Thank you, everyone, for joining us today. Welcome to China Automotive Systems 2026 first half results 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 these forward-looking statements due to a number of factors, including those described under the heading Risk Factors, Results of Operations in the company's Form 20-F annual report for the year ended December 31, 2025, 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 impact 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 those products to our customers, increased cost, 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 first half of 2026 unaudited results, which are reported using U.S.

GAAP accounting. Management will then conduct a question-and-answer session.

For the purposes of today call, I will review the financial results in U.S. dollars.

We will begin with a brief overview of our financial performance in the first half of 2026 and recent dynamics of the Chinese economy and automobile industry and our market position. For the six months ended June 30, 2026, we had growth across the board in our major operating units, with three operating units achieving net sales growth exceeding 40% in the first six months of 2026.

These results offset the 5.1% decline in our Brazilian subsidiary. Net sales increased by 20.1% to a six-month record of $412.5 million, with six-month records in gross profits which increased by 49.7% year over year, income from operations growth of 100.4% year over year, and diluted earnings per share growth by 98% year over year.

Our growth contrasts with the Chinese automotive industry performance as data from the China Association of Automobile Manufacturers, CAAM, disclosed that vehicle production and sales fell 4% and 4.1% year over year, respectively, in the first half of 2024. Passenger vehicle sales fell by approximately 6% in the first half of 2026 as retail sales of ICE vehicles declined.

The sales of NEV vehicles increased by 7.3% year over year and reached 49.6% of all new vehicle sales, and battery EV sales represented approximately 67% of total NEV sales. Rising fuel prices and reduction in government EV subsidies in China impacted vehicle demand.

The Chinese economy was also a factor in lower vehicle growth as China's gross domestic product grew by a sluggish 4.7% year over year in the first half of 2026, with slower growth in the second quarter to 4.3%. The Chinese economy witnessed weak household consumption, an 18% year-over-year contraction in property investment, and weak wage growth.

However, total exports remained strong with a 17.6% advance in the first half of 2026, including strong growth of NEV vehicles. Nevertheless, China is facing increasing uncertainty in foreign markets for the future.

In 2025, we introduced a number of innovations: our second-generation iRCB, as an intelligent electro-hydraulic circulating ball power steering for use in heavy-duty vehicles; the launch of our active rear wheel steering; our production of our R-EPS steering system for Nanjing Iveco; and a high-torque 115 W platform electric motor. These advancements helped build our sales and marketing in specific markets in 2026.

In the first six months of 2026, first batch of our EPS steering was shipped to a global automaker's European division and is featured in two new European vehicle models. Other vehicle models are targeted to adopt this advanced steering.

Annual sales volume is expected to reach 300,000 units. In addition to improving our sales and market presence in South America and Europe, we continued to build our strategic cooperation agreement with KYB, UMW, for a new regional manufacturing and supply system focused in Malaysia.

With our financial strength, we were able to invest $20.8 million in research and development, as well as $30.4 million in property, plant, and equipment in the first half of 2026. Net cash provided by operating activities was $47.8 million in the first half of 2026.

Cash, cash equivalents, and pledged cash totaled $155.6 million, and working capital was nearly $249.8 million. Despite these investments, our free cash flow was $14.3 million in the first six months of 2026.

Our new 2026-2030 strategic plan is focused on deepening local presence in global markets, developing additional cutting-edge steering technologies, penetrating new product markets, and zero-defect quality with platform-based, lean, automated manufacturing systems. These strategies will lead to higher sales and greater market share in the global automotive marketplace.

With these changes, we will grow our market position as a Tier 1 supplier to large global OEM customers in North America, Europe, Asia, and South America. Now let me review the financial results in the first six months of 2026.

Net sales increased by 20.1% year over year to $412.5 million compared to $343.3 million in the first half of 2025. The net sales increase was mainly due to higher sales of electric power steering and the appreciation of the RMB against the U.S.

dollar. Net sales of traditional steering products and parts increased 11.2% year over year to $219.6 million in the first half of 2026.

Net sales of EPS products rose 32.2% year over year to $192.3 million from $145.9 million for the same period in 2025. EPS product sales grew to 46.8% of the total net sales for the first half of 2026 compared to 42.5% for the same period in 2025.

Net sales in our Henglong subsidiary, the largest contributor to sales, rose by 25.3% to $205.7 million compared with $164.2 million for the first half of 2025. Sales to North American customers increased by 3.5% to $59.2 million compared to $57.2 million in the first half of 2025, primarily due to higher demand for passenger vehicle products by one customer.

Sales in Brazil declined by 5.1% in the first half of 2026 to $32.6 million from $34.4 million in the first half of 2025. Jiulong's net sales to the Chinese commercial vehicle market increased 42.9% year over year to $61.7 million, and our Wuhu subsidiary's net sales to Chery Automobile Company Limited rose by 40.3% year over year to $22.7 million in the first half of 2026.

