Thank you everyone for joining us today. Welcome to China Automotive Systems 2025 fourth quarter and 2025 annual 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, Health 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 cause our business to suffer in ways that we cannot predict, and materially 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 with any of our production facilities could result in delay in the shipment of products to our customers, increase cost, and reduce 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 2025 unaudited results and the 2025 annual audited results for the period ended December 31, 2025.

The 2025 fourth quarter results and the 2025 annual results are reported using US GAAP accounting. Management will conduct a question-and-answer session.

For the purpose of the call today, I'll review the financial results in US dollars. We will begin with a review of some of the quarterly business highlights, recent dynamics of the Chinese economy and automobile industry, and our market position.

China's automotive industry in 2025 set the new record with vehicle production reaching 34.5 million units and sales totaling 34.4 million units. These numbers reflect growth of 10.4% and 9.4% year-over-year, according to data from the China Association of Automobile Manufacturers, CAAM.

Commercial vehicle production and sales reached 4.3 million units and 4.3 vehicles sales are respectively. China's domestic auto market rose by approximately 6.7% with total vehicle sales reaching 27.3 million vehicles.

Among the industry trends were greater sales of new energy vehicles, and Chinese-branded vehicle capturing a larger portion of the total vehicle sales. Auto-related exports were another strong sales growth avenue for Chinese vehicle manufacturers.

In 2025, government incentives for the automobile industry included tax incentives, subsidies for scrapping older vehicles, and lower interest financing. Additionally, local government and private incentives may also have aided buyers.

Chinese-branded vehicle OEMs introduced a significant number of new models to attract consumers. Our sales increased by 21.4% year-over-year to $229.2 million in the fourth quarter of 2025, compared to $188.7 million in the fourth quarter of 2024, and $193.2 million in the third quarter of 2025.

Net sales increased due to higher demand for passenger and commercial vehicles in China, as well as increased export sales in the quarter. Gross margin in the fourth quarter of 2025 rose to 23.1%, compared to 15.6% in the fourth quarter of 2024.

Research and development expenses, R&D expenses, rose to $17.8 million, compared with $7.8 million in the fourth quarter of 2024. Technology is playing an increasing role with steering performance and quality, and customers are buying more advanced products.

Operating income grew to $18.1 million in the fourth quarter of 2025. Parent company's common shareholders increased by 103.2% to $18.4 million, with diluted income per share of 61 cents in the fourth quarter of 2025, compared to 30 cents in the fourth quarter of 2024.

For the 2025 year, record net sales increased by 17.6% to $765.7 million. Total sales of the company's EPS systems increased by 25.5% year-over-year, and sales of the 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 '24. Our Henglong subsidiary sales of passenger vehicle steering systems rose by 12.1% year-over-year to $365.3 million in 2025.

Jiulong sales of commercial vehicle steering systems increased by 28.9% year-over-year to $92.3 million. Brazil Henglong's net sales grew by 34.7% year-over-year to $68.7 million.

Net sales to North American customers rose by 15.3% year-over-year to $121.6 million in 2025. Sales to Stellantis' worldwide network helped propel our steering product sales growth in North and South American markets as well as Europe.

Gross profit in 2025 increased by 33.2% year-over-year to $145.5 million, with the gross margin increasing to 19%. The gross margin increased mainly due to a change in the product mix and lower material costs compared with last year.

Operating income increased by 33.2% year-over-year to $53.6 million in 2025. Net income attributable to parent company's common shareholders was a record $42.8 million in 2025, with diluted net income per share 43.4% higher to a record $1.42 per share.

R&D expenses by 63% year-over-year to $45.1 million in 2025. We had a number of product and technology innovations in 2025.

Our second-generation i-RCB, intelligent hydraulic circulating ball power steering, began production for use in heavy-duty vehicles that use both hydraulic power and electric controls. As China's first i-RCB compatible with L2+ assisted driving, this system utilizes cutting-edge electro-hydraulic control technology to achieve remarkable steering accuracy and response, and through higher efficiencies, operating costs will be significantly reduced.

