TCC Group Holdings (TWSE: 1101): One-Month Report on the Fire Incident at Molie Quantum Energy Corporation (MQE) Battery Plant

Chairman Nelson Chang along with the management team, presented a special report at the board meeting on August 13 regarding the fire incident that occurred on July 14 at lithium-ion battery cell plant operated by its subsidiary, Molie Quantum Energy Corporation (MQE) battery plant in the Xiaogang District of Kaohsiung City. They expressed their sincerest apologies to all shareholders, customers, and the public who care about TCC Group Holdings.

Cause of Fire: Human Operation or Mechanical Abnormality Led to “Defective Semi-Finished Products” Entering the Formation Area and Cause the Incident

The intense heat from the fire destroyed all three computer mainframes of the plant's formation system. Consequently, the investigation relied on internal reviews of surveillance camera (CCTV) footage, employee interviews, and a thorough understanding of the production process. The team concluded that the accident was not caused by a single factor. After further analysis, the MQE team identified two likely scenarios that could have allowed defective semi-finished battery cells to enter the formation area's room temperature aging (RT), resulting in thermal runaway and fire. This, in turn, triggered a chain reaction of thermal runaway in adjacent semi-finished battery cells.

The two possible causes are:

• During the production process, when the inspection method switched from automatic to manual visual inspection, personnel may not have fully adhered to the standard operating procedures (SOP), resulting in collisions or defects going undetected.
• During the automated process, mechanical equipment malfunctioned, causing collisions during the transfer of semi-finished battery cells and resulting in undetected defects.

To uncover the truth, a large team was deployed to review the CCTV footage. The battery cell business unit and the IT department collaborated, gradually recovering readable hard drives since July 14. They dedicated over 3,500 hours to meticulously examine every detail of the footage and cross-reference it with the production process. Since the core equipment in the fire zone still requires excavation, the company will continue cooperating with fire investigation authorities to determine the exact cause.

Factors That Exacerbated the Incident: Firefighting System Failure

Globally, lithium battery cell manufacturing carries an inherent risk of “thermal runaway.” Since its establishment, MQE battery plant has implemented fire safety measures that exceed Taiwan's regulatory requirements. In addition to the legally mandated firefighting installations, the company has developed its own firefighting system, including an independent system specifically for the formation area. The plant has successfully passed the fire safety completion inspection conducted by the competent authorities. MQE battery plant employs three layers of firefighting and monitoring systems, including an integrated formation system imported from Japan's Kataoka Manufacturing Co., Ltd. This system offers a comprehensive fire prevention solution, with procurement costs reaching as high as 3 billion NTD.

However, based on on-site video recordings and employee interviews, it was found that at the time of the fire on July 14, when the factory temperature was abnormally high, none of the five activation procedures were triggered. Kataoka's engineers conducted system maintenance at the plant from July 9 to 10, prior to the fire. To protect the interests of the company and its shareholders, TCC has initiated an investigation into the suppliers related to the incident. If any accountability is confirmed, appropriate actions will be taken.

Fire Losses and Insurance Claims: Financial Impact and Control

TCC Group Holdings indirectly holds a 78.1% stake in its subsidiary-Molie Quantum Energy Corporation (MQE). Fortunately, all personnel were safe following the fire, and the cause of the incident remains under investigation by the relevant authorities. Since a detailed loss assessment on-site is currently not feasible, TCC's board of directors has approved classifying this fire as a significant subsequent event in the financial report for the first half of 2025. Preliminary evaluations indicate that the book value of the scrapped plant, equipment, and inventory is approximately 16.4 billion NTD.

The related assets are insured under property insurance with a total coverage amount of about 21.9 billion NTD. The maximum compensation for a single event is 3 billion NTD, with an insured ratio of 75.5%. After deducting the estimated insurance compensation, and based on TCC's shareholding ratio, the preliminary estimated impact of this incident on TCC's profit is approximately 11 billion NTD. The exact amount of the loss is yet to be determined, but it does not involve additional cash expenditure. This incident will be reported as a significant subsequent event in the financial statements for the first half of 2025.

As of June 2025, including MQE battery plant and E-One Moli Energy Corporation Tainan plant, customer orders have been received through 2026, with order volumes exceeding twice the original production capacity of both plants. TCC's battery cell business had already planned for international supply chain outsourcing and backup capacity solutions. Following the fire, TCC's battery cell business quickly negotiated with international customers and partners, preliminarily completing arrangements for overseas supply chain outsourcing. It has also accelerated the activation of the third backup production line at E-One Moli Energy Corporation Tainan plant, which can partially support the MQE battery plant's capacity started in early August to meet customer demand. Additionally, some customers are willing to provide non-recurring engineering (NRE) fees and support for overseas production resources.
 

Voluntary Pay Cuts by Senior Executives at the Operations Headquarters and Internal Disciplinary Measures at MQE Battery Plant

Regarding the significant financial impact on the parent company caused by the subsidiary's fire incident, we, as leaders responsible for various business units and the operations headquarters, feel a profound sense of responsibility and accountability. This moment is not only an opportunity to review the cause of the accident and implement improvement measures but also a time for all managers to demonstrate their commitment.

