Xos, Inc. (XOS): A Resilient Growth Story Amid Tariff Headwinds and Diversifying Revenue Streams

The electric vehicle (EV) industry has long been a theater of both promise and peril. For Xos, Inc. (XOS), the past year has tested its mettle. Despite a challenging macroeconomic environment—marked by rising tariffs, supply chain bottlenecks, and margin compression—the company has demonstrated a remarkable ability to adapt. Its strategic pivot from a pure-play vehicle manufacturer to a diversified electrification platform, coupled with disciplined cost management, offers a compelling case study in resilience.

Strategic Adaptability: From Vehicles to Electrification Ecosystems

Xos's evolution is not merely a response to adversity but a calculated repositioning. In Q2 2025, the company reported record revenue of $18.4 million, a 18.7% year-over-year increase, driven by 135 vehicle deliveries—its highest quarterly output. Yet the true story lies beyond the numbers. Xos has expanded its offerings to include powertrain systems and mobile charging solutions, such as the Xos Hub. These products, which cater to both fleet electrification and industrial energy needs, represent a shift toward higher-margin, recurring revenue streams.

For instance, Xos has secured contracts with Bluebird Corporation for electric school bus powertrains, a market segment with growing demand. The Xos Hub, a modular charging and energy infrastructure product, is being deployed in industrial settings, addressing grid constraints and energy optimization. These moves signal a broader vision: to become a one-stop shop for electrification, not just vehicles.

Margin Recovery: Navigating Tariffs and Product Mix Challenges

The path to profitability, however, remains fraught. Gross margins in Q2 2025 fell to 8.8%, down from 20.6% in Q1, due to a product mix skewed toward large fleet contracts (which carry lower margins) and tariff-related costs. Yet Xos has taken meaningful steps to mitigate these pressures. Operating expenses were reduced by 35% year-over-year, and the company achieved positive free cash flow of $4.6 million—a stark contrast to the $26.1 million outflow in Q2 2024.

The restructuring of its convertible note agreement with Aljamet Automotive further underscores Xos's financial prudence. By extending principal repayments over three years and converting accrued interest to equity, the company has preserved liquidity while aligning incentives with its largest shareholder. These measures, combined with a focus on cost discipline, suggest a path to margin recovery, albeit a gradual one.

Long-Term Value Creation: Diversification and Scalability

Xos's long-term value hinges on its ability to scale its diversified offerings. The MDXT medium-duty chassis cab, currently in development, targets vocational and municipal fleets, reducing reliance on the step van platform. Meanwhile, the Xos Hub's 2026 update promises enhanced power resilience and energy cost optimization, potentially unlocking new markets in industrial and grid-support applications.

Customer concentration remains a risk, with UPS and FedEx ISPs accounting for a significant portion of deliveries. However, Xos's largest-ever order—over 200 units for a single customer—demonstrates growing fleet confidence in its platforms. The company's focus on total cost of ownership benefits, such as reduced maintenance and energy costs, could further differentiate it in a crowded market.

Investment Implications: Balancing Risks and Rewards

For investors, Xos presents a high-conviction opportunity. The company's strategic adaptability—shifting from vehicle-centric to ecosystem-driven growth—positions it to capitalize on the broader electrification trend. However, near-term risks persist. Tariff pressures and product mix challenges could weigh on margins, and the company's revised 2025 non-GAAP operating loss guidance ($24.4–$26.9 million) reflects these uncertainties.

That said, Xos's ability to generate positive free cash flow and its proactive capital structure adjustments suggest a management team capable of navigating turbulence. For those with a long-term horizon, the company's diversification into powertrains and energy infrastructure offers a compelling narrative. The EV sector is still in its infancy, and Xos's pivot toward higher-margin solutions could yield outsized returns.

Conclusion: A Work in Progress

Xos, Inc. is not a finished product but a company in motion. Its resilience in the face of headwinds, strategic diversification, and disciplined execution make it a standout in a sector defined by volatility. While profitability remains a work in progress, the company's focus on long-term value creation—through electrification ecosystems and scalable solutions—positions it to thrive in a post-subsidy era. For investors willing to tolerate near-term volatility, Xos represents a compelling bet on the future of mobility.