Gross profit grew by 49.7% year over year to $88.5 million from $59.1 million in the first half of 2025. Gross profit margin increased to 21.5% in the first half of 2026 from 17.2% in the first half of 2025.

The increase in gross profit was mainly due to product volume gains and greater sales of relatively higher margin products. Net gain on other sales increased to $2.1 million in the first half of 2026 compared to $1.6 million in the first half of 2025.

Selling expenses grew by 28% to $11.9 million in the first six months of 2026 compared with $9.3 million in the same period last year. Higher selling expenses were results of the sales and volume gains in the first half of 2026.

Selling expenses represented 2.9% of net sales in the first half of 2026 compared with 2.7% in the first half of 2025. General and administrative expenses, G&A, increased 12.6% to $14.6 million compared to $13 million in the first half of 2025, primarily due to higher office expenses.

G&A expenses represented 3.5% of net sales in the first six months of 2026 compared to 3.8% of net sales in the same period in 2025. Research and development expenses, R&D, increased by 23.6% to $20.8 million in the first six months of 2026 compared with $16.8 million in the first half of 2025.

R&D expenses represented 5% of net sales compared to 4.9% in the first six months of 2025. Research and development programs include upgrading performance and quality of current products, customizing products for specific customers, as well as further developing EPS and hydraulic steering systems, automotive intelligence and software technologies, automotive electronics, high-polymer materials, and manufacturing technologies.

Other income, net, was $6.9 million in the first half of 2026 compared to $3.5 million in the same period last year. This increase is mainly due to the decrease in the loss of disposal of property, plant, and equipment.

Income from operations climbed 100.4% to $43.3 million in the first six months of 2026 from $21.6 million in the first half of 2025. This gain reflected greater sales, higher gross profit and margins, and effective cost controls.

Interest expense was stable at $0.8 million in the first half of 2026 and 2025. Net financial expense was $2.9 million in the first half of 2026 compared to net financial income of $3.3 million in the first half of 2025.

This change in net financial income was primarily due to foreign exchange volatility. Income before income tax expenses and equity in earnings of affiliated companies increased by 71.3% to $46.5 million in the first half of 2026 compared to $27.2 million in the same period in 2025.

The change in income before income tax expenses and equity in earnings of affiliated companies was mainly due to higher income from operations and higher other income, net, in the first half of 2026. Income tax expense was $9.9 million in the first half of 2026 compared to $7 million in the first half of 2025.

The increase in income tax expense was primarily due to higher income before income tax expenses in the first half of 2026. The effective tax rate was 21.3% in the first six months of 2026 compared with 25.7% in the same period of 2025.

Net income attributable to parent company's common shareholders increased by 98.8% to $29.3 million in the first six months of 2026 compared to net income attributable to parent company's common shareholders of $14.7 million in the first half of 2025. Diluted earnings per share were 97 cents in the first half of 2026 compared to 49 cents in the same period in 2025.

The weighted average number of diluted common shares outstanding was 30,170,702 in each of the 2026 and 2025 six-month periods. Now I will provide some balance sheet and other financial highlights.

Cash and cash equivalents and pledged cash were $155.6 million, or approximately $5.16 per share, as of June 30, 2026. Net working capital was $249.8 million.

Total accounts receivable, including notes receivable, were $362.4 million. Accounts payable, including notes payable, were $361.5 million, and short-term loans were $75 million.

Total parent company stockholders' equity was $443.8 million as of June 30, 2026, compared to $401.3 million as of December 31, 2025. Net cash provided by operating activities was $47.8 million, with payments to acquire property, plant, and equipment of $30.4 million.

Business outlook: Management has increased its revenue guidance for the fiscal year 2026 to $850 million from $810 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're ready to go to the Q&A.

Hello, everybody. My question is, with the company's electric power steering now entering the South American market, how will it impact the company's operations in South America?

这位投资人的问题是说，我们的这个EPS产品现在进入了南美市场，想看一下就是由于这个新产品进入南美市场对我们的业务的影响现在是带来了什么样的影响，在南美？ OK.

我们这个巴西、南美的EPS项目的设计产能呢是30万台。目前的话呢，整个工程技术人员已经派驻，前期的准备工作的话呢正在开展之中。计划的话呢是在2028年批量生产。现在的话呢开始把这个这个EPS的组装线啊，和这个PowerPack的组装线啊，已经已经开始着手准备了。好，然后整个项目全部达产以后的话呢，预计可以新增销售收入的话呢4000万美元左右。在目前的业务基础上的话呢，可以增加一个50%。对吧？ 南美的市场能够增加50%，对吧？

对，增加50%。

OK. For your question, electric power steering product now is in South America.

