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Operator: Good morning, everyone. And welcome to the China Automotive Systems Fourth Quarter and Fiscal Year 2024 Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Kevin Theiss, Investor Relations. Kevin, over to you.

Kevin Theiss: Thank you, everyone, for joining us today. Welcome to China Automotive Systems 2024 fourth quarter and fiscal year conference call. Joining us today are Mr. Jie Li, Chief Financial Officer of China Automotive Systems. He will be available to answer questions later in the conference call with the assistance of translation. Before we begin, I will remind all listeners that throughout this call, we may make statements that may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent the company’s estimates and assumptions only as of the date of this call. As a result, the company’s actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including those under the heading Risk Factors and Results of Operations in the Company’s Form 10-K annual report for the year ended December 31, 2024, as filed with the Securities and Exchange Commission and in other documents filed by the Company from time to time with the Securities and Exchange Commission.

Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment cause uncertainties in the regions where we conduct business, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations. A prolonged disruption or any unforeseen delay in our operations of the manufacturing, delivery and assembly processes within any of our production facilities could result in delays in the shipment of products to our customers, increased costs and reduced revenue. The company expressly disclaims any duty to provide updates to any forward-looking statements made in this call, whether as a result of new information, future events or otherwise.

On this call, I will provide a brief overview and summary of the fourth quarter and the 2024 annual results for the period ended December 31, 2024. Management will then conduct a question-and-answer session. The 2024 fourth quarter results are unaudited and the 2024 annual results are audited. These financial results are reported using U.S. GAAP Accounting. For purposes of our call today, I will review the financial results in U.S. dollars. We’ll begin with a review of some of the quarterly business highlights, recent dynamics of the Chinese economy and automobile industry and our market position. Our net sales of steering products increased by 18.6% year-over-year in the fourth quarter of 2024, comparable to the 19.6% increase in the 2024 third quarter.

For the 2024 year, net sales rose by 12.9% year-over-year to a record $650.9 million. Our traditional steering products grew by 4.3% year-over-year, with our electric power steering EPS product sales rising by 29.9% year-over-year for 2024. Our subsidiary Henglong reported domestic sales to passenger vehicles were up 20% in 2024, with sales to Chery Auto 18.2% higher, and our KYB sales of EPS products was up by 27.2%. In the Chinese commercial vehicle market, our sales grew modestly to $71.6 million. Our North American operations were the only segment reporting lower sales in 2024, primarily due to reduced demand by Stellantis, whose overall sales declined in 2024. Our Brazilian sales experienced a 5.7% increase in 2024. For the macroeconomy, Chinese GDP increased by 5.4% in the fourth quarter of 2024, up from [technical difficulty] year-over-year in the third quarter of 2024.

For 2024, China’s GDP rose by 5% in line with expectations. While the Chinese economy has stabilized somewhat, it still has facing challenges such as declining population, sluggish consumer demand and confidence, deflationary pressures, low fixed asset investment, overcapacity in some industries, and strain relations with major trading partners. According to the statistics from the China Automotive Systems – I’m sorry China Association of Automobile Manufacturers, CAAM, the combined unit sales of passenger and commercial vehicles increased by 4.5% year-over-year to 31.4 million units during 2024. Of this total, passenger car unit sales grew 5.8% year-over-year to 27.6 million units, while commercial vehicles declined 3.9% year-over-year to 3.9 million units.

New energy vehicle unit sales grew 35.5% year-over-year to 12.9 million units as NEVs gained a 40.9% share of the total motor vehicle market in China. Exports of automotive vehicle units increased by 19.3% in 2024. Purchase subsidies by the central and local government, private OEM incentives, and better auto loan terms created more favorable vehicle policies to help aid the purchases of new vehicles. The Chinese automotive industry is large and an important industry driver in the Chinese economy. As expected, the Chinese government will continue to create policies helpful to promote the success of the automotive industry. Gross profit in 2024 increased by 5.2% year-over-year to $109.2 million compared to $103.8 million in 2023. The gross margin was 16.8% compared with 18% in 2023.

R&D expenses were $27.6 million in 2024. This slightly lower amount reflects less investment in traditional product upgrades as more was invested into EPS and autonomous driving. Our customer BYD is the largest EV producer in China and we have been developing specific new products to improve their vehicle steering performance. Operating expenses rose by 4.2% compared with a net sales increase of 12.9%. This lower growth of operating expenses is clear evidence of management’s focus on operations and profitability. Net income attributable to parent company’s common shareholders was $30 million or per share income of $0.99 for 2024 compared to $37.7 million or $1.25 per share for 2023. Net cash provided by operating activities was $9.8 million for 2024.

