China Automotive Systems, Inc. Q4 FY2025 earnings call

• 2025 China automotive industry set new records with vehicle production and sales growth. China's automotive industry in 2025 had vehicle production reaching 34.5 million units and sales totaling 34.4 million units, with growth of 10.4% and 9.4% year-over-year respectively. - Company's financial performance: Fourth quarter 2025 net sales increased, gross margin rose, R&D expenses increased, operating income and net income attributable to parent company's common shareholders all increased. For 2025, net sales, gross profit, operating income, net income attributable to parent company's common shareholders all saw year-over-year growth. - Product innovations: Second-generation iRCB intelligent electro-hydraulic circulating ball power steering began production for heavy-duty vehicles; Jingzhou Henglong launched Active Rear-Wheel Steering; R-EPS steering product developed for Nanjing Iveco entered production; Hyoseong (Wuhan) began production of new 115 platform steering motor production line. - Strategic expansions: Henglong subsidiary entered strategic cooperation with KYB/UMW in Malaysia; Jingzhou Henglong won first R-EPS product order from large European automobile producer; Sentient AB in Sweden achieved considerable sales to major European OEM in 2025; Company changed corporate registration to Cayman Islands to save administrative costs and expand globally; Starting in 2026, will report financial results on a 6-month basis; Changed independent registered public accounting firm to Grant Thornton Zhitong Certified Public Accountants LLP.

Fourth quarter of 2025 net sales were $229.2 million, an increase of 21.4% compared to $188.7 million in the fourth quarter of 2024. For the year 2025, net sales reached a record $765.7 million, an increase of 17.6% year-over-year. Total sales of the company's EPS systems increased by 25.5% year-over-year, and sales of traditional steering products increased by 12.6% year-over-year. EPS sales represented 41.5% of total revenue in 2025 compared to 38.9% in 2024. Henglong subsidiary's sales of passenger vehicle steering systems rose by 12.1% year-over-year to $65.3 million in 2025. Jiulong's sales of commercial vehicle steering systems increased by 28.9% year-over-year to $92.3 million. Brazil Henglong net sales grew by 34.7% year-over-year to $68.7 million, and net sales to North American customers rose by 15.3% year-over-year to $121.6 million in 2025.

Management expects revenue for the full fiscal year 2026 to be $810 million. This target is based on the company's current view on operating and market conditions, which are subject to change.

• A prolonged disruption or any unforeseen delay in our operations of the manufacturing, delivery and assembly processes with any of our production facilities could result in delay in the shipment of products to our customers, increased costs and reduce revenue. - Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment and cause uncertainties in the regions where we conduct business, cause our business to suffer in ways that we cannot predict and materially adversely impact our business, financial condition and results of operations.

Q: How will the U.S. Supreme Court tariff decision affect the company's exports into the United States?

A: The short answer is the Supreme Court ruling does have a positive impact to our export-related business to the U.S. market. Specifically, the tariff the Section 301, Section 232 and Section 122, those 3 areas, the ruling by the Supreme Court enabled the total tariff reduced from 70% to now 60%.

Q: Why did Q4 gross margin spike? And is Q4 gross margin sustainable for 2026?

A: The gross margin reached 23% in Q4, mainly attributable to a couple of factors. One is our product mix has dramatically improved. We have increased our higher-margin products such as our EPS product and brushless powered electric power steering, we would call EPS product. And we also had some onetime event also took place in Q4. They are the tariff-related refunds as well as depreciation policy change. And so combining these 2 factors -- those 3 factors, we believe the gross margin in 2025 -- 2026 is we're going to be continued -- going to be at a very healthy level, but it's not going to be as high as Q4 2025.

Q: How much does China Automotive expect to save on an annual basis by changing the company registration to the Cayman Islands?

A: Immediate impact to Cayman Island. We immediately save about USD 500,000. That's the listing-related expenses. Then we are -- in terms of international business expansion, we will see more benefit coming even it's still a little bit early to give the detailed number. And also in terms of taxes, we're also seeing -- it will be a very notable saving as well. So combining all these, we believe it's going to be a very meaningful saving for our shareholders.

Q: With the current cash position, what's the outlook for either a stock buyback or cash dividends in 2026?

A: In terms of share buyback, we definitely are considering, previously, we do have a buyback plan in place due to the redomicile to the Cayman Island process, we have to meet a lot of compliance. So we put that buyback plan on hold. Now with that procedure completed, me and the CFO definitely will recommend to the Board and to reinitiate share buyback program. We'll make a -- do announcement when that's in progress. As far as dividend, we don't have a plan at the moment, but we're going to make -- also make a suggestion to the Board of Directors.