Our Jingzhou Henglong subsidiary launched its active rear-wheel steering in 2025. Once reserved only for luxury cars, CAAS's active rear-wheel steering provides superior steering characteristics and now entering into the upper mass-market olds in China.

Our R-EPS steering product developed for Nanjing Iveco entered production in 2025, providing advancements in performing autonomous driving functions such as automatic parking, lane keep assist, and lane follow assist. Our R-EPS uses our proprietary ball screw assembly, which has become an essential steering configuration for mid-to-high-end vehicle models demanding high reliability and efficiency and quick responsiveness.

Another subsidiary, Hubei Henglong, began option of its new 115-platform steering motor production line at the end of 2025. This high-torque 115-platform electric motor supports our E-RCB commercial vehicle program.

E-RCB is an advanced electronic recirculating ball steering systems. This new is a significant innovation in our advanced intelligent steering strategy.

We also made strategic moves to expand our geographic expansion. Our Hubei Henglong subsidiary entered into a strategic cooperation agreement with KYB/UMB in Malaysia.

Through this cooperation, a new regional manufacturing and supply system is being entered in Malaysia. This joint venture is between KYB, a globally renowned automotive component company, and UMW, a Malaysian industrial conglomerate with core businesses covering automobiles and other equipment.

UMW holds a 38% stake in Perodua, Malaysia's largest car manufacturer. UMW also has a joint venture with Toyota in Malaysia.

Per our agreement with KYB/UMW, our products will be initially supplied to Perodua in Malaysia. In the future, additional opportunities in the OEM and aftermarkets will be explored in the broader ASEAN region.

To support the strategic partnership, UMW's new advanced manufacturing plant became operational in 2026. Our Jingzhou Henglong subsidiary also won its first R-EPS product order from a large, well-known European automobile producer.

This order, with annual sales expectations exceeding $100 million, covers multiple vehicle models and mass production is expected to begin by 2027. Also, our affiliated company in Sweden, Sentient AB, achieved considerable sales to a major European OEM in 2025 for its leading steering technology integrating hardware and software.

As of December 31, total cash, cash equivalents, pledged cash, and short-term investments, and long-term time deposits were $256.7 million. Net cash flow from operating activities increased to $111.3 million in 2025, compared to $9.8 million in 2024.

Free cash flow exceeded $74 million in 2025. Our net cash position reached $169.7 million at year-end.

With our increasing global presence, the board of directors decided to change our corporate registration to the Cayman Islands. This change will save significant administrative costs and paves the way for us to become a true multinational supplier to global OEMs.

Management is refocusing some of those resources to improve operations, sales, and to increase penetration of our growing international markets. Beginning in 2026, we will report our financial results on a six-month basis.

Our next report will be for the six months ended June 30, 2026. Also in 2025, we changed our independent registered public accounting firm to Grant Thornton Zhitong Certified Public Accountants LLP with headquarters in Beijing.

With the organizational changes, introduction of more advanced steering products, we are now better positioned to pursue steering sales opportunities on a global basis. We look forward to our R&D providing upgrades to further advance current product portfolio and introduce new technologies and products in the future.

Now, let me review the financial results in the fourth quarter 2025. Our net sales increased by 21.4% to $229.2 million, compared to $188.7 million in the same quarter of 2024.

The net sales increase was mainly due to a change in the product mix and higher demand for passenger automobiles and commercial vehicles in fourth quarter of 2025 compared to the fourth quarter of 2024. Additionally, export sales increased during the 2025 quarter.

Gross profit increased by 79.8% to $53 million from $29.5 million in the fourth quarter of 2024. Gross margin in the fourth quarter of 2025 rose to 23.1%, compared to 15.6% in the fourth quarter of 2024, primarily due to a change in product mix.