The TCC Operation Headquarters team, led by Group CEO Nelson Chang and President of TCC Group Holdings, Roman Cheng, has voluntarily requested salary reductions. This includes CFO, Vice Presidents at Operation Headquarters, the President of Cement and Environmental Protection Business (Asia), the President of Charging and Storage Business (Asia), the President of Asset Management Business, and other senior executives. From August through the end of this year, each will reduce monthly salary by 20%.

For personnel directly involved in the fire incident, the group will hold the general manager of the battery cell business, the plant managers, and all levels of supervisors in the affected production section accountable according to their responsibilities. Disciplinary measures may include penalties, salary reductions, or reassignment to ensure that higher standards of policies and procedures are established and implemented in the future, thereby comprehensively enhancing operational safety protections.

Global Supply Chain Stability Plan Launched: Support from E-One Moli Energy Corporation Tainan plant, Accelerated OEM Partnerships, and Resumption of Overseas Factory Evaluations

Following the fire at the MQE battery plant, Molicel's product quality has continued to earn high trust and ongoing support from premium customers. Clients have strong confidence in Molicel's high-power cells, which adhere to stringent safety and quality standards. As a result, we are a key supplier to high-tech industries such as eVTOL (electric vertical takeoff and landing aircraft), aerospace, and AI BBU (backup battery units). Molicel cells have also passed rigorous international aviation certifications from the U.S. Federal Aviation Administration (FAA), the European Union Aviation Safety Agency (EASA), the UK Civil Aviation Authority (CAA), and others, demonstrating their reliability under extreme conditions.

In fact, even before the fire, orders for E-One Moli Energy Corporation Tainan plant and MQE battery plant from the second half of this year through 2026 had already significantly exceeded their production capacity. Therefore, we had already begun considering backup plans, and the recent fire has further accelerated these efforts. To address this challenge and ensure the stability of the global supply chain, we have launched a multi-faceted strategy:

• Flexible Support from Molicel's Tainan Plant: We have fully allocated E-One Moli Energy Corporation Tainan plant's capacity to support shipments of specific second- and third-generation products that were originally ordered from the MQE battery plant.

• Accelerated OEM Partnerships: To meet international customer demand and expand capacity, we will expedite the launch of overseas OEM collaborations, with partners assuming production of Molicel's first-generation high-end ternary lithium battery products.

• Resumption of Overseas Factory Evaluation: Many key customers have expressed strong support for Molicel following the fire and have offered assistance in establishing overseas factories to ensure a stable supply of cells. This support is our greatest motivation, prompting us to re-examine and expand the overseas factory plans that were already under evaluation.

Enhanced Community Communication: Monthly Publication of Third-Party Environmental Testing Reports Through the End of the Year

We fully understand the inconvenience and concerns MQE battery plant fire has caused the local community and environment. TCC Group Holdings thanks local village chiefs and representatives for their guidance and suggestions during this period, which have driven us to continuously improve. To rebuild and strengthen community trust, the MQE battery plant team has established a Neighborhood Affairs Team that will maintain close communication with local residents in an open and transparent manner.

Regarding environmental concerns most important to the public, the Kaohsiung City Government promptly dispatched a professional team to conduct environmental monitoring and publish real-time data on social media platforms and official websites through July 19. According to monitoring reports from the Kaohsiung City Environmental Protection Bureau, no toxic gases have been detected outside the plant to date. Firefighting water used during the incident was directed into internal retention ponds and then transported off-site by fire department water trucks for treatment. Each batch was tested before treatment to confirm pH levels and water temperature met disposal standards. All test results met regulatory requirements. Subsequently, the water was sent to the Linhai Industrial Zone wastewater treatment plant and discharged only after meeting environmental discharge standards.

Building on this foundation and to demonstrate our firm commitment to environmental sustainability, MQE battery plant will proactively publish third-party monitoring reports on key environmental indicators from August through December for community reference. All subsequent waste removal operations will be conducted in compliance with regulations and with government approval, and we will fully communicate with local village chiefs in advance to rebuild trust through concrete actions and continue safeguarding environmental safety.

Employee Care and Safety Culture: Drills Implemented and Employee Assistance Program (EAP) Activated

The fire caused minor injuries to 14 employees and 1 contractor during evacuation; 13 returned home the same day, and 2 were hospitalized for observation. All have since been discharged and fully recovered.

We view this incident as an opportunity to create a safer and more secure working environment for our employees. We are very grateful that at the time of the fire, all staff promptly evacuated to safe locations according to regular drills. The Kaohsiung Labor Standards Inspection Office also verified that the evacuation plan for the employees at the MQE battery plant was effectively carried out during the legislator Lai, Jui-Lung's briefing on August 5.

To support employees affected by this event, the company immediately launched an Employee Assistance Program (EAP). Through professional consultants and counseling resources, we provide multilingual support (Mandarin, Taiwanese, English, Japanese), including hotline services and face-to-face counseling, to address employees' concerns and worries, assisting them in promptly recovering their physical and mental well-being. Additionally, the company offers interest-free emergency loans up to $300,000 NTD to assist employees facing financial difficulties.

Corporate Commitment

TCC Group Holdings sincerely apologizes for the disturbance caused by the Kaohsiung MQE battery plant fire to all shareholders, employees, and the surrounding community. We will maintain a humble and pragmatic attitude to face and resolve the issues. We firmly believe this crisis will drive the company's progress and commit to carefully planning our future development with a steady and long-term vision after all investigations are completed and safety measures are in place. We will continue to dedicate ourselves to contributing to Taiwan's battery cell industry.