long-term investment resulting from the deregistration of the investee company.\n\n* *\n\n89\n\n* *\n\n*Allowance\nfor expected loss*\n\n \n\nThe\nallowance for expected loss was recognized as RMB5.3 million and RMB12.6 million (US$1.8 million) for the years ended December 31, 2024\nand 2025, respectively. The increase was primarily due to the increased impact of potential uncollectible amounts for advances to suppliers\nand other current assets for the year ended December 31, 2025 based on the results of our estimation of collectability with the continued\nimprovement of receivable collection by the management.\n\n* *\n\n*Interest\nincome*\n\n \n\nOur\ninterest income increased from RMB0.7 million for the year ended December 31, 2024 to RMB2.8 million for the year ended December 31,\n2025, primarily due to the accrual of interest on other long-term assets.\n\n \n\n*Interest\nexpenses*\n\n \n\nOur\ninterest expenses decreased by approximately 86.6% from RMB1.4 million for the year ended December 31, 2024 to RMB0.2 million (US$0.03\nmillion) for the year ended December 31, 2025, primarily attributable to increased expected loss.\n\n* *\n\n*Other\nincome*\n\n \n\nWe\nrecorded other income of approximately RMB5.6 million and RMB3.1 million (US$0.4 million) for the years ended December 31, 2024 and 2025,\nrespectively. Other income in the fiscal year 2025 decreased mainly due to the reduction in government subsidies.\n\n* *\n\n*Other\nexpenses*\n\n \n\nThe\nother expenses increased from RMB3.3 million for the year ended December 31, 2024 to RMB24.3 million (US$3.5 million) for the year ended\nDecember 31, 2025, mainly due to an increase in litigation expenses.\n\n* *\n\n*Income\ntax expenses*\n\n \n\nWe\nrecorded income tax expenses of nil and approximately RMB3.6 million for the years ended December 31, 2024 and 2025, respectively. The\nincrease was primarily due to the increase in taxable income generated from the operations of our subsidiaries in Thailand.\n\n* *\n\n*Net\nloss*\n\n \n\nAs\na result of the foregoing, we incurred a net loss increased by approximately 43.0% from RMB56.4 million to RMB 80.5 million (US$11.5\nmillion) for the years ended December 31, 2024 and 2025, respectively.\n\n \n\n90\n\n \n\n**Year\nended December 31, 2024 compared to year ended December 31, 2023**\n\n \n\n*Revenues*\n\n \n\nOur\nrevenues increased by approximately 124.1% from RMB19.8 million for the year ended December 31, 2023 to RMB44.3million (US$6.1 million)\nfor the year ended at December 31, 2024. The increase was primarily due to the increased product sales of battery swapping stations which\nhad been completed in 2024.\n\n \n\n*Cost\nof revenues*\n\n \n\nOur\ntotal cost of revenues increased by approximately 345.6% from approximately RMB7.6 million to RMB33.8 million (US$4.6 million) for the\nyears ended December 31, 2023 and 2024, respectively. The increase in 2024 was primarily due to the increased cost of product sales of\nbattery swapping stations in 2024.\n\n \n\n*Gross\nProfit*\n\n \n\nAs\na result of the factors set out above, our gross profit decreased by approximately 14.0% from RMB12.2 million for the year ended December\n31, 2023 to RMB10.5 million (US$1.4 million) for the year ended December 31, 2024. In order to promote the sales of battery swapping\nstations, we have implemented a price reduction in 2024.\n\n \n\n*Sales\nand marketing expenses*\n\n \n\nOur\nsales and marketing expenses increased by approximately 12.6% from RMB2.5 million for the year ended December 31, 2023 to RMB2.8 million\n(US$0.4 million) for the year ended December 31, 2024, primarily attributable to increased sales and marketing expenditures incurred\nfor business expansion initiatives.\n\n \n\n*General\nand administrative expenses*\n\n \n\nOur\ngeneral and administrative expenses increased by approximately 13.8% from RMB41.2 million for the year ended December 31, 2023 to RMB46.9\nmillion (US$6.4 million) for the year ended December 31, 2024. The increase was primarily driven by increased administrative personnel\ncosts and material consumption associated with the Group’s business expansion.\n\n \n\n*Research\nand development expenses*\n\n \n\nOur\nresearch and development expenses significantly increased by approximately 36.6% from RMB2.2 million for the year ended December 31,\n2023 to RMB3.0 million (US$0.4 million) for the year ended December 31, 2024, primarily due to the increased UOTTA technology innovation\nactivities related to research and development programs.\n\n* *\n\n*Loss\non impairment of long-lived assets*\n\n \n\nThe\nloss on impairment of long-lived assets were recognized as RMB1.9 million and RMB10.5 million (US$1.4 million) for the years ended December\n31, 2023 and 2024, respectively, primarily due to the impairment recognized of long-unused production line and the long-term investment\nimpairment due to the deregistration of the investee company.