Cash paid to acquire property, plant, equipment and land use was $43.7 million, partly offset by $20.5 million cash received from property, plant and equipment sales. Total cash and equivalents, plant, cash and short term investments were $129.4 million or approximately $4.29 per share at year-end 2024. A special cash dividend of $0.80 per common share or approximately $22.4 million was paid in late August 2024 to reward our shareholders. This cash dividend was paid from internal funds and cash flow. This reflects our unwavering confidence in sustainable sales growth in our ability to generate positive cash flow. We’ve also implemented the share buyback program of up to $5 million of our share outstanding common shares in the open market at market prices not to exceed $5.50 per share through November 15, 2025.

We celebrated our 20th anniversary of our NASDAQ listing 2024. From a small domestic manufacturer, we have established a global presence, especially with Tier 1 companies in North America, South America, Europe, India and Asia. Since 2024, net sales have grown from $58.2 million to $650.9 million in 2024. We look forward to the further growth of our company sales and operations as our traditional steering products continue to contribute to our sales and profits even as we further expand our EPS portfolio and we build our advanced driver systems technologies with our Sentient AB operations. We have positioned our company to benefit from two ongoing technology transitions from internal combustion engines to electric powertrains and from human driving to autonomous driving.

Now let me review the financial results in the fourth quarter of 2024. In the fourth quarter of 2024, net sales increased by 18.6% to $188.7 million compared to $159.2 million in the same quarter of 2023. The net sales increase is mainly due to a change in the product mix and a higher demand for passenger automobiles and commercial vehicles in the fourth quarter of 2024 compared to the fourth quarter of 2023. Gross profit was $29.5 million in the fourth quarter of 2024 compared to $34.7 million in the fourth quarter of 2023. Gross margin in fourth quarter of 2024 was 15.6% compared to 21.8% in the fourth quarter of 2023, primarily due to a change in product mix. Selling expenses were $4.8 million in the fourth quarter of 2024 compared with $4.6 million in the fourth quarter of 2023.

Selling expenses represented 2.5% of net sales in the fourth quarter of 2024 compared to 2.9% in the fourth quarter of 2023. General and administrative expenses, G&A were $9.7 million in the fourth quarter of 2024 compared to $9.4 million in the same period in 2023. The G&A expenses represented 5.1% of net sales in the fourth quarter of 2024 compared to 5.9% of net sales in the fourth year of 2023. Research and development expenses, R&D were $7.8 million, compared with $9.3 million in the fourth quarter of 2033. R&D expenses represented 4.1% of net sales in the fourth quarter of 2024 compared to 5.9% in the fourth quarter of 2023, mainly due to a decrease in miscellaneous development expenses. Operating income was $8.7 million in the fourth quarter of 2024 compared to $13.6 million in the fourth quarter of 2023.

Lower gross profit in 2024 fourth quarter compared with the same period last year was the main cause of this decline. Interest expense was $1.1 million in the fourth quarter of 2024 compared with $0.3 million in the fourth quarter of 2023. Financial income was $0.8 million in the fourth quarter of 2024 compared with $1 million in the fourth quarter of 2033. Income before income tax expenses and equity and earnings of affiliated companies was $8.8 million in the fourth quarter of 2024 compared to $15 million in the fourth quarter of 2023. Net income benefit was $2 million in the fourth quarter of 2024 compared to income tax expense of $2.1 million in the fourth quarter of 2033. Net income attributable to parent company’s common shareholders was $9.1 million in the fourth quarter of 2024 compared to net income attributable to parent companies common shareholders of $10.9 million in the fourth quarter of 2023.

Diluted income per share was $0.30 in the fourth quarter of 2024 compared to diluted income per share of $0.36 in the fourth quarter of 2023. The average weighted number of diluted common shares outstanding was 30,180,947 compared to 30,185,702 in the fourth quarter of 2023. Now we’ll review the results for the fiscal year 2024. Net sales increased by 12.9% to $650.9 million in 2024 compared to $576.4 million in 2023. This increase was mainly due to higher sales of passenger vehicles in China as total sales of the company’s EPS Systems increased by 29.9% year-over-year and sales of the Henglong subsidiary steering systems to the Chinese passenger vehicle market increased by 20% year-over-year. Brazil Henglong’s net sales grew by 5.7% year-over-year to $51 million.

