China Automotive Systems, Inc. Aktie

Greetings. Welcome to the China Automotive Systems Fourth Quarter and Fiscal Year 2025 Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Kevin Theiss, Investor Relations. You may begin.

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 of Risk Factors and 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 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.

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. The company expressly disclaims any duty to provide updates to any forward-looking statements made in this call with 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 U.S. GAAP accounting. Management will conduct a question-and-answer session. For the purposes of the call today, I'll review the financial results in U.S. dollars.

We will begin with a review of some of the quarterly business highlights, recent dynamics of the Chinese economy, automobile industry and our market position. China's automotive industry in 2025 set another 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, 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, primarily due to higher gross profit. Net income attributable to parent company's common shareholders increased by 103.2% to $18.4 million with diluted income per share of $0.61 in the fourth quarter of 2025 compared to $0.30 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 to 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 2024. Our Henglong subsidiary sales of passenger vehicle steering systems rose by 12.1% year-over-year to $65.3 million in 2025. Jiulong 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.

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 increased 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 iRCB intelligent electro-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 iRCB compatible with L2+ assisted driving, this system utilizes cutting-edge electro-hydraulic control technology to achieve remarkable steering accuracy and response. And through higher efficiency, 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' Active Rear-Wheel Steering provides superior steering characteristics and is now entering into the upper mass market for new energy vehicles 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, Hyoseong (Wuhan) began production of its new 115 platform steering motor production line at the end of 2025. This high torque 115 platform electric motor supports our ERCB commercial vehicle program. ERCB is advanced electronic recirculating ball steering systems. This new motor is a significant innovation in our advanced intelligence steering strategy. We also made strategic moves to expand our geographic expansion.

Our Henglong subsidiary entered into a strategic cooperation agreement with [ KYB/UMW ] in Malaysia. Through this cooperation, a new regional manufacturing and supply system is being entered in Malaysia. This joint venture 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 and UMW also has a joint venture with Toyota in Malaysia. For 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 Asian region. To support this strategic partnership, KYB/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 2025 for its leading steering technology integrating hardware and software. As of December 31, 2025, 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 pave 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 6-month basis. So our next report will be for the 6 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 and 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 of 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 the fourth quarter of 2025 compared to the fourth quarter of 2024. Additionally, export sales increased during the 2025 quarter. Our 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 was 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 quarter 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 and 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 $0.61 in the fourth quarter of 2025 compared to diluted income per share of $0.30 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 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 of 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 on 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 2024. 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 expense was mainly due to higher personnel and other expenses.

R&D expenses increased by 63% year-over-year to $45.1 million in 2025 compared to $27.6 million in 2024. Higher R&D expenses reflected increased personnel expenses due to acceleration in R&D activities, including more investment in traditional product upgrades, advancing 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% year-over-year to $53.6 million in 2025 compared to $40.3 million in 2024. The increase in operating income was 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 and 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 is primarily due to higher operating income in 2025.

Income tax expense was $11.6 million in 2025 compared to $5.9 million in '24. This increase was primarily due to higher income before income tax expenses and equity and earnings of affiliated companies and the effective tax rate in 2025. Net income attributable to parent company 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 $0.99 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 and 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.

[Operator Instructions] Your first question for today is from [ Jim Fallon with Esousa Holdings. ]

[ Jim Fallon from Esousa ]. I was just wondering how will the U.S. Supreme Court tariff decision affect the company's exports into the United States?

[Foreign Language]

[Interpreted] Thank you for the question. So 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%.

Your next question for today is from [ Gary Nash ] a private investor.

Mr. LI, why did Q4 gross margin spike? And is Q4 gross margin sustainable for 2026?

[Foreign Language]

[Interpreted] Yes, you are right. We did experience a significant improvement in the gross margin category in the Q4 2025. The gross margin reached 23% in Q4, mainly attributable to a couple of factors. One is our product mix has dramatically improved. We have -- 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.

Your next question is from [ Jonathan Nieves, ] a private investor.

My question is on a dollar basis, how much does China Automotive expect to save on an annual basis by changing the company registration to the Cayman Islands?