Selling expenses were $5 million in the fourth quarter of 2025, compared with $4.8 million in the fourth quarter of 2024. Selling expenses represented 2.2% of net sales in the fourth quarter of 2025, compared to 2.5% in the fourth of 2024.

General and administrative expenses were $12.2 million in the fourth quarter of 2025, compared to $9.7 million in the same period in 2024. G&A expenses represented 5.3% of net sales in the fourth quarter of 2025, compared to 5.1% of net sales in the fourth quarter of 2024.

Research and development expenses were $17.8 million, compared with $7.8 million in the fourth quarter of 2024. R&D expenses represented 7.8% of net sales in the fourth quarter of 2025, compared to 4.1% in the fourth quarter of 2024.

Operating expenses was $18.1 million— I'm sorry, operating income was $18.1 million in the fourth quarter of 2025, compared to $8.7 million in the fourth quarter of 2024. Higher gross profit compared with the same period last year was the main driver.

Interest expense was $0.5 million in the fourth quarter of 2025, compared to $1.1 million in the fourth quarter of 2024. Financial expense was $1.1 million in the fourth quarter of 2025, compared with financial income of $0.8 million in the fourth quarter of 2024.

Income before income tax expenses and equity in earnings of affiliated companies increased by 121% to $19.4 million in the fourth quarter of 2025, compared to $8.8 million in the fourth quarter of 2024. Income tax expense was $1.4 million in the fourth quarter of 2025, compared to income tax benefit of $2 million in the fourth quarter of 2024.

Net income attributable to parent company's common shareholders increased by 103.2% to $18.4 million in the fourth quarter of 2025, compared to net income attributable to parent company's common shareholders of $9.1 million in the fourth quarter of 2024. Diluted income per share was 61 cents in the fourth quarter of 2025, compared to diluted income per share of 30 cents in the fourth quarter of 2024.

The weighted average number of diluted shares outstanding was 30,170,702, compared to 30,180,947 in the fourth quarter of 2024. For the 2025 year, net sales increased by 17.6% to an annual record $765.7 million in 2025, compared to $650.9 million in 2024.

This increase was mainly due to higher sales and production of passenger vehicles in China, increased vehicle export sales, and commercial vehicle sales in China increasing by approximately 9- 10.9% year-over-year in 2025. Total sales of the company's EPS systems increased by 25.5% year-over-year, and sales of the traditional products increased by 12.6% year-over-year.

Henglong sales of passenger vehicle systems steering systems rose by 12.1% year-over-year to $365.3 million in 2025. Jiulong sales of commercial vehicle steering systems increased by 28.9% year-over-year to $92.3 million.

Brazil Henglong's net sales grew by 34.7% year-over-year to $68.7 million in 2025. Net sales to North American customers rose by 15.3% year-over-year in 2025 to $121.6 million.

EPS sales represented 41.5% of total revenue in 2025, compared to 38.9% in 2024. Gross profit in 2025 increased by 33.2% year-over-year to $145.5 million, compared to $109.2 million in 2024.

The gross margin was 19%, compared with 16.8% in 2024, mainly due to a change in product mix. Net sales or other sales in 2025 was $3.6 million, compared to $4.3 million in 2024.

Selling expenses rose by 15.9% year-over-year to $20.7 million in 2025 from $17.9 million in 2024, mainly due to an increase in marketing and office expenses offsetting lower other expenses. Selling expenses continue to represent 2.7% of net sales in 2025 as well as '24.

G&A expenses increased by 7% year-over-year to $29.7 million in 2025, compared to $27.7 million in 2024. G&A expenses represented 3.9% of net sales in 2025, compared to 4.3% of net sales in 2024.

This increase was mainly due to higher personnel and other expenses. R&D expenses increased by 63% to $45.1 million in 2025, compared to $27.6 million in 2024.

A higher R&D expenses reflected increased personnel expenses due to acceleration in R&D activities, including more investment in traditional product upgrades, advanced EPS technologies, and miscellaneous research expenses. R&D expenses were 5.9% of net sales in 2025, compared to 4.2% of net sales in 2024.