This growth partially offset a sales reductions by North American customers in 2024. EPS sales represented 38.9% of total revenue in 2024 compared to 33.8% in 2023. Gross profit in 2024 increased by 5.2% year-over-year to $109.2 million compared to $103.8 million in 2023. The gross margin was 16.8% compared with 18% in 2023, mainly due to a change in our product mix and lower average selling prices for the year ended December 31, 2024. Net gain on other sales in 2024 was $4.3 million compared to $5.8 million in 2023, mainly due to lower material sales in 2024. Selling expenses rose by 14.4% year-over-year to $17.9 million in 2024 from $15.6 million in 2023, mainly due to an increase in marketing and office expenses. Selling expenses represented 2.7% of net sales in 2024 and 2023.

G&A expenses increased by $8.7 million year-over-year to $27.7 million in 2024 compared to $25.5 million in 2023. G&A expenses represented 4.3% of net sales in 2024 compared to 4.4% of net sales in 2023. This expense increase was mainly due to higher office, property and other taxes and maintenance and repair expenses. R&D expenses were $27.6 million in 2024 compared to $29.2 million in 2023. Lower R&D expenses reflect less investment in traditional product upgrades and miscellaneous research expenses. R&D expenses were 4.2% of net sales in 2024 compared to 5.1% of net sales in 2023. Operating income increased by 2.6% to $40.3 million in 2024 compared to $39.2 million in 2023. The increase in operating income was mainly due to a 5.2% increase in gross profit combined with a change in R&D expenses.

Interest expense was $1.8 million in 2024, compared to $1.0 million in 2023, primarily due to an increase in bank loans in 2024, compared with 2023. Net financial expense was $0.09 million in 2024, compared to financial income of $4.7 million for 2023. The decrease in financial income of $4.8 million was primarily due to higher foreign exchange gains in 2023. Income before income tax expenses and equity in earnings of affiliated companies was $44.1 million in 2024, compared with $48.2 million in 2023. The change was primarily due to lower operating income in 2024. Income tax expense was $5.9 million in 2024, compared to $5.1 million in 2023. This increase was mainly due to a valuation allowance reversal, and a one-time income tax expense settlement for subsidiaries in the PRC and the U.S. this year.

Net income attributable to parent common shareholders was $30.0 million in 2024, compared to $37.7 million in 2023. Diluted net income per share was $0.99 in 2024 compared to $1.25 in 2023. The weighted average number of diluted common shares outstanding was 30,184,513 in 2024, compared with 30,189,421 in 2023. Now, we’ll provide some balance sheet and other financial highlights. As of December 31, 2024 total cash and cash equivalents, pledged cash and short-term investments were $129.4 million. Total accounts receivable including notes receivable were $343.5 million. Accounts payable including notes payable were $292.8 million and short-term bank loans were $72.6 million. Total parent company stockholders’ equity was $349.6 million as of December 31, 2024, compared to $344.5 million as of December 31, 2023.

Net cash flow from operating activities was $9.8 million in 2024. Cash paid to acquire property, plant and equipment and land use rights was $43.7 million in 2024, and cash received from the sale of property, plant and equipment was $20.5 million. The business outlook, management provides revenue guidance for the full year 2025, of $700 million. This target is based on the company’s current views on operating and market conditions, which are subject to change. With that operator, we’ll be ready to begin the Q&A.

Operator: Thank you very much. [Operator Instructions] Thank you. Your first question is coming from Jonathan Yudis, who’s a Private Investor. Jonathan, your line is live. Jonathan, can you hear us?

Unidentified Analyst: Yes, I can hear you. I can hear you. Sorry, can you guys hear us?

Jie Li: Yes, we can hear you.

Unidentified Analyst: Okay, my question is for the 2025 year, the projection is for sales to grow by $50 million. What areas will generate this growth?

Jie Li: 2025, right?

Unidentified Analyst: Yes.

Jie Li: Okay. So the majority our sales increase in our projection will be contributed from the EPS sales, our electric power steering product. That breaks down to a number of new product [CEPS, TPEPs and REPS] product. And on the volume, we’re expecting 30% year-over-year increase in 2025. In terms of total volume, we’re looking at. In terms of volume unit volume increase, we’re looking at another 400,000 units increase in 2025. That we’re looking at, that will contribute to significant revenue growth. So we are reporting right now.

Operator: Okay. Jonathan, do you have any more questions?

Unidentified Analyst: No, that was it. Thank you.

Operator: Okay. Thank you very much. [Operator Instructions] I’m not seeing any further questions. [Operator Instructions] Okay. We don’t appear to have anyone else in the queue. I can hand back to the management team, if they would like any closing comments.

Kevin Theiss: Well, we thank you for your participation in today’s conference call. Be safe, and we look forward to speaking with you in the future.

Operator: Thank you very much. This does conclude today’s conference call. You can disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.