[Foreign Language]

[Interpreted] So immediate impact [indiscernible] 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.

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

[Foreign Language]

[Interpreted] 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.

[Foreign Language] [Interpreted] 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.

[Operator Instructions] we have reached the end of the question-and-answer session, and I will now turn the call over to Kevin Theiss for closing remarks.

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 6-month results. Thank you.

This concludes today's conference. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Welcome to the 2025 Special Stockholders Meeting. I am Chen Hanlin, Chairman of the Board of Directors. I will be presiding over this meeting. It is now 9:00 a.m., and the meeting will begin.

I would like to introduce our other directors who are present or have joined via telephone conference today: Director and CEO, Wu Qizhou; Independent Directors, Xu Guangxun, Robert Wei Cheng Tung and Tong Teo.

Also present or joined via telephone conference are the management members, legal adviser, independent auditor, IR adviser, shareholders and guests of the company. Chief Financial Officer, Li Jie; Vice President, Andy Tse, Hanlin Chen and Dr. Cai Hai Mian, Secretary of the Board of Directors, Wei Na; the company's Legal Counsel, Simon Luk of Sichenzia Ross; the company's independent auditor, Tina Liu of PwC; the company's IR representative, Dixon Chen and Kevin Theiss of Awaken Advisors.

This morning, our program will proceed as follows: First, I will conduct the official business portion of the meeting. Please limit any questions you may have to those which relate to the formal business at hand. Following that, we will move along to the question-and-answer session.

Before starting, I would ask all those in attendance here today to ensure that you have registered. If you have not registered, please do so now. During this meeting, we ask that shareholders not address the meeting unless recognized, and all questions should be directed to me as Chairman.

If you have been recognized, please identify yourself and your status, whether as a shareholder or a representative of a shareholder. Questions and comments will be permitted during the question-and-answer session after the business portion of the meeting. We will now proceed to the business portion of the meeting.

The following have been delivered to the company prior to the meeting. An affidavit signed by Joanne Vogel from Broadridge Financial Solutions, Inc., certifying that the official notice of this meeting has been given as contained in a notice of Internet availability mailed on or about August 5, 2025, and a certified list of the holders of common stock of the company as of the close of business on July 30, 2025, being the record date for determining shareholders who are entitled to notice of and to vote at this meeting.

In addition, the proxy statement, the proxy and other materials necessary for shareholders voting at this meeting have been available on the website specified in the notice of Internet availability on or before August 5, 2025. The instructions to execute proxy are also available on the website specified in such notice.

A copy of the aforementioned will be incorporated into the minutes of the meeting. A copy of the list of stockholders as at the record date is available for inspection by shareholders. The Board of Directors has appointed Ms. Wei Na to serve as the Inspector of Election. Ms. Wei has delivered to me the signed oath of the Inspector of Election. Such an oath will also be incorporated into the minutes of the meeting. Ms. Wei will tabulate the results of the voting at the appointed time.

Many stockholders have already submitted their proxies. All proxies will be voted as marked by the stockholders who signed them. The holders of any undelivered proxies may present the proxies at this to Ms. Wei.

[Audio Gap]

The first matter, the merger proposal, to be voted upon is the approval of the merger of the company [Audio Gap] and China Automotive Systems Holdings Inc., an exempted company incorporated under the laws of the Cayman Islands and a wholly owned subsidiary of the company, CAAS Cayman, which includes a plan of merger required to be filed with the register of companies of the Cayman Islands, pursuant to which the company will merge with and into CAAS Cayman, with CAAS Cayman as the surviving company upon the merger becoming effective, and whereby, each issued and outstanding share of the common stock of the company will be converted into the right to receive 1 ordinary share of CAAS Cayman credited as fully paid the redomicile merger.

The second order of business, the adjournment proposal concerns the consideration and vote on the proposal to adjourn the special meeting from time to time, to a later date or dates, if necessary or appropriate, to solicit additional proxies if there are insufficient votes to adopt the Merger Agreement and the Redomicile Merger contemplated by the merger agreement at this special meeting. Are there any questions?

