China Automotive Systems, Inc. Q1 FY2025 earnings call

• Net sales for Q1 2025 were $157.1 million, up 19.9% from Q1 2024. - EPS sales grew 54% year-over-year with Henlong KYB seeing 38.2% growth. - Henlong's traditional hydraulic steering sales up 37.5%, Cherry Auto traditional up 13.5%, Ulong commercial up 17.4%. - North American sales down 10.3%, Brazilian sales up 30.2%. - R&D expenses increased 64% to $8.7 million due to development of hydraulic and EPS products, including R-EPS mass production. - Shanshi Zhulong won awards from vehicle OEM customers. - R-EPS product for Inveco entered mass production with autonomous driving capabilities.

Net sales increased by 19.9% to $157.1 million in the first quarter of 2025 compared to $139.4 million in the first quarter of 2024. Electric power steering systems (EPS) saw a 54% year-over-year increase. Henlong KYB subsidiary achieved 38.2% year-over-year sales growth of EPS products. Henlong's traditional hydraulic steering systems for Chinese passenger vehicles had a 37.5% year-over-year sales climb. Cherry Auto's traditional steering products increased 13.5% year-over-year. Ulong's commercial vehicle steering products had 17.4% year-over-year growth. North American sales declined 10.3% to $27.2 million, while Brazilian sales increased 30.2% due to higher Stellantis demand. EPS products in Q1 2025 were approximately 43.7% of total sales, compared to 34% in Q1 2024.

Management reiterated revenue guidance for fiscal year 2025 of $700 million. On a full year basis, R&D is expected to be around 5% of total revenue, which helps qualify for high-tech status in China and brings tax benefits. Full year gross margin is expected to maintain a similar level with a slight improvement.

• Prolonged disruption or unforeseen delay in manufacturing, delivery, and assembly processes could result in delays, increased costs, and reduced revenue. - U.S. proposed tariffs, though advanced shipments to U.S. facilities and positive developments in tariff trading have minimized impact, but still a potential risk.

Q: Why did research development increase by 64% in the 2025 first quarter, will R&D remain at this high level for the 2025 year? Or will it vary?

A: In Q1, R&D expenses increased due to development of EPS products, staffing, and new equipment. On a full year basis, R&D is expected to be around 5% of total revenue.

Q: Could you please comment on the almost $1 million increase in inventories in the first quarter of 2025 and the outlook for inventory levels in the rest of 2025?

A: Inventory increase was due to advanced shipments to the U.S. to address potential tariff pressure. On a full year basis, inventory is expected to maintain a healthy level.

Q: The gross margin was 17.1% for the first quarter of 2025. What is the outlook for the gross margin for the rest of 2025?

A: Full year gross margin is expected to maintain a similar level with a slight improvement as part of the strategy to gain market share.

Q: What is the impact of the U.S. proposed tariffs under your new order flow and are there impacts in areas beyond North America?

A: Tariffs have had minimal impact due to advanced shipments and positive developments in tariff trading. Outside North America, there are opportunities like strong growth in Brazil and strategic planning for global expansion.

Q: Provide an update on the manufacturing of the REPS steering product for NeginkoLeco and if other automotive OEMs have ordered the REPS product.

A: REPS production has begun. Other OEMs like Cherry Auto, Guangzhou, Guangxi Auto, Yitong Bus, and Qingdao have ordered the new product, and a new facility has been built for production.

Q: Can you provide an update on the Sentient operation as far as the automatic driving systems?

A: Sentient AB is developing autonomous driving technologies. Shipping 3,500 units to Volvo Truck for EPS products, targeting 40,000 units in 2025, with mass production of autonomous driving technology for BYB's Model Song and work with Renault on fly-by-wire technology.