10-Q 1 caas-20240331x10q.htm 10-Q
0001157762--12-312024Q1false0001157762srt:MaximumMember2022-03-292022-03-290001157762caas:HubeiVentureFundMember2020-09-012020-09-300001157762srt:MaximumMember2023-03-300001157762caas:RentalIncomeMemberus-gaap:RelatedPartyMember2024-01-012024-03-310001157762caas:RelatedPartySalesMemberus-gaap:RelatedPartyMember2024-01-012024-03-310001157762caas:MerchandiseSalesMemberus-gaap:RelatedPartyMember2024-01-012024-03-310001157762caas:MaterialAndOtherSalesMemberus-gaap:RelatedPartyMember2024-01-012024-03-310001157762caas:RentalIncomeMemberus-gaap:RelatedPartyMember2023-01-012023-03-310001157762caas:RelatedPartySalesMemberus-gaap:RelatedPartyMember2023-01-012023-03-310001157762caas:MerchandiseSalesMemberus-gaap:RelatedPartyMember2023-01-012023-03-310001157762caas:MaterialAndOtherSalesMemberus-gaap:RelatedPartyMember2023-01-012023-03-310001157762us-gaap:RetainedEarningsUnappropriatedMember2024-03-310001157762us-gaap:RetainedEarningsUnappropriatedMember2023-12-310001157762us-gaap:RetainedEarningsUnappropriatedMember2023-03-310001157762us-gaap:RetainedEarningsUnappropriatedMember2022-12-310001157762us-gaap:RetainedEarningsAppropriatedMember2024-03-310001157762us-gaap:RetainedEarningsAppropriatedMember2023-12-310001157762us-gaap:RetainedEarningsAppropriatedMember2023-03-310001157762us-gaap:RetainedEarningsAppropriatedMember2022-12-310001157762us-gaap:EquipmentMemberus-gaap:RelatedPartyMember2024-01-012024-03-310001157762caas:ServiceAndOtherPurchasedMemberus-gaap:RelatedPartyMember2024-01-012024-03-310001157762caas:MaterialsMemberus-gaap:RelatedPartyMember2024-01-012024-03-310001157762us-gaap:EquipmentMemberus-gaap:RelatedPartyMember2023-01-012023-03-310001157762caas:ServiceAndOtherPurchasedMemberus-gaap:RelatedPartyMember2023-01-012023-03-310001157762caas:MaterialsMemberus-gaap:RelatedPartyMember2023-01-012023-03-310001157762us-gaap:VehiclesMember2024-03-310001157762us-gaap:MachineryAndEquipmentMember2024-03-310001157762us-gaap:ConstructionInProgressMember2024-03-310001157762us-gaap:BuildingMember2024-03-310001157762caas:ElectronicEquipmentMember2024-03-310001157762us-gaap:VehiclesMember2023-12-310001157762us-gaap:MachineryAndEquipmentMember2023-12-310001157762us-gaap:ConstructionInProgressMember2023-12-310001157762us-gaap:BuildingMember2023-12-310001157762caas:ElectronicEquipmentMember2023-12-3100011577622023-01-012023-12-310001157762caas:SuzhouVentureFundsMember2024-03-310001157762caas:SuzhouQingshanMember2024-03-310001157762caas:SentientAbMember2024-03-310001157762caas:JiangsuIntelligentMember2024-03-310001157762caas:HubeiVentureFundMember2024-03-310001157762caas:HenglongTianyuMember2024-03-310001157762caas:ChongquingVentureFundMember2024-03-310001157762caas:SuzhouVentureFundsMember2023-12-310001157762caas:SuzhouQingshanMember2023-12-310001157762caas:SuzhouMingzhiMember2023-12-310001157762caas:SentientAbMember2023-12-310001157762caas:JiangsuIntelligentMember2023-12-310001157762caas:HubeiVentureFundMember2023-12-310001157762caas:HenglongTianyuMember2023-12-310001157762caas:ChongquingVentureFundMember2023-12-310001157762caas:ChongqingVentureFundAndSuzhouVentureFundMemberus-gaap:EquityMethodInvestmentsMember2024-01-012024-03-310001157762caas:ChongqingVentureFundAndSuzhouVentureFundMemberus-gaap:EquityMethodInvestmentsMember2023-01-012023-03-310001157762caas:HubeiHenglongKYBAutomobileElectricSteeringSystemCoLtdHenglongKYBMembercaas:HubeiHenglongKYBAutomobileElectricSteeringSystemCoLtdHenglongKYBMember2024-03-310001157762caas:WuhuHongrunNewMaterialCoLtdMember2024-03-310001157762caas:WuhuHenglongAutomotiveSteeringSystemCoLtdMember2024-