Operating income increased by 33.2% to $53.6 million in 2025, compared to $40.3 million in 2024, mainly due to higher sales and gross profit. Interest expense was $1.7 million in 2025, compared to $1.8 million in 2024.

Financial income was $2.4 million in 2025, compared to net financial expense of $0.09 million in 2024. This increase in financial income of $2.4 million was primarily due to an increase in foreign exchange gains due to the foreign exchange volatility.

Income before income tax expenses and equity in earnings of affiliated companies increased by 39.1% year-over-year to $61.4 million in 2025, compared with $44.1 million in 2024. The change was primarily due to higher operating income in 2025.

Income tax expense was $11.6 million in 2025, compared to $5.9 million in 2024. This increase was primarily due to higher income before income tax expenses and equity in earnings of affiliated companies, and the effective tax rate in 2025.

Net income attributable to parent company's common shareholders was a record $42.8 million in 2025, compared to $30 million in 2024. Diluted net income per share increased by 43.4% to $1.42 in 2025, compared to 99 cents in 2024.

The weighted average number of diluted common shares outstanding was 30,170,702 in 2025, compared with 30,184,513 in 2024. Now we'll provide some balance sheet and other financial highlights.

As of December 31, 2025, total cash, cash equivalents, pledged cash, short-term investments, and long-term time deposits were $256.7 million. Total accounts receivable including notes receivable were $361.8 million.

Accounts payable including notes payable were $350.3 million. Short-term bank loans were $81.3 million and long-term loans were $5.7 million.

Total parent company stockholders' equity was $401.3 million as of December 31, 2025, compared to $349.6 million as of December 31, 2024. Net cash flow from operating activities was $111.3 million in 2025, compared to $9.8 million in 2024.

Cash paid to acquire property, plant, equipment, and land use rights was $37.2 million in 2025, compared to $43.7 million in 2024. The business outlook: management expects revenue for the full fiscal year 2026 to be $108— I'm sorry, $810 million.

This target is based on the company's current view on operating and market conditions, which are subject to change. With that, operator, we are about to begin the Q&A session.

Hi, can you hear me?

Yes. Thank you.

Yeah.

Jim Fallon from Asusa. I was just wondering, how will the US Supreme Court tariff decision affect the company's exports into the United States?

Thank you.

Thank you. 这个投资者的问题是想知道一下这个美国最高法院对这个关税的政策变化判决以后对我们的业务的影响，就出口到美国的业务的影响有什么影响？

这个对我们还是有一些有利的影响，就是帮助我们可能会更多的出口一些。整个关税情况是这样的，我们目前的话呢，整个受到的关税有301、232以及的话呢这个122这几个条款。相对于在这个 ruling 之前的话呢，差不多降低了一个10%这样一个关税水平，原来是70%多，现在是60%多。好吧？ 现在的关税还有60%多，OK。

对，这块它因为整个取消的呢就是 IEEPA 这块的 tariff 这块，这个 reciprocal 这块给取消掉了。以前的生效的这个301啊、232这块还是有效的。那么的话呢，特朗普这个 administration 的话呢，后面又追加了一个 Section 122 的这样一个10%的，所以说加起来还是有比较高的关税水平，但是比原来还是减少了一些。 Okay.

Thank you for the question. The short answer is the Supreme Court ruling does have a positive impact to our export-related business to the US market.

Specifically, the tariff Section 301, Section 232, and Section 122, those three areas, the ruling by the Supreme Court enabled the total tariff reduced from 70% to now 60%.

Thank you.

Thank you.

Thank you.

Good day, everyone. Mr.

Li, why did Q4 gross margin spike, and is Q4 gross margin sustainable for 2026?