\n\n \n\n*Allowance\nfor expected loss*\n\n \n\nThe\nallowance for expected loss were recognized as RMB1.2 million and RMB5.3 million (US$0.7 million) for the years ended December 31, 2023\nand 2024, respectively. The increase was primarily due to the increased impact of potential uncollectible amounts for advances to suppliers\nand other current assets for the year ended December 31, 2024 based on the results of our estimation of collectability with the continued\nimprovement of receivable collection by the management.\n\n \n\n*Interest\nincome*\n\n \n\nOur\ninterest income increased from RMB0.6 million for the year ended December 31, 2023 to RMB0.7 million for the year ended December 31,\n2024, primarily due to the accrual of interest on other long-term assets.\n\n \n\n91\n\n \n\n*Interest\nexpenses*\n\n \n\nOur\ninterest expenses decreased by approximately 24.6% from RMB1.9 million for the year ended December 31, 2023 to RMB1.4 million (US$0.2\nmillion) for the year ended December 31, 2024, primarily attributable to increased expected loss.\n\n \n\n*Other\nincome*\n\n \n\nWe\nrecorded other income of approximately RMB16.9 million and RMB5.6 million (US$0.8 million) for the years ended December 31, 2023 and\n2024, respectively. Other income in the fiscal year 2024 was mainly due to the government grant recognized.\n\n \n\n*Other\nexpenses*\n\n \n\nThe\nother expenses increased from RMB1.6 million for the year ended December 31, 2023 to RMB3.3 million (US$0.5 million) for the year ended\nDecember 31, 2024, primarily due to the increased investment loss in the fiscal year 2024.\n\n \n\n*Income\ntax expenses*\n\n \n\nWe\nrecorded income tax expenses of approximately RMB2.6 million and nil for the years ended December 31, 2023 and 2024, respectively. The\ndecrease was primarily due to the decrease of taxable income generated from operations of our subsidiaries in China.\n\n \n\n*Net\nloss*\n\n \n\nAs\na result of the foregoing, we incurred a net loss increased by approximately 121.3% from RMB25.5 million to RMB 56.4 million (US$7.7\nmillion) for the years ended December 31, 2023 and 2024, respectively.\n\n \n\n**Liquidity\nand Capital Resources**\n\n \n\nOur\nprimary source of liquidity historically has been cash generated from our business operations, bank loans, equity contributions from\nour shareholders and borrowings, which have historically been sufficient to meet our working capital and capital expenditure requirements.\n\n \n\nAs\nof December 31, 2024 and 2025, the Group’s cash and cash equivalents and restricted cash were RMB24,674 and RMB22,294, (US$3,172),\nrespectively, and the Group’s restricted cash were RMB 1,239 and RMB 343 (US$49), respectively. The Group’s cash and cash\nequivalents primarily consist of cash on hand and highly liquid investments placed with banks, which are unrestricted to withdrawal and\nuse and which have original maturities of three months or less.\n\n \n\nOn\nDecember 13, 2021, Youxu Zibo entered into a bank facility agreement with Bank of Qishang, a commercial bank in China. The principal\namount under this loan agreement is RMB10 million, bearing a weighted average interest rate of 6.87% per annum with a term of three years,\nand was denominated in RMB. As of December 31, 2025, Youxu Zibo had an outstanding bank loan balance of RMB 5.8 million. On December\n6, 2024, Youxu Zibo entered into an extension agreement with the bank, under which the remaining principal balance of RMB 6.5 million\nis repayable in installments, with the final payment due no later than June 3, 2026. The loan carries an annual interest rate of 6.87%,\nconsistent with the original terms.\n\n \n\nThe\nGroup believes that the substantial doubt of its ability to continue as going concern is alleviated based on proceeds received from its\nnew investors and potential investors. Meanwhile, the Group also believe its existing cash and cash equivalents, anticipated cash raised\nfrom financings, and anticipated cash flow from operations, together with the net proceeds from its new investors and potential investors\nin 2025, will be sufficient to meet its anticipated cash needs for the next 12 months from the date of this report. The exact amount\nof proceeds the Group used for its operations and expansion plans will depend on the amount of cash generated from its operations and\nany strategic decisions the Group may make that could alter its expansion plans and the amount of cash necessary to fund these plans.