China Automotive Systems, Inc. Q4 FY2023 earnings call

• 2023 achieved record net sales of $576.4 million, gross margin rose to 18%, operating income was 390% higher, and diluted net income per share increased by 81.2% to $1.25 per share. - Fourth quarter 2023 achieved largest quarterly net sales of 2023 at $159.2 million, largest quarterly percentage sales gain at 23.6% year-over-year, and highest quarterly net income attributable to parent company's common shareholders at $10.9 million. - Chinese GDP growth rate and automobile industry trends: Chinese GDP growth rate accelerated, passenger and commercial vehicle unit sales in China had significant year-over-year growth in the fourth quarter of 2023. - Product mix change impacted gross margin: Gross margin in the fourth quarter of 2023 was 19.4% compared to 21.8% in the same period of 2022 primarily due to product mix change. - Key customers: Domestically, key customers include BYD, Dongfeng Auto Group, Beiqi Foton Motor Corp.; in North America, customers include Jeep, Ram and Ford; in South America, Stellantis and Chery Auto's Brazilian operations are primary customers; products are also entering the European market. - R&D expenses reduction: In 2023, R&D expenses declined by 19.1% primarily due to maturing of current new product development and less activity for additional new product development for traditional products.

• Traditional steering products and parts: Net sales were $381.6 million, up 2.2% year-over-year. - Electric power steering (EPS): Net sales grew by 24.6% year-over-year to $194.8 million, accounting for 33.8% of total sales in 2023. - Other entities' net product sales: Rose by 20.7% year-over-year to $112.1 million. Domestically, Chinese sales increased to 65.1% of total sales in 2023, sales in the US declined to 19.3%, and other export markets increased to 15.6% of total sales.

• Management raises revenue guidance for the full year 2024 to $605 million. This target is based on the company's current view on operating and market conditions, which are subject to change.

• A prolonged disruption or any unforeseen delay in our operations of the manufacturing delivery and assembly processes within any of our production facilities could result in delays in the shipment of products to our customers, increased cost and reduced revenue.

Q: What products are you selling to BYD, please?

A: So BYD is our strategic partner. We supply to them the traditional hydraulic in the steering systems. We also supply them the C-EPS, R-EPS product. In terms of vehicle models, there is a wide range of models, BYD models are using our steering systems. That's including SONG, HAN and TANG (ph), those are three marquee products and also their ocean series product like SEAL (ph).

Q: What is your expected capital expenditures for the 2024 year and also, what are your capital priorities in 2024?

A: For CapEx in 2024, we're targeting about $25 million. In terms of priority, we will start off our $10 million CapEx in the I-RCB and ERCB product. Those products are already having orders from very large OEMs, global OEMs. And the second part is on the R-EPS product, we’re going to invest $10 million, reason being we are seeing a rapid increase of orders for this type of product and we definitely want to increase production to meet the demand. Our current we have already maxed out our current production capacity for this product, and we are very excited and to increase the production capacity in 2024. And lastly, is we’re going to spend $5 million on upgrading existing production line, fine-tuning some of the facilities and making sure while we’re expanding on the new frontier, new markets, we’re also taking care of our current customers.