Okay. 这是另外一个投资者的问题，为什么我们第四季度的毛利大幅增加了？这个他想知道一下这个是不是这个毛利可以持续在2026年持续这个水平？

2025年第四季度的毛利率呢达到了23%，确实是一个比较高的水平。这里面呢有这样下面的几个因素：第一个呢首先是我们产品这块的产品组合从这个原来低毛利的现在向更加高端的毛利这块在增加，比方说我们现在的一些 R-EPS 啊，包括这个 brushless 的这个 EPS，这个比重的话呢越来越多，所以说对我们的毛利率有改进；另外一块的话呢也是有一些一次性的因素，比方说这个关税的返还呐，还有一些这个前期的一些多计提的折旧啊、warranty 啊这块的有个 recovery 这块。综合下来的话呢，肯定会比以前要好一些，但是可能到不了23%这个水平，因为有一点一次性的影响。好。 Okay.

Yes, you are right. We did experience a significant improvement in the gross margin category in the Q4 2025.

Gross margin reached 23% in Q4, mainly attributable to a couple factors. One is our product mix has dramatically improved.

We have increased our higher-margin products such as R-EPS product, and brushless powered electric power steering, what we call EPS product. We also had some one-time event also took place in the Q4.

There are the tariff-related refunds, as well as depreciation policy change. Combining these two factors, those three factors, we believe the gross margin in 2025 in 2026 is going to be at a very healthy level, but it's not going to be as high as Q4 2025.

嗯。

Thank you.

Thank you.

Hello, everybody. My question is, on a dollar basis, how much does China Automotive suspect to save on an annual basis by changing the company's registration to the Cayman Islands?

Oh, okay. 这是另外一个投资者的问题，就想知道一下我们现在转到了这个开曼群岛的这个所属地以后，从整个成本或者费用角度来说，我们到底省了多少资金？大概用金额计算的话，大概省了多少钱？

目前的话看下，来整个运营费用整个维持的上市的这一块，就仅仅这一块的费用的化呢，应该可以减少50多万美金。这个是直接的收益的这一块。然后间接的这一块的话呢，会我们在 flexibility 啊在这个国际业务的拓展这一块的这个灵活性增加。然后的话呢，还有这些税收节约的这个 potential 这一块的话呢也是有很大潜力的。好吧？ Okay.

For the immediate impact, by re-domiciling to Cayman Island, we immediately save about $500,000. That's the listing-related expenses.

Then in terms of international business expansion, we'll see more benefit coming. Even it's still a little bit early to give the detail number.

Also, in terms of taxes, we're also seeing it will be a very notable saving as well. Combining all these, we believe it's going to be a very meaningful saving for our shareholders.

Thank you.

Thank you.

I have a question that's been emailed to me by one of the shareholders who could not be on. The question is, with the current cash position, what's the outlook for either a stock buyback or cash dividends in 2026?

Okay. 这个问题你也听到了，就是关于这个现金的问题，目前的现金水平很高。我们有没有考虑做一些回购也好，或者是这个分红也好？

回购这一块肯定是在考虑之中，因为我们以前的话呢就有一个 buyback plan 这一块。是由于整个我们在迁册过程中的话呢，涉及到这些合规的问题，所以说就这个 buyback 就停下来了。那我们接下来这个迁册已经完成，然后应该我会向董事会建议再重启这个 buyback 计划。 Okay.

In terms of share buyback, we definitely are considering. Previously, we do have a buyback plan in place.

Due to the re-domicile to the Cayman Island process, we had to meet a lot of compliance. We put that buyback plan on hold.

Now with that procedure completed, me as a CFO will definitely recommend to the board and to re-initiate share buyback program. We'll make a due announcement when that's in progress.

呃分红呢？ 呃分红这一块目前目前还没有明确的计划，我可以向董事会建议。

Okay. As far as dividends, we don't have a plan at the moment, but we're going to also make a suggestion to the board of directors.

We thank you all for joining us today in the conference call. We wish you to be safe, and we look forward to speaking with you in the future after we report the six-month results.

Thank you.

Thank you.