\n\n \n\n92\n\n \n\nWe\nmay, however, decide to enhance our liquidity position or increase our cash reserve for future investments through additional capital\nand finance funding. We may need additional cash resources in the future if we experience changes in business conditions or other developments,\nor if we find and wish to pursue opportunities for investments, acquisitions, capital expenditures or similar actions. If we determine\nthat our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or\ndebt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders.\nThe incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict\nour operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.\n\n \n\nOur\nability to manage our working capital, including receivables and other assets and liabilities and accrued liabilities, may materially\naffect our financial condition and results of operations.\n\n \n\nThe\nfollowing table sets forth a summary of our cash flows for the years presented:\n\n \n\n \n \n**For\nthe Years Ended\nDecember 31,**\n \n\n \n \n**2024**\n \n \n**2025**\n \n\n \n \n**RMB**\n \n \n**RMB**\n \n \n**US$**\n \n\n \n \n**(in thousands)**\n \n\n**Summary Consolidated\nCash Flow:**\n \n \n \n \n \n \n \n \n \n\nNet\ncash used in operating activities\n \n \n(73,170\n)\n \n \n(69,894\n)\n \n \n(9,941\n)\n\nNet\ncash provided  by investing activities\n \n \n49,093\n \n \n \n23,830\n \n \n \n3,392\n \n\nNet\ncash provided by financing activities\n \n \n12,958\n \n \n \n47,085\n \n \n \n6,699\n \n\nNet\nincrease in cash and cash equivalents and restricted cash\n \n \n(11,119\n) \n \n \n1,021\n\n \n \n150\n\nEffects\nof exchange rate changes\n \n \n(446\n) \n \n \n(3,401\n)\n \n \n(354\n) \n\nCash\nand cash equivalents and restricted cash, at beginning of year\n \n \n36,239\n \n \n \n24,674\n \n \n \n3,381\n \n\n**Cash\nand cash equivalents and restricted cash, at end of year**\n \n \n**24,674**\n \n \n \n**22,294**\n \n \n \n**3,172**\n \n\n \n\n**Operating\nActivities**\n\n \n\nOur net cash used in operating activities increased\nfrom RMB73.2 million for the year ended December 31, 2024 to RMB69.9 million (US$9.9 million) for the year ended December 31, 2025. We\nanticipate optimizing net operating cash outflows through the following initiatives: Accelerated industrial upgrading: The Group has begun\nreducing loss-making operations and has achieved certain results, with the Group’s gross profit margin increasing this year. Overseas\nmarket expansion: The Group’s development of battery-swapping station sales and swap network services in Hong Kong, Southeast Asia, and\nSouth America continues to expand. With the expansion of business scale and the enhancement of brand recognition, the Group’s core business\ngross profit margin has improved this year. Looking ahead, the Group expects to optimize its personnel structure and control administrative\nexpenses.\n\n \n\nWe recorded net cash used in operating\nactivities of approximately RMB 69.9 million (US$9.9 million) for the year ended December 31, 2025. The difference between our net\nloss of approximately RMB80.5 million (US$11.5 million) and the net cash used in operating activities was primarily due to (i) an\nadjustment of approximately RMB20.7 million (US$3.0 million) in non-cash items, which mainly consisted of depreciation and\namortization of RMB2.1 million (US$0.3 million), amortization of right-of-use assets of RMB6.3 million (US$0.9 million),\nallowance for expected loss of RMB12.6 million (US$1.8 million); (ii) an decrease in other current and non-current assets of RMB21.9\nmillion (US$3.1 million) due to the increased loans to third parties; (iii) an decrease in amounts due from related parties of\nRMB1.6 million (US$0.3 million), primarily attributable to increased cash outflows from financial support provided to related\nparties for their business operations.\n\n \n\nNet cash used in operating activities was\napproximately RMB73.2 million (US$10.0 million) for the year ended December 31, 2024. The difference between our net loss of\napproximately RMB25.5 million (US$3.6 million) and the net cash used in operating activities was primarily due to (i) an adjustment\nof approximately RMB11.6 million (US$1.6 million) in non-cash items, which mainly consisted of depreciation and amortization of\nRMB2.6 million (US$0.4 million), amortization of right-of-use assets of RMB5.7 million (US$0.8 million), a provision of impairment\nfor fixed assets of RMB1.9 million (US$0.3million), allowance for expected loss of RMB1.2 million (US$0.2 million) ,an impairment of\nlong-term investment of RMB0.1 million (US$0.01 million) and investment loss of RMB0.1 million(US$0.01million); (ii) an increase in\naccounts receivable of RMB14.2 million (US$2.0 million) in relation to providing sourcing services and sales of battery-swapping\nstations; (ii) an increase in other current assets of RMB21.2 million (US$3.0 million) due to the increased loans to third parties;\n(iii) an increase in advances to suppliers of RMB3.9 million (US$0.6 million), partially offset by (i) an increase in accrued\nexpenses and other current liabilities of RMB15.1 million (US$2.1 million), (ii) an increase in amounts due to related parties of\nRMB5.2 million (US$0.7 million) and (iii) an increase in lease liabilities of RMB3.5 million (US$0.5 million).