China Automotive Systems, Inc. (NASDAQ:CAAS) Q4 2023 Earnings Call Transcript

China Automotive Systems, Inc. (NASDAQ:CAAS) Q4 2023 Earnings Call Transcript March 28, 2024

China Automotive Systems, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings. Welcome to the China Automotive Systems Fourth Quarter and Fiscal Year 2023 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Kevin Theiss. You may begin.

Kevin Theiss: Thank you, everyone for joining us today. Welcome to China Automotive Systems 2023 fourth quarter and year 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 and Results of Operations in the company’s Form 10-K Annual Report for the year-ended December 31, 2023, 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 region 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 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’ll provide a brief overview and summary of the fourth quarter and year results for the period ended December 31, 2023. Management will then conduct a question-and-answer session. The 2023 fourth quarter results are unaudited. The year results are audited. Financial results are reported in U.S. GAAP accounting. For the purposes of our call today, I’ll review the financial results in U.S. dollars. We’ll begin with a review of some of the company’s highlights, recent dynamics of the Chinese economy and automobile industry, and our market position. We are pleased to report that 2023 achieved record net sales of $576.4 million. Our 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.

We ended the 2023 year on a high note with the fourth quarter results achieving the largest quarterly net sales of 2023 at a $159.2 million, the largest quarterly percentage sales gain at 23.6% year-over-year for 2023, and highest quarterly net income attributable to the parent company’s common shareholders at $10 million — I’m sorry, $10.9 million during the year. We accomplished these in an unsettled economy in China. The Chinese GDP growth rate, excuse me, accelerated to approximately 5.2% in the 2020 — in 2023, up to 3% growth in 2022, which period partially affected the lingering effects of post-COVID-19 recovery. According to statistics from the Chinese Association of Automobile Manufacturers, CAAM, passenger automobile unit sales in China for the fourth quarter of 2023 included a growth of 11.4% year-over-year in October, an increase of 25.3% year-over-year in November, and a rise of 23.3% year-over-year in December.

Commercial vehicle unit sales during the fourth quarter of 2023 reflected an increase of 33.4% in October, filed by 44.6% year-over-year rise in November and a 25.1% year-over-year increase in December. Our 2023 fourth quarter operating income from operations climbed to $13.6 million due to gross margin rising to 21.8% as the product mix changed and operating expenses declined by 12.4% year-over-year. Our increasing efficiency led to reduced selling, G&A and R&D expenses in the fourth quarter of 2023. Diluted income per share rose by 157.1% to $0.36 compared to 14% — sorry, $0.14 in the fourth quarter of 2022. For 2023, CAAM reported passenger vehicle sales rose by 10.6% year-over-year and commercial vehicle sales increased by 22.1% year-over-year.

Our 2023 net sales increased by 8.8% in 2023 due to greater demand for Chinese passenger vehicles and a 22.9% year-over-year growth in net sales in Brazil with higher sales to Stellantis. Sales in the North America declined by 18.5% year-over-year to $115.9 million in 2023, partially reflecting the impact of the autoworker’s strike in North America as production began to ramp up in the fourth quarter of 2023. Net sales of traditional steering products and parts were $381.6 million, up 2.2% year-over-year. Net sales of electric power steering, EPS grew by 24.6% year-over-year to $194.8 million, an increase as a percentage of sales to 33.8% in 2023. Net product sales of other entities rose by 20.7% year-over-year to $112.1 million, primarily due to higher sales by Wuhu Henglong (ph) our producer of steering columns.

Our sales into the commercial vehicle market were essentially flat in 2023, partially due to reduced demand in certain market segments. As a percentage of total sales, domestic Chinese sales increased to 65.1% of our total sales in 2023. Sales in the United States declined to 19.3% and other export markets increased to 15.6% of our total sales. Domestically, key customers included BYD, the largest EV producer in China, Dongfeng Auto Group, Beiqi Foton Motor Corp., and we are developing C-EPS, DP-EPS and R-EPS products for BYD in addition to supplying traditional steering products. We are also working on new products for other current customers with the potential — with potential new customers, including other automobile OEMs and emerging technology companies entering the NEV space.

The high performance and quality of our products has spurred our growth in markets beyond China. In North America, customers include Jeep, Ram and Ford, in South America, Stellantis and Chery Auto’s Brazilian operations are our primary customers. Mahindra & Mahindra is a large customer in the Indian automobile market. Our products are also beginning to penetrate the European market with companies such as Alfa Romeo, Scania AB and through our subsidiary, Sentient AB, a Swedish automotive technology company. For 2023, we reduced our R&D by 19.1%, primarily due to maturing of current new product development and less activity for additional new product development for the traditional products. Our product portfolio includes integral rack and premium steering, high-pressure power steering, electric power steering, advanced driver assist systems, ADAS, automotive electronics, intelligent automotive technologies, automotive motors and electromechanical integrated systems, vehicle software and motion controls, high polymer materials as well as developing new cost saving manufacturing processes.

We collaborate with our OEM customers to advance our technology base and develop products to meet their specific performance and quality requirements. Our expanded series of EPS products have gained greater market reception. Our change in sales mix has improved our margins. We look forward to our ADAS products gaining greater commercial acceptance in the future. There are several trends that act as growth catalysts for our future sales. First, the Chinese automobile market is already the world’s largest single market and Chinese branded vehicles are gaining market share from Western-based JVs in the domestic market. Second, China is also the world’s leading EV market with 37.9% unit growth in 2023, in China, including 24.3% unit growth in battery-powered electric passenger vehicles.

It’s important to note that most Chinese EV operators have been self-developed without prior participation. In China, there are standalone EV producers, traditional OEMs with both internal combustion engines and EVs and high-tech companies that have entered into the EV marketplace. These tech companies are differentiating themselves by adding more technology and features, including advanced steering such as our ADAS systems. However, to capture more market share, Chinese OEMs are building lower-priced EVs to attract more buyers with a wider price range EV producers are better able to compete with internal combustion engine vehicles on a price basis. Chinese EVs are beginning to benefit from a growing economy of scale and strengthening EV supply chains, thus providing an advantage in global markets.

An auto plant production line full of workers assembling a car.

An auto plant production line full of workers assembling a car.

In 2023, the CAAM statistics show the Chinese automobile unit exports jumped by 57.8% year-over-year, and recently Chinese auto exports surpassed Japan to become the global automobile export leader. Chinese exports were mostly internal combustion engine vehicles in 2023, but China has also become the largest exporter of EVs as well. Now EV exports are smaller in number, the emergence of more affordable EV models, well-enhanced Chinese EV export unit sales, especially in more advanced car markets, which are preparing to transition away from internal combustion engines….

Read More: China Automotive Systems, Inc. (NASDAQ:CAAS) Q4 2023 Earnings Call Transcript

2024-04-01 19:55:26

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