The company has not received any notice from its shareholders as required under its bylaws or pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 of any other matter to be considered at this special meeting. Therefore, no other proposals may be properly introduced by shareholders at this meeting.

We will now proceed to balloting on the previously discussed motions. It is now 9:11 a.m. The polls for voting on all matters are hereby open. Stockholders who are voting by proxy need not cast ballots in the voting today unless they wish to change their votes. Those stockholders who wish to vote by ballot should have received a ballot at the door.

If you would like to vote by ballot and did not receive any ballot at the door, please raise your hand and a ballot will be provided to you. Let's take a few moments to complete and return these ballots to the Inspector of Election.

[Voting]

Wait a few minutes. It is now 9:14 a.m. The polls for voting on all matters are hereby closed.

According to the preliminary report of the Inspector of Election, the proposal to approve and adopt the merger agreement by and between the company and China Automotive Systems Holdings, Inc., including a plan of merger required to be filed with the registrar of companies of the Cayman Islands and the subsequent redomicile merger has been approved, and the adjournment proposal has become irrelevant and not voted upon. That concludes the business portion of the meeting. Are there any questions?

As there are no questions, this meeting is adjourned. Now we would like to receive questions and comments from our shareholders. We would appreciate your first identifying yourself by name, organization and as a shareholder or representative of a shareholder. Please feel free to address your questions specifically to any of the members of the Board of Directors or management. And please limit your questions or comment. Thank you.

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Thank you, everyone, for joining us today. Welcome to China Automotive Systems 2025 second quarter conference call. Joining us today are Mr. Jie Lee, 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 the 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 10-K annual report for the year ended December 31, 2024, 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 effect 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 the delays in shipments of products to our customers, increased costs and reduced revenue. 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 second quarter 2025 results for the period ended June 30, 2025. Management will then conduct a question-and-answer session. The 2025 second quarter results are unaudited and are reported using U.S. GAAP accounting. For the purposes of our call today, I'll review the financial results in U.S. 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. Our sales increased by 11.1% year-over-year to $176.2 million in the second quarter of 2025 compared to $158.6 million in the second quarter of 2024, an increase compared with $167.1 million in the first quarter of 2025.

Total sales of electric power steering systems, EPS, increased by 31.1% year-over-year to $72.9 million as our sales mix continues to shift to higher technology products. Our Henglong KYB subsidiary achieved 26% year-over-year growth of its EPS products in the second quarter of 2025. Total EPS products were 41.2% of total sales for the 3 months ended June 30, 2025, versus 35.1% for the same quarter in 2024.

Our steering subsidiary, Henglong, which produces traditional hydraulic steering systems for the Chinese passenger vehicle market, reported a 4.2% year-over-year sales increase to $83.4 million in the second quarter of 2025. Sales by Jiulong’s commercial vehicle steering products increased by 25.6% year-over-year in the second quarter of 2025. Tax incentives, subsidiaries for scrapping older vehicles and lower interest rate financing are among the government incentives to support the purchases of automobile vehicles in China for 2025. Additionally, local and private incentives may also aid buyers.

North American sales increased by 14.9% year-over-year to $30.8 million, primarily due to higher sales to Stellantis. Our Brazilian sales increased by 49.4% year-over-year, mainly due to higher demand by Stellantis also. Brazilian sales represented 10.1% of total sales in the second quarter of 2025. Combined, North and South American sales have risen to approximately 27.5% of total sales in the 2025 second quarter.

For the macro economy, Chinese GDP was 5.2% year-over-year in the second quarter of 2025, a slight decrease from the 5.4% in the first quarter of 2025. As the passenger vehicle and commercial vehicle markets in China are our largest markets, their status can have direct impact on our sales. According to statistics from the China Association of Automobile Manufacturers, CAAM, total vehicle unit sales increased by 11.4% year-over-year in the first half of 2025. Passenger vehicle unit sales grew by 13% year-over-year and commercial vehicle sales increased by 2.6% year-over-year in the first 6 months of 2025.

Gross profit increased by 4.2% in the second quarter of 2025. Operating expenses were well controlled and declined by $2.2 million in the second quarter of 2025 compared with the 2024 second quarter. R&D expenses were stable at $8.1 million in the second quarter of 2025. We continue the development of our hydraulic and EPS products, especially our R-EPS product line.