\n\n \n\n93\n\n \n\n**Investing\nActivities**\n\n \n\nNet cash provided by investing activities for the year ended December 31,\n2025 was RMB23.8 million (US$3.4 million), mainly consisted of the repayment of loans from third parties of RMB23.8 million (US$3.4 million)\nand repayment of the refundable deposit for investment of RMB39.8 million (US$5.7 million).\n\n \n\nNet\ncash provided by investing activities for the year ended December 31, 2024 was RMB49.1 million (US$6.7 million), mainly consisted\nof the loan repayments from third parties of RMB16.7 million (US$2.3 million) and payment of loans provided to related parties for investment\nof RMB40.2 million (US$5.7 million).\n\n \n\n**Financing\nActivities**\n\n \n\nNet\ncash provided by financing activities for the year ended December 31, 2025 was RMB47.1 million (US$6.7 million), mainly consisted\nof the proceeds of capital contribution from the issuance of ordinary shares of RMB52.5 million (US$7.5 million). \n\n \n\nNet\ncash provided by financing activities for the year ended December 31, 2024 was RMB13.0 million (US$1.8 million), mainly consisted\nof the proceeds of capital contribution from insurance of ordinary shares of RMB25.9 million (US$3.5 million), and proceeds from short-term\nbank borrowing of RMB10.2 million (US$1.4 million). On the other hand, the repayment of bank loans during the current year resulted in\na reduction of RMB20.1 million (US$2.8 million) in cash flows from financing activities.\n\n \n\n**Holding\nCompany Structure**\n\n \n\nU\nPower Limited, our holding company, has no material operations of its own. We conduct our operations primarily through our subsidiaries\nin the PRC. As a result, U Power Limited’s ability to pay dividends depends upon dividends paid by our subsidiaries in the\nPRC. If our existing PRC subsidiaries or any newly formed ones incur debt on their own behalf in the future, the instruments governing\ntheir debt may restrict their ability to pay dividends to us. In addition, our subsidiaries in China are permitted to pay dividends to\nus only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC\nlaw, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund\ncertain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, our subsidiaries in China\nmay allocate a portion of their after-tax profits based on PRC accounting standards to enterprise expansion funds and staff bonus\nand welfare funds at their discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends.\nRemittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by State\nAdministration of Foreign Exchange (“SAFE”). Our PRC subsidiaries have not paid dividends and will not be able to pay\ndividends until they generate accumulated profits and meet the requirements for statutory reserve funds.\n\n** **\n\n**Borrowings**\n\n \n\nThe following\ntable sets forth the breakdown of our borrowings as of the dates indicated:\n\n \n\n  \nAs of December 31, \n\n  \n2024  \n2025 \n\n  \nRMB  \nRMB  \nUS$ \n\n  \n(in thousands) \n\nShort-term bank borrowing \n 15,172  \n 13,172  \n 1,874 \n\nLong-term bank borrowing, current portion \n 2,800  \n 5,800  \n 825 \n\n  \n 17,972  \n 18,972  \n 2,699 \n\n \n\nDuring\nfiscal year 2025, Shanghai Youxu fully repaid its aggregate short-term bank borrowing of RMB4.0 million originally obtained in 2024.\nSubsequent to these repayments, Shanghai Youxu entered into new one-year short-term bank loans of RMB2.0 million on February 21, 2025,\ncarrying an annual interest rate of 3.10%.\n\n \n\nDuring\n2025, Youxu Zibo repaid RMB0.7 million of its bank borrowings from Qishang Bank. On December 6, 2024, the company entered into a renewal\nagreement with Qishang Bank to extend the remaining RMB6.5 million loan to June 3, 2026, maintaining the original annual interest rate\nof 6.87%.  \n\n \n\n94\n\n \n\n**Contractual\nObligations**\n\n \n\nThe following\ntable sets forth the Group’s contractual obligations was as of December 31, 2025:\n\n \n\n  \nPayment due by period \n\n  \nTotal  \nLess than\n1 year  \n1-3 years  \n3-5 years  \nMore than\n5 years \n\n  \nRMB  \nUS$  \n   \n   \n   \n  \n\nCurrent portion of Long-term bank borrowings (i) \n 5,800  \n 825  \n 5,800  \n -  \n -  \n - \n\nShort-term bank borrowing \n 13,172  \n 1,874  \n 13,172  \n -  \n -  \n - \n\nLoans from third parties \n 2,177  \n 310  \n 2,177  \n -  \n -  \n - \n\nOperating lease liabilities (ii) \n 5,399  \n 768  \n 2,246  \n 2,434  \n 719  \n - \n\nLitigation and settlement(iii) \n 16,958  \n 2,413  \n 16,958  \n -  \n -  \n - \n\nTotal \n 43,506  \n 6,190  \n 40,353  \n 2,434  \n 719  \n - \n\n \n\n(i)\nThe Group’s long-term bank borrowings and short-term bank borrowings as of December 31, 2025 is discussed in Note 13 BANK BORROWINGS.\n\n \n\n(ii)\nThe Group’s commitment\nfor minimum lease payments under the remaining operating leases as of December 31, 2025 is discussed in Note 15 LEASES.\n\n \n\n(iii)\nThe Group’s commitment for payable under the other current liabilities as of December 31, 2025 is discussed in Note 14 ACCRUED EXPENSES AND OTHER LIABILITIES.\n\n \n\nOther\nthan as shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of December\n31, 2025.\n\n** **\n\n**Off-Balance Sheet\nArrangements**\n\n \n\nFrom\nAugust 2020 to November 2021, Youguan Financial Leasing provided a total of RMB5,869 (US$827) guarantees to its four customers who entered\ninto two five-year guarantees and two four-year guarantees. As of the date of this annual report, the balance of the guarantees was RMB783.\nAs of the date of this annual report, all these loans are under normal repayment by these four customers.\n\n \n\nWe\nhave not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are\nnot reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred\nto an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest\nin any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or\nproduct development services with us.\n\n \n\n**B.**\n**Research and Development,\nPatents and Licenses, etc.**\n\n \n\nSee\n“Item 4. Information on the Company - B. Business Overview - Intellectual Property.”\n\n \n\n95\n\n \n\n**C.**\n**Trend Information**\n\n \n\nOther\nthan as described elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that\nare reasonably likely to have a material adverse effect on our revenues, income from continuing operations, profitability, liquidity\nor capital resources, or that would cause our reported financial information not necessarily to be indicative of future operating results\nor financial condition.\n\n** **\n\n**D.**\n**Critical Accounting\nPolicies and Estimates**\n\n \n\nAn\naccounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are\nhighly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes\nin the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements.\n\n \n\nWe\nprepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions.\nWe continually evaluate these estimates and assumptions based on the most recently available information, our own historical experiences\nand various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component\nof the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. Some of\nour accounting policies require a higher degree of judgment than others in their application and require us to make significant accounting\nestimates.\n\n \n\nThe\nfollowing descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our consolidated financial\nstatements and other disclosures included in this annual report. When reviewing our consolidated financial statements, you should consider\n(i) our selection of critical accounting policies, (ii) the judgments and other uncertainties affecting the application of\nsuch policies and (iii) the sensitivity of reported results to changes in conditions and assumptions.\n\n \n\nSee\nour consolidated financial statements and related notes included elsewhere in this annual report for a description of other significant\naccounting policies.\n\n** **\n\n**Revenue\nrecognition**\n\n \n\nUnder\nASC 606, Revenue from Contracts with Customers, we recognize revenue when a customer obtains control of promised goods or services and\nrecognizes in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.\n\n \n\nWe\nrecognized revenue according to the following five-step revenue recognition criteria based on ASC 606: (1) identify the contract with\na customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction\nprice; and (5) recognize revenue when or as the entity satisfies a performance obligation.\n\n \n\nWe\nrecognize revenue when or as the control of the goods or services is transferred to a customer. Depending on the terms of the contract\nand the laws that apply to the contract, control of the goods and services may be transferred over time or at a point in time. Control\nof the goods and services is transferred over time if our performance:\n\n \n\n(i)provides\nall of the benefits received and consumed simultaneously by the customer;\n\n \n\n(ii)creates\nand enhances an asset that the customer controls as we perform; or\n\n \n\n96\n\n \n\nIf\ncontrol of the goods and services transfers over time, revenue is recognized over the period of the contract by reference to the progress\ntowards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains\ncontrol of the goods and services.