We are very excited about the prospect in that market. Our planning is about 300,000 units for that market, for that particular line we're building.

Our engineers are working closely on the ground to get things ready, and we are foreseeing the batch production starts in 2028. That being said, the general assembly line for the EPS product is on track, going there now, being setting up.

Once it's up and running, we are seeing about $40 million revenue impact that will be roughly 50% increase from the current run rate for the revenue in the South America market.

All right. Thank you.

Thank you.

Good morning. With the current financial resources, what are management's thoughts on cash dividends and buybacks in the near future?

OK. Thank you.

他的问题是根据现在的这个资产负债表的状况，非常充裕的现金，有没有考虑过这个回报股东的方式，比方说的这个回购股票啊这些，因为现在的估值也很便宜。 这些都在管理层的考虑之类。这是由于近期的话呢，这个资本开支的话都非常大。包括今年、去年以及明年的话呢都会比较大。所以说的话呢，我们上次提出之后的话呢，董事会还在慎重考虑之中。但是股东的诉求呢，一直都是我们密切关注的。好，谢谢。

OK. In terms of the shareholder return program, we are currently in discussion at a very high level, the board level.

In the meantime, I just want you to be mindful as we expanding our global footprint, growing rapidly on top and bottom line, we also are increasing CapEx. We have been increasing CapEx in last year, and we're seeing higher CapEx this year and next year as well.

We just want you to be aware the cash is putting back to the operation and to generate further return for shareholders. That being said, we at the board level are considering options to enhance shareholder value.

Thank you.

Thank you.

I have two questions that have been emailed to me. The first one is, what the $30 million in CapEx in the first half of 2026, where will the greatest impact be, and what's the outlook for CapEx in the future?

OK. 线上有一个问题是，上半年，2026年上半年资本性支出是3000万美元，他想知道一下这个换来的未来的从产能层面会是怎么样子的一个增加？

这一块今年上半年的最大的一笔开支呢是我们墨西哥项目的话呢，这个购买厂房和土地，整个这个开支的话呢是1580万美金。然后剩下的一千，1500万左右的话呢，投入到了这个各种EPS产能的提升这上面来，包括R-EPS、DP-EPS、ECU，包括iRCB这一块，以及的话呢这个这个电机，这些产能的提升。然后的话呢，整个全年的CapEx计划的话呢，大概要回到5000万美金这样一个水平。这个这个全年的计划呢，如果把墨西哥项目这一块的除掉的话，因为这是一次性的嘛，整个算下来3500万美金跟3500万美金跟去年差不多是一个持平的状态。这个可以差不多提升差不多100万产能，100万台EPS产能。好，谢谢。 OK.

We do have a pretty sizable CapEx in the first half 2026. The main part of it is our Mexico project.

We're building up our Mexico presence. Land and a facility, we have injected about $15.8 million.

Then the remaining roughly $15 million in the first half 2026 was all various product-related project CapEx. These are EPS, ECUs, iRCB, for example, those type of product development.

On the full-year basis, we're seeing about $50 million. If you exclude the Mexico project, the CapEx is roughly on par with 2025's CapEx.

These are for new product capacity expansion as we just mentioned, these type of new product. We're foreseeing about 1 million units incremental capacity coming online.

Okay. Now I have a second question, which is regarding mergers and acquisitions.

Is the company more focused on trying to expand the current product line through mergers and acquisitions or becoming more vertically integrated, or adding other auto-related products into their network?

OK. 这个问题也是线上的，关于这个兼并收购的问题。就是我们是怎么想的，就是因为现在的资产负债表有很多资源，有没有考虑过做一些兼并收购？如果是做的话是做横向还是纵向的这个层面的兼并收购？不管是增加产品种类还是增强你的这个上下游的能力？

呃，我们确实也是在考虑这一块。目前考虑的重点呢是想增加一些新的这个这个产品，尤其是在这个底盘领域的。因为你也知道这个现在汽车智能化这一块的话呢在进一步提升，然后线控底盘的话呢是一个重要的发展趋势。因此我们现在也在看底盘领域的一些像悬架呀、刹车、制动啊这一类的一些机会吧。 OK.

It's a good question on M&A. We are actually looking at different areas to enhance our product offering, more on the new product side, which will complementary to our product offerings, as well as, in particular, the chassis-related product, whether suspension or other type of things, such as braking systems.

That will further enhance our offering for the autonomous driving offerings. That said, we remain open-minded.

We are looking all kinds of options to see if we can further enhance our competitiveness by bringing on new product.

Thank you.

We thank you for your participation in today's conference call. Please be safe, and we look forward to speaking with you in the future.