Income from operations rose by 20.2% to $13 million. Income tax expense was $4 million for the second quarter of 2025 as compared to $2.1 million for the 2024 second quarter. The increase in income tax is due to higher income before income tax expenses of $15.1 million and expected higher annual effective tax rate in 2025 based on the latest annual forecast as compared to 2024.

Net income attributable to parent common shareholders per diluted share was $0.25 versus $0.24 in the year ago second quarter. Net cash provided by operating activities rose by almost $40 million year-over-year to $49.1 million for the first 6 months of 2025. Total cash, cash equivalents plus cash and short-term investments were $135 3 million or approximately $4.48 per share at June 30, 2025.

Our second-generation IRCB that's intelligent electrohydraulic circulating ball power steering for use in heavy-duty vehicles that use both hydraulic power and electrical controls is now in mass production in China. Following the IRCB's outstanding performance and cost efficiency, new orders in July by customers set a new record in the power steering industry for the ramp-up to mass production. As China's first IRCB compatible system with the L2+ assisted driving. This system utilizes cutting-edge electrohydraulic control technology to achieve internationally leading benchmarks in steering accuracy and response speed.

By optimizing energy consumption, it is projected to reduce operational costs by nearly RMB 36,000 per vehicle annually. In our first 6 months of 2025, our R-EPS system steering product developed for Nanjing Iveco also entered mass production and is capable of performing autonomous driving functions such as automatic parking, lane keep assist, lane follow assist and also in the first 6 months of 2025, our Shashi Jiulong Power Steering gears company, Shashi Jiulong subsidiary won customer awards and accolades from 2 major commercial vehicle OEMs, Beiqi Foton Motor and Shaanxi Automobile Heavy Truck.

Given our growing international sales, the Board of Directors and management has decided to begin the process to change our corporate registration from the state of Delaware to the Cayman Islands. We believe this change will save significant costs, require less regulatory reporting and allow management to concentrate on improving operations, sales and penetrating our growing international markets. The success of our R&D technology projects has provided state-of-the-art steering products. Our large diverse product portfolio provides solutions for the largest vehicle global OEMs and provides the mean to access more international markets to enhance our growth.

Now let me go over the financial results in the second quarter of 2025. Net sales increased by 11.1% year-over-year to $176.2 million compared to $158.6 million in the second quarter of 2024. Net sales of traditional steering products and parts increased slightly year-over-year to $103.3 million in the second quarter of 2025. Net sales of EPS products rose 31.1% year-over-year to $72.9 million from $55.6 million for the same period in 2024. EPS product sales grew to 41.4% of the total net sales for the second quarter of 2025 compared to 35.1% for the same period in 2024.

Our subsidiary Jiulong sales of commercial vehicle steering systems rose by 25.6% to $23.5 million compared with $18.7 million for the second quarter of 2024. Sales to North American customers increased by 11.8% to $30 million compared to $26.8 million in the second quarter of 2024. North American sales increased primarily due to improved demand by one customer.

Sales in Brazil were 49.4% higher in the second quarter of 2024 to $17.9 million from $12 million in the second quarter of 2024. Gross profit grew by 4.2% year-over-year to $30.5 million from $29.3 million in the second quarter of 2024. Gross profit margin decreased to 17.3% in the second quarter of 2025 from 18.5% in the second quarter of 2024. The decrease in gross profit margin was mainly due to an increase in tariffs and a product mix change from increased sales portion of relatively lower-margin products.

Gain on other sales was $0.5 million in the second quarter of 2025 compared to $1.7 million in the second quarter of 2024. Selling expenses of $4.5 million in the second quarter of 2025 were consistent with the second quarter of 2024. Selling expenses represented 2.6% of net sales in the second quarter of 2025 compared to 2.9% in the second quarter of 2024.

General and administrative expenses, G&A decreased to $5.4 million compared to $7.4 million in the second quarter of 2024, primarily due to decreased business taxes and surcharges. G&A expenses represented 3.1% of net sales in the second quarter of 2025 compared to 4.7% of net sales in the second quarter of 2024.