\n\n \n\nContracts\nwith customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation\nbased on our relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers.\nIf the standalone selling price is not directly observable, it is estimated using expected cost plus a margin or adjusted market assessment\napproach, depending on the availability of observable information. Assumptions and estimations have been made in estimating the relative\nselling price of each distinct performance obligation, and changes in judgments on these assumptions and estimates may impact the revenue\nrecognition.\n\n \n\nWhen\neither party to a contract has performed, we present the contract in the consolidated balance sheets as a contract asset or a contract\nliability, depending on the relationship between the entity’s performance and the customer’s payment.\n\n \n\nA\ncontract asset is our right to consideration in exchange for goods and services that we have transferred to a customer. A receivable\nis recorded when we have an unconditional right to consideration. A right to consideration is unconditional if only the passage of time\nis required before payment of that consideration is due.\n\n \n\nIf\na customer pays consideration or we have a right to an amount of consideration that is unconditional, before we transfer a good or service\nto the customer, we present the contract liability when the payment is made, or a receivable is recorded (whichever is earlier). A contract\nliability is our obligation to transfer goods or services to a customer for which we have received consideration (or an amount of consideration\nis due) from the customer.\n\n* *\n\n*Sourcing\nservices*\n\n \n\nWe\ngenerate revenues from the vehicle sourcing business and battery sourcing business.\n\n \n\nWith\nrespect to the battery sourcing business, we act as a principal, as being able to fully control relevant risks and benefits during the\nwhole business, as indicated by the fact that we can decide the selling price, have a right to recall the product and cease the transaction,\nand bear relevant risks of damage and loss prior to the delivery of battery to the customer. The sales of battery sourcing revenues are\nrecognized on a gross basis at a point in time when the control of the battery pack is transferred to the customer.\n\n \n\nFor\nvehicle sourcing business, we charge service fees from our customers for their purchase of vehicles, where we are generally acting as\nan agent and our performance obligation is to purchase the specified vehicles for our customers. We charge the customers a commission\nthat is calculated based on the purchase price of each purchase order. Vehicle sourcing service revenues are recognized on a net basis\nat the point in time when the service of purchase of the specified vehicles for our customers is completed, i.e., the specified vehicle\nfor our customers is delivered. Payments are typically received in advance and are accounted for as contract liabilities until delivery,\nat which point the receipt in advance from customers is offset with the prepayment to the supplier and the difference representing the\ncommission is recognized as revenue.\n\n* *\n\n*Product\nsales*\n\n \n\nWe\ngenerate revenues from sales of battery swapping stations. We identify the users who purchase battery swapping stations as our customers.\nThe revenue for battery swapping station sales is recognized at a point in time when the control of the product is transferred to the\ncustomer.\n\n* *\n\n97\n\n* *\n\n*Battery\nswapping services*\n\n* *\n\nWe\nalso generate revenues from providing battery swapping services to vehicle drivers and the station control system upgrading services\nto the battery-swapping station owners. We identify the vehicle drivers who need the services of battery swapping and the owners of battery\nswapping stations that the Group has sold to who have demands for the station control system upgrading services as our customers.\n\n \n\nWe\ncharge the battery swapping service fees from our customers based on vehicle miles traveled. However, as usually, the swapped battery\nwill be immediately used after the payments by customers for driving and the power consumption of vehicles will be fast, we ignore the\ntime interval between the timing of payment in advance by customers and the usage life of the swapped battery. The revenue generated\nfrom battery swapping services to vehicle drivers is recognized at a point in time when the Group received the payment from vehicle drivers.