03-310001157762caas:WuhanJielongElectricPowerSteeringCoLtdMember2024-03-310001157762caas:WuhanChuguanjieAutomotiveScienceAndTechnologyLtdMember2024-03-310001157762caas:SuzhouMingzhiMember2024-03-310001157762caas:ShenyangJinbeiHenglongAutomotiveSteeringSystemCoLtdMember2024-03-310001157762caas:ShashiJiulongPowerSteeringGearsCoLtdMember2024-03-310001157762caas:JingzhouHenglongAutomotiveTechnologyTestingCenterMember2024-03-310001157762caas:JingzhouHenglongAutomotivePartsCoLtdMember2024-03-310001157762caas:HyoseongWuhanMotionMechatronicsSystemCoLtdWuhanHyoseongMember2024-03-310001157762caas:HubeiZhirongAutomobileTechnologyCo.Ltd.ZhirongMember2024-03-310001157762caas:HubeiHenglongKYBAutomobileElectricSteeringSystemCoLtdHenglongKYBMember2024-03-310001157762caas:HubeiHenglongGroupShanghaiAutomotiveElectronicsResearchAndDevelopmentLtdMember2024-03-310001157762caas:HubeiHenglongAutomotiveSystemGroupCoLtdMember2024-03-310001157762caas:HanlinChenMember2024-03-310001157762caas:ChongqingHenglongHongyanAutomotiveSystemsCoLtdMember2024-03-310001157762caas:ChangchunHualongAutomotiveTechnologyCoLtdChangchunHualongMember2024-03-310001157762caas:CaasBrazilsImportsAndTradeInAutomotivePartsLtdMember2024-03-310001157762caas:WuhuHongrunNewMaterialCoLtdMember2023-12-310001157762caas:WuhuHenglongAutomotiveSteeringSystemCoLtdMember2023-12-310001157762caas:WuhanJielongElectricPowerSteeringCoLtdMember2023-12-310001157762caas:WuhanChuguanjieAutomotiveScienceAndTechnologyLtdMember2023-12-310001157762caas:ShenyangJinbeiHenglongAutomotiveSteeringSystemCoLtdMember2023-12-310001157762caas:ShashiJiulongPowerSteeringGearsCoLtdMember2023-12-310001157762caas:JingzhouHenglongAutomotiveTechnologyTestingCenterMember2023-12-310001157762caas:JingzhouHenglongAutomotivePartsCoLtdMember2023-12-310001157762caas:HyoseongWuhanMotionMechatronicsSystemCoLtdWuhanHyoseongMember2023-12-310001157762caas:HubeiZhirongAutomobileTechnologyCo.Ltd.ZhirongMember2023-12-310001157762caas:HubeiHenglongKYBAutomobileElectricSteeringSystemCoLtdHenglongKYBMember2023-12-310001157762caas:HubeiHenglongGroupShanghaiAutomotiveElectronicsResearchAndDevelopmentLtdMember2023-12-310001157762caas:HubeiHenglongAutomotiveSystemGroupCoLtdMember2023-12-310001157762caas:ChongqingHenglongHongyanAutomotiveSystemsCoLtdMember2023-12-310001157762caas:ChangchunHualongAutomotiveTechnologyCoLtdChangchunHualongMember2023-12-310001157762caas:CaasBrazilsImportsAndTradeInAutomotivePartsLtdMember2023-12-310001157762caas:HubeiZhirongAutomobileTechnologyCo.Ltd.ZhirongMember2023-06-300001157762caas:ThirdPartyMember2020-04-300001157762caas:HanlinChenMember2020-04-300001157762caas:ChangchunHualongAutomotiveTechnologyCoLtdChangchunHualongMember2020-04-300001157762caas:HubeiHenglongFormedWuhuHongrunNewMaterialCo.LtdWuhuHongrunMember2019-12-310001157762caas:HyoseongWuhanMotionMechatronicsSystemCoLtdWuhanHyoseongMember2019-03-310001157762caas:HubeiHenglongKYBAutomobileElectricSteeringSystemCoLtdHenglongKYBMembercaas:HubeiHenglongKYBAutomobileElectricSteeringSystemCoLtdHenglongKYBMember2018-08-310001157762caas:HubeiHenglongKYBAutomobileElectricSteeringSystemCoLtdHenglongKYBMembercaas:BrazilHenglongMember2017-05-310001157762caas:BrazilHenglongMember2017-05-310001157762us-gaap:RelatedPartyMember2024-01-012024-03-310001157762us-gaap:RelatedPartyMember2023-01-012023-03-310001157762us-gaap:PurchaseCommitmentMember2024-03-310001157762caas:ObligationsForInvestmentContractsMember2024-03-310001157762caas:FiveLargestCustomersMemberus-gaap:AccountsReceivableMemberus-gaap:CreditConcentrationRiskMember2024-01-012024-03-310001157762caas:CustomerOneMemberus-