Research and development expenses, R&D, were stable at $8.1 million in the second quarter of each year. R&D expenses represented 4.6% of net sales in the second quarter of 2025 compared to 5.2% in the second quarter of 2024. Research and development programs include, but are not limited to electric power and hydraulic steering systems, automotive intelligence and software technologies, automotive electronics, high polymer materials and manufacturing technologies.

Other income was $1.1 million for the second quarter of 2025 compared to $1.7 million for the 3 months ended June 30, 2024. Income from operations rose by 20.2% to $13 million in the second quarter of 2025 from $10.8 million in the second quarter of 2024. The increase was primarily due to higher sales.

Interest expense was $0.3 million in the second quarter of 2025 compared to $0.2 million in the second quarter of 2024. Net financial income was $1.3 million in the second quarter of 2025 compared to net financial expense of $0.7 million in the second quarter of 2024. The increase in net financial income was primarily due to an increase in the foreign exchange gain due to foreign exchange volatility.

Income before income tax expenses and equity and earnings of affiliated companies was $15.1 million in the second quarter of 2025 compared to income before income tax expense and equity and earnings of affiliated companies of $11.7 million in the second quarter of 2024. The change in income before income tax expense and equity in earnings of affiliated companies was mainly due to higher income from operations in the second quarter of 2025 compared with last year's same quarter.

Income tax expense was $4 million in the second quarter of 2025 compared to $2.1 million for the second quarter of 2024. The increase in income tax expense was primarily due to a higher income before income tax expenses and higher expected annual effective tax rate in 2025 based on the annual forecast as compared to 2024.

Net income attributable to parent company's common shareholders was $7.6 million in the second quarter of 2025 compared to net income attributable to parent company's common shareholders of $7.1 million in the second quarter of 2024. Diluted earnings per share were $0.25 second quarter of 2025 compared to $0.24 in the second quarter of 2024. The weighted average number of diluted common shares outstanding was 30,170,702 in the second quarter of 2025 compared to 30,185,702 in the second quarter of 2024.

6 months of 2025, net sales increased by 15.2% year-over-year to $343 million in the first 6 months of 2025 compared to $298 million in the first 6 months of 2024, primarily due to increased sales of EPS systems. 6 months gross profit increased by 10.8% year-over-year to $59.1 million from $53.4 million in the corresponding period last year. 6 months gross profit margin was 17.2% compared with 17.9% in the first 6 months of 2024.

Gain on other sales was $1.6 million in the first 6 months of 2025 compared to $2.2 million in the corresponding period last year. Income from operations increased by 5.7% year-over-year to $21.6 million in the first 6 months of 2025 from $20.5 million in the first 6 months of 2024. Net income attributable to parent company's common shareholders was $14.7 million in the first 6 months of 2025 compared to net income attributable to parent company's common shareholders of $15.4 million in the corresponding period in 2024. Diluted earnings per share in the first 6 months of 2025 were $0.49 compared to diluted earnings per share of $0.51 in the first 6 months of 2024.

Balance sheet items. Cash, cash equivalents and short-term investments were $135.3 million or approximately $4.48 per share as of June 30, 2025. Net working capital was $170.9 million. Total accounts receivable, including notes receivable, were $294.2 million. Accounts payable, including notes payable, were $269.6 million and short-term loans were $71.9 million. Total parent company stockholders' equity was $366.4 million as of June 30, 2024, compared to $349.6 million as of December 31, 2024.

Additionally, net cash provided by operating activities of $49.1 million in the first 6 months of 2024. We invested $18.5 million in the capital expenditures in the first half of 2025 as we continue to invest in our R&D and production capabilities.

The business outlook. Management has raised revenue guidance for the full fiscal year 2025 to $720 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 are ready to begin the Q&A.[ id="-1" name="Operator" /> [Operator Instructions] Your first question for today is from [ Jonathan Neets ], an individual investor.

My question is why has the income tax rate increased in 2025?