\n\n \n\nThe\nrevenue generated from the station control system upgrading service is recognized over time based on a straight-line method.\n\n \n\n**Inventories**\n\n \n\nInventories,\nconsisting of raw materials, products available for sale, are stated at the lower of cost or net realizable value. Costs of inventory\nare determined using the first-in-first-out method. We record inventory reserves for obsolete and slow-moving inventory. Inventory\nreserves are based on inventory obsolescence trends, historical experience and application of the specific identification method. We\nrecognized nil, nil and nil of inventory impairment for the years ended December 31, 2023, 2024 and 2025, respectively.\n\n** **\n\n**Impairment\nof long-lived assets**\n\n \n\nWe\nevaluate our long-lived assets, including property, equipment, software, and right-of-use assets with finite lives, for impairment\nwhenever events or changes in circumstances, such as a significant adverse change to market conditions that will impact the future\nuse of the assets, indicate that the carrying amount of an asset may not be fully recoverable. When these events occur, we evaluate\nthe recoverability of long-lived assets by comparing the carrying amounts of the assets to the future undiscounted cash flows\nexpected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is\nless than the carrying amounts of the assets, we recognize an impairment loss based on the excess of the carrying amounts of the\nassets over their fair value. Fair value is generally determined by discounting the cash flows expected to be generated by the\nassets, when the market prices are not readily available. The Group recognized RMB1,896, RMB4,639 and RMB1,896 (US$270) of\nimpairment on fixed assets for the years ended December 31, 2023, 2024 and 2025, respectively.\n\n** **\n\n**Long-term investments**\n\n \n\nOur\nlong-term investments mainly include equity investments in entities. Investments in entities in which we can exercise significant influence\nand holds an investment in voting common stock or in-substance common stock (or both) of the investee but does not own a majority equity\ninterest or control are accounted for using the equity method of accounting in accordance with ASC topic 323, *Investments - Equity\nMethod and Joint Ventures (“ASC 323”)*. Under the equity method, we initially record our investments at fair value. We\nsubsequently adjust the carrying amount of the investments to recognize our proportionate share of each equity investee’s net income\nor loss into earnings after the date of investment. We evaluate the equity method investments for impairment under ASC 323. An impairment\nloss on the equity method investments is recognized in earnings when the decline in value is determined to be other-than-temporary. The\nGroup recognized RMB0.1 million, RMB10.1 million and nil of impairment on long-term investments for the years ended December 31, 2023,\n2024 and 2025, respectively.\n\n** **\n\n**Leases**\n\n \n\nWe\naccount for lease under ASC Topic 842, Leases. We determine if an arrangement is or contains a lease at inception. Right-of-use assets\nand liabilities are recognized at lease commencement date based on the present value of remaining lease payments over the lease terms.\nWe consider only payments that are fixed and determinable at the time of lease commencement.\n\n \n\n98\n\n \n\nAt\nthe commencement date, the lease liability is recognized at the present value of the lease payments not yet paid, discounted using the\ninterest rate implicit in the lease or, if that rate cannot be readily determined, our incremental borrowing rate for the same term as\nthe underlying lease. The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the\nlease liability, plus any initial direct costs incurred. All right-of-use assets are reviewed for impairment annually. There was\nno impairment for right-of-use lease assets as of December 31, 2023, 2024 and 2025. We recorded a loss on lease termination of right-of-use\nassets of nil, nil and nil for the years ended December 31, 2023, 2024 and 2025, respectively.\n\n \n\nOperating\nlease assets are included within “right-of-use assets - operating lease”, and the corresponding operating\nlease liabilities are included within “operating lease liabilities” on the consolidated balance sheets as of December 31,\n2023, 2024 and 2025, respectively.\n\n** **\n\n**Recent\nAccounting Pronouncements**\n\n \n\nFor\na summary of recently issued accounting pronouncements, see Note 2 to the consolidated financial statements included elsewhere in\nthis annual report."}