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2024-01-012024-03-310001157762caas:FiveLargestCustomersMemberus-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2023-01-012023-03-310001157762caas:FiveLargestCustomersMemberus-gaap:AccountsReceivableMemberus-gaap:CreditConcentrationRiskMember2023-01-012023-03-310001157762caas:CustomerOneMemberus-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2023-01-012023-03-310001157762caas:SuzhouMingzhiMember2024-01-012024-03-310001157762caas:HubeiHenglongKYBAutomobileElectricSteeringSystemCoLtdHenglongKYBMember2024-01-012024-03-310001157762caas:HubeiHenglongKYBAutomobileElectricSteeringSystemCoLtdHenglongKYBMember2024-01-012024-03-310001157762caas:ChangchunHualongAutomotiveTechnologyCoLtdChangchunHualongMember2020-04-012020-04-3000011577622022-12-3100011577622024-05-140001157762us-gaap:OperatingSegmentsMemberus-gaap:CorporateMember2024-01-012024-03-310001157762caas:WuhuHenglongAutomotiveSteeringSystemCoLtdMemberus-gaap:OperatingSegmentsMember2024-01-012024-03-310001157762caas:TotalSegmentsMemberus-gaap:OperatingSegmentsMember2024-01-012024-03-310001157762caas:ShashiJiulongPowerSteeringGearsCoLtdMemberus-gaap:OperatingSegmentsMember2024-01-012024-03-310001157762caas:OtherEntitiesMemberus-gaap:OperatingSegmentsMember2024-01-012024-03-310001157762caas:JingzhouHenglongAutomotivePartsCoLtdMemberus-gaap:OperatingSegmentsMember2024-01-012024-03-310001157762caas:HubeiHenglongKYBAutomobileElectricSteeringSystemCoLtdMemberus-gaap:OperatingSegmentsMember2024-01-012024-03-310001157762caas:HubeiHenglongAutomotiveSystemGroupCoLtdMemberus-gaap:OperatingSegmentsMember2024-01-012024-03-310001157762caas:BrazilHenglongMemberus-gaap:OperatingSegmentsMember2024-01-012024-03-310001157762srt:ConsolidationEliminationsMember2024-01-012024-03-310001157762us-gaap:OperatingSegmentsMemberus-gaap:CorporateMember2023-01-012023-03-310001157762caas:WuhuHenglongAutomotiveSteeringSystemCoLtdMemberus-gaap:OperatingSegmentsMember2023-01-012023-03-310001157762caas:TotalSegmentsMemberus-gaap:OperatingSegmentsMember2023-01-012023-03-310001157762caas:ShashiJiulongPowerSteeringGearsCoLtdMemberus-gaap:OperatingSegmentsMember2023-01-012023-03-310001157762caas:OtherEntitiesMemberus-gaap:OperatingSegmentsMember2023-01-012023-03-310001157762caas:JingzhouHenglongAutomotivePartsCoLtdMemberus-gaap:OperatingSegmentsMember2023-01-012023-03-310001157762caas:HubeiHenglongKYBAutomobileElectricSteeringSystemCoLtdMemberus-gaap:OperatingSegmentsMember2023-01-012023-03-310001157762caas:HubeiHenglongAutomotiveSystemGroupCoLtdMemberus-gaap:OperatingSegmentsMember2023-01-012023-03-310001157762caas:BrazilHenglongMemberus-gaap:OperatingSegmentsMember2023-01-012023-03-310001157762srt:ConsolidationEliminationsMember2023-01-012023-03-3100011577622020-09-012020-09-3000011577622023-03-310001157762caas:FiveLargestCustomersMemberus-gaap:SalesRevenueNetMemberus-gaap:ProductConcentrationRiskMember2024-01-012024-03-310001157762us-gaap:RetainedEarningsAppropriatedMember2024-01-012024-03-310001157762us-gaap:RetainedEarningsAppropriatedMember2023-01-012023-03-310001157762us-gaap:RetainedEarningsUnappropriatedMember2024-01-012024-03-310001157762us-gaap:RetainedEarningsUnappropriatedMember2023-01-012023-03-3100011577622023-01-012023-03-3100011577622024-01-012024-03-310001157762us-gaap:RelatedPartyMember2024-03-310001157762us-gaap:NonrelatedPartyMember2024-03-3100011577622024-03-310001157762us-gaap:RelatedPartyMember2023-12-310001157762us-gaap:NonrelatedPartyMember2023-12-3100011577622023-12-31iso4217:USDxbrli:purecaas:customercaas:itemcaas:productxbrli:sharesiso4217:CNYiso4217:USDxbrli:shares