[Foreign Language] So there's -- the increase of the tax is due to 2 factors. One is the pre-tax profit, profit before tax has gone up as the overall revenue and it has increased. And the other reason is the tax rate has slightly ticked up. And last year, there was a $1.5 million tax adjustment and -- which affected in last year's tax provision. And this year has a different effect, and that's overall affecting the tax -- total tax provision.

[ id="-1" name="Operator" /> Your next question for today is from [ Michael Sitter ], an individual investor.

I have a question about R&D. It's in the 2025 second quarter, why was R&D flat at $8.1 million? And what's the outlook for R&D spending?

[Foreign Language] So Q2, yes, you're right. In the first quarter -- in the second quarter, our revenue has increased, as you can see, revenue increased by 11% but R&D during the same quarter was relatively flat. The reason being during the first quarter, we actually was R&D expenses was a little bit overspent. It increased on a year-over-year basis during the first quarter was increased by -- I mean, $3.4 million. That's about 64% year-over-year increase. That's part of the reason we didn't have to increase as much during the second quarter.

On the first half perspective, first half the R&D expense is about $16.8 million versus last year same period, $13.5 million. So that R&D expense will continue to invest in the future technology, whether it's driverless technology or the different type of steering product going to electric vehicle. So we're very committed to long-term investment into R&D.

Yes. On a full year basis, we're expecting $32 million to $35 million on R&D expenses. That's about 5% of total revenue. 80% of our R&D expenses is going to EV-related product, the steering product for the EV sector, including R-EPS and all the kind of product and our customers are sending orders. So overall, R&D is on track.

Okay. I have a follow-up question, which is, given the strong electric vehicles in China, how much of the current R&D spending is for new energy technologies? And for which products are these new energy technology is for?

[Foreign Language] So 80% of our R&D expenditures are going to the EV. As you know, in China right now, every 2 cars sold in the market, 1 of every 2 cars is EV. So the EV penetration is very large, and they will most likely remain at this level, if not increasing. And so that's why our product portfolio had to also need to be adjusted to meet the demand.

[ id="-1" name="Operator" /> Your next question for today is from Gary Nash, a private investor.

With sales in Brazil rising by almost 50% in the second quarter, what is the capacity utilization and need for more capital investment?

[Foreign Language] Yes, we're very pleased and very proud of our growth in the market of Brazil. It's not only growing at a very rapid pace, like 50% year-over-year. But also, now it's accounting it crossed the threshold of 10% of total revenue for our overall company. So it's very exciting about the Brazilian market.

In terms of your question on capacity utilization, we right now have run on 3 production lines in Brazil facility. And the utilization is about 90%. We have experienced some -- a bit of a bottleneck on the production process, and that has been solved. And so -- and in addition to that, we are going to add another production line. So sometime by the end of this year, we'll have 4 production line. The new line is EPS product, electric power steering product. So we're going to have 4 production lines in Brazil alone. Total CapEx, as you asked, will be around $3.5 million.

[ id="-1" name="Operator" /> [Operator Instructions] Your next question is from [ Kevin Sies ].

I had a question from an investor, and he wanted to know a comment, please, that the company is buying back shares and then issuing options to management. And he'd like to get some clarification on that.

So first, this question that you received on the e-mail.

Was a conversation that he had with me.

Okay. So his question is the company has been buying back shares and also issued options to management team.

That's right. He would just like to have a comment from management.

[Foreign Language] So to answer this question, yes, it's a very good answer. Here's the answer for the question. The company buyback shares because company see the stock is undervalued or grossly undervalued. And they want to utilize the cash on the book to create some shareholder value. And it's part of shareholder return program like any other companies. When you see the stock price dip below intrinsic value, you buy the stock.

Now on the stock option plan to issue to give to management team, it's part of the incentive plan to incentivize middle operational management or even senior management to continue to execute the game plan to support the company's long-term growth, including a number of strategic initiatives from R&D to partnerships. And so these are critical tools to -- for a company to reward to award key employee and also attract talent to join the company. So this is no difference. This practice doing in CAAS is no difference. Other things are happening with Google, [Technical Difficulty] Amazon, it's exactly the same thing. The U.S. company are incentivized their employee and attracting talent. And at the same time, they're using their strong cash flow -- free cash flow to buyback shares.

