China Automotive Systems, Inc. Q1 FY2024 earnings call

• Solid Q1 2024 performance: Gross profit up 11.6% YOY, gross margin 17.3%, income from operations up 26%, positive cash flow from operations of $10.5 million, diluted income per share up 17.4% to $0.27.
• Market dynamics: Brazil sales grew 17.6% due to Fiat's higher volume; North American sales declined due to Stellantis' lower unit shipments. EPS sales were essentially flat YOY, still ~34% of total sales.
• R&D: Expenditures decreased 17.2% YOY due to reduced R&D for traditional products, but focus on expanding EPS portfolio and coordinating with OEMs; Sentient (Swedish subsidiary) working on driverless tech with Volvo.

Net sales decreased by 2% to $139.4 million in Q1 2024. Traditional steering products and parts had net sales of $92 million, while electric power steering (EPS) products and parts had net sales of $47.4 million, accounting for approximately 34% of total net sales. Brazil sales grew 17.6% year-over-year, North American sales declined. Gross profit grew by 11.6% year-over-year to $24.1 million with a gross margin of 17.3% in Q1 2024.

• Management reiterated full-year 2024 revenue guidance of $605 million, noting the target is subject to change based on operating and market conditions.

• Prolonged disruption or unforeseen delays in manufacturing, delivery, or assembly processes could result in delays in product shipment, increased costs, and reduced revenue.
• Factors described in the company's Form 10-K Annual Report for the year-ended December 31, 2023, and other SEC filings could materially impact business, financial condition, and results of operations.

Q: Could you please give us an update on the activities in Europe especially with Sentient?

A: Sentient, the Swedish subsidiary specialized in driverless technology software, is working on driverless solutions. Its prototype product is installed in Volvo vehicles/trucks, focusing on electric motor-type solutions; cautiously optimistic about long-term prospects.

Q: R&D spending went down in the first quarter of 2024. What is the outlook for R&D spending in the rest of 2024? And what are the key R&D projects in 2024?

A: R&D expenses in Q1 2024 were lower due to reclassification, but on an apple-to-apple basis, spending remains at 4%-5%. Key projects include ERCB with European clients, I-RCB with American clients, R-EPS with BYD, and projects with Geely.

Q: What is the outlook for the gross margin for 2024?

A: Can continue to maintain gross margin between 17% to 18% in 2024 due to business efficiency improvement, cost management, higher-margin product mix, lower steel prices, and RMB depreciation favoring exports.

Q: How do you at CAAS think that you will benefit from the growth trend of Chinese EVs in international markets?

A: Chinese EVs are competitive in pricing and technology, driving demand abroad. However, uncertainty exists due to US-China tension and potential White House policies; some markets like Europe and South America may still see good sales, but US presence is uncertain.