[ id="-1" name="Operator" /> [Operator Instructions]

Okay. So I have another question then. Can you discuss the move to the Cayman Islands and what advantages you see to the company and also to the shareholders from this move?

[Foreign Language] Okay. Good. Yes, this is a very good question we received from a few shareholders regarding the redomicile to Cayman Island. This move is mainly for the purpose of reducing the overall cost of being a listed company. As you know, right now, since we are a U.S. company, we have to do a quarterly filing 10-Qs and annual report and 10-Ks. So there are tremendous amount of saving if we move into this new structure, we're still reporting, but the overall cost of reporting is a lot lower as a foreign company. And we are -- most of our operations outside the U.S. anyway. That's one.

And two is we -- even this move domiciled to Cayman doesn't change the main things we are still listed on NASDAQ. The stock ticker is still under CAAS. And our other shareholder reward program, whether it's dividend or share buyback will continue. So in terms of shareholders, there won't be any effect due to this change.

And one more thing is being a Cayman company and no longer a U.S. company give us business flexibility as we are -- as you can see, our business is now expanding globally. We already have a pretty good global footprint. Let me remind everybody on the call, we started off 30-odd years ago as a regional power steering company in China. We quickly grew into a national champion and by supporting and supplying to the fast-rising domestic brands.

So now you see all the brands in the news, whether it's Cherry Auto, BYD, Geely, Great Wall, A number of those auto makers are very large automakers by global standard now. They are all our major customers, and they start up the first set of power steering with us. So we're very proud of that. Then from there, about 18 years ago, we launched into -- we expand our footprint into U.S. market. And so now you have formerly known as Chrysler and Ford our major customers. And we have a quite large shares with these 2 companies in a number of products.

And then our European businesses start taking off. So our relationship with [ Fiat ] has deepened over the last 15 years. And now we are supplying to a number of European model automakers, auto models. We're growing very fast in terms of our market share. And then lastly, we just mentioned earlier, our Brazilian business are growing very rapidly. So this quarter is 50%, and we're expanding more capacity.

So overall, we are a global company now, and we will continue to expand our footprint. So that being said, being a foreign domicile company or non-U.S. domicile company will give us a business flexibility to continue to win contracts and expand business and grow market share. And lastly, to build shareholder value.

[ id="-1" name="Operator" /> We have reached the end of the question-and-answer session, and I will now turn the call over to Kevin Theiss for closing remarks.

I want to thank everyone for participating in today's conference call. We wish you all to be safe, and we look forward to speaking with you in the future. Thank you.

[ id="-1" name="Operator" /> This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good morning. Welcome to the 2025 Annual Stockholders Meeting. I am Chen Hanlin, Chairman of the Board of Directors. I will be presiding over this meeting. It is now 9:00 a.m., and the meeting will begin.

I would like to introduce our other directors who are present or have joined via telephone conference today: Director and CEO, Wu Qizhou; independent directors, Xu Guangxun, Robert Wei Cheng Tung and Tong Kooi Teo.

Also present or joined via telephone conference are the management members, legal adviser, independent auditor, IR adviser, shareholders and guests of the company; Chief Financial Officer, Li Jie; Vice President, Andy Tse, Dr. Cai Hai Mian, Henry Chen and [indiscernible], Secretary of the Board of Directors, Wei Na; the company's legal counsel, Simon Luk, the company's independent auditor, Frank Lin and Tina Liu of PwC; the company's IR representative, Dixon Chen and Kevin Theiss of Awaken Advisors.

This morning, our program will proceed as follows: First, I will conduct the official business portion of the meeting. Please limit any questions you may have to those which relate to the formal business at hand. Following that, we'll move along to the question-and-answer session.

Before starting, I would ask all those in attendance here today to ensure that you have registered. If you have not registered, please do so now. During this meeting, we ask that shareholders not address the meeting unless recognized. And all questions should be directed to me as Chairman.

If you have been recognized, please identify yourself and your status, whether as a shareholder or a representative of a shareholder. Questions and comments will be permitted during the question-and-answer session after the business portion of the meeting. We will now proceed to the business portion of the meeting.

The following have been delivered to the company prior to the meeting. an affidavit signed by Joanne Vogel from Broadridge Financial Solutions, Inc., certifying that the official notice of this meeting has been given as contained in the notice of Internet availability mailed on or about May 15, 2025, and a certified list of the holders of common stock of the company as of the close of business on May 6, 2025, being the record date for determining shareholders who are entitled to notice of and to vote at this meeting.

In addition, the proxy statement, the proxy, the annual report and other materials necessary for shareholders voting at this meeting have been available on the website specified in the notice of Internet availability on or before May 13, 2025. The instructions to execute proxy are also available on the website specified in such notice.

A copy of the aforementioned will be incorporated into the minutes of the meeting. A copy of the list of shareholders as at the record date is available for inspection by shareholders. The Board of Directors has appointed Ms. Wei Na to serve as the Inspector of Election. Ms. Wei has delivered to me the signed oath of the Inspector of Election. Such an oath will also be incorporated into the minutes of the meeting. Ms. Wei will tabulate the results of the voting at the appointed time.

Many stockholders have already submitted their proxies. All proxies will be voted as marked by the stockholders who signed them. The Inspector of Election has examined the proxies received and reports that over 50% of the outstanding shares of common stock entitled to vote at this meeting are represented in person or by proxy. A quorum is present, and this meeting may now proceed with the formal items of business open for votes.

The first matter to be voted upon is the election of directors of the company to hold office for the coming year until the next Annual General Meeting of 2026. The nominees set forth in the proxy statement are now before the meeting.

The current Board of Directors and the Nominating Committee of the Board of Directors favor the election of the following persons as directors of the company: Chen Hanlin, Wu Qizhou, Xu Guangxun, Robert Wei Cheng Tung and Tong Teo.

The company's bylaws require any stockholder to provide advanced notice to the company of his intent to nominate persons as directors. The Nominating Committee has not accepted a notice of nomination that it has received. Therefore, I declare the nomination of directors is now closed.

The next order of business concerns the approval of the advisory nonbinding proposal concerning the company's named executive officer compensation program.

The next order of business concerns the approval of an advisory nonbinding vote concerning the frequency of holding future advisory votes on executive compensation.

The next order of business concerns the approval of an amendment to the company's 2004 stock option plan to extend its term for another 10 years through June 27, 2035.

And the next order of business concerns the ratification of the appointment of PricewaterhouseCoopers Zhong Tian LLP as the company's independent auditors for the fiscal year ending December 31, 2025. Are there any questions?

The company has not received any notice from its shareholders as required under its bylaws or pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 of any other matter to be considered at this meeting. Therefore, no other proposals may be properly introduced by shareholders at this meeting.

We will now proceed to balloting on the previously discussed motions. It is now 9:10 a.m. The polls for voting on all matters are hereby open. Stockholders who are voting by proxy need not cast ballots in the voting today unless they wish to change their votes. Those stockholders who wish to vote by ballot should have received a ballot at the door.

If you would like to vote by ballot and did not receive any ballot at the door, please raise your hand and a ballot will be provided to you. Let's take a few moments to complete and return these ballots to the Inspector of Election.

[Voting]

Okay. It is now 9:13 a.m. The polls for voting on all matters are hereby closed. According to the preliminary report of the Inspector of Election, the following proposals have been approved.

One, the proposal to elect the nominees as listed on the proxy to be directors of the company for the coming year until the next Annual General Meeting of 2026.

Two, the advisory nonbinding proposal concerning the company's named executive officer compensation program; three, a frequency of every 2 years for future advisory votes on executive compensation of named executive officers; four, an amendment to the company's 2004 stock option plan to extend its term for another 10 years through June 27, 2025.

And fifth, ratification of the appointment of PricewaterhouseCoopers Zhong Tian LLP as the company's independent auditors for the fiscal year ending December 31, 2025. That concludes the business portion of the meeting. Are there any questions?

This meeting is adjourned. Thank you.

[Foreign Language]

We would appreciate your first identifying yourself by name, organization and as a shareholder or representative of a shareholder. Can you do that?

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

Thank you, everyone. Thank you.