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

Or

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to              

Commission file number: 000-33123

China Automotive Systems, Inc.

(Exact name of registrant as specified in its charter)

Delaware

    

33-0885775

(State or other jurisdiction of incorporation or

(I.R.S. Employer Identification No.)

organization)

 

No. 1 Henglong Road, Yu Qiao Development Zone, Shashi District

Jing Zhou City, Hubei Province, the People’s Republic of China

(Address of principal executive offices)

(86) 716- 412- 7901

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which
registered

Common Stock, $0.0001 par value

CAAS

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes                     No          

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes                     No          

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes                     No          

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, $0.0001 par value

CAAS

The Nasdaq Capital Market

As of May 14, 2024, the Company had 30,185,702 shares of common stock issued and outstanding.

CHINA AUTOMOTIVE SYSTEMS, INC.

INDEX

    

 

    

Page

Part I — Financial Information

4

Item 1.

Unaudited Financial Statements.

4

Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2024 and 2023

4

Condensed Unaudited Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

5

Condensed Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

6

Notes to Condensed Unaudited Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

32

Item 4.

Controls and Procedures.

32

Part II — Other Information

33

Item 1.

Legal Proceedings.

33

Item 1A.

Risk Factors.

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

33

Item 3.

Defaults Upon Senior Securities.

33

Item 4.

Mine Safety Disclosures.

33

Item 5.

Other Information.

33

Item 6.

Exhibits.

34

Signatures

35

2

Cautionary Statement

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or the Company’s future financial performance. The Company has attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “expects,” “can,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should” or “will” or the negative of these terms or other comparable terminology. Such statements are subject to certain risks and uncertainties, including the matters set forth in this Quarterly Report or other reports or documents the Company files with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. The Company’s expectations are as of the date this Form 10-Q is filed, and the Company does not intend to update any of the forward-looking statements after the date this Quarterly Report on Form 10-Q is filed to conform these statements to actual results, unless required by law. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed under Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission.

3

PART I — FINANCIAL INFORMATION

Item 1.     FINANCIAL STATEMENTS.

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income

(In thousands of USD, except share and per share amounts)

Three Months Ended March 31, 

    

2024

    

2023

Net product sales ($11,360 and $13,576 sold to related parties for the three months ended March 31, 2024 and 2023)

$

139,394

$

142,243

Cost of products sold ($6,968 and $7,015 purchased from related parties for the three months ended March 31, 2024 and 2023)

 

115,325

 

120,625

Gross profit

 

24,069

 

21,618

Gain on other sales

 

514

 

653

Less: Operating expenses

 

 

Selling expenses

 

4,073

 

3,384

General and administrative expenses

 

5,547

 

4,753

Research and development expenses

 

5,312

 

6,390

Total operating expenses

 

14,932

 

14,527

Income from operations

 

9,651

 

7,744

Other income, net

 

2,403

 

1,502

Interest expense

 

(258)

 

(249)

Financial expense, net

 

(12)

 

(422)

Income before income tax expenses and equity in earnings of affiliated companies

 

11,784

 

8,575

Less: Income taxes

 

1,743

 

829

Add: Equity in (losses)/earnings of affiliated companies

 

(777)

 

137

Net income

 

9,264

 

7,883

Less: Net income attributable to non-controlling interests

 

989

 

1,055

Accretion to redemption value of redeemable non-controlling interests

(8)

(8)

Net income attributable to parent company’s common shareholders

$

8,267

$

6,820

Comprehensive income:

 

 

Net income

$

9,264

$

7,883

Other comprehensive income:

 

 

Foreign currency translation (loss)/income, net of tax

 

(348)

 

4,554

Comprehensive income

 

8,916

 

12,437

Less: Comprehensive income attributable to non-controlling interests

 

941

 

1,321

Accretion to redemption value of redeemable non-controlling interests

(8)

(8)

Comprehensive income attributable to parent company

$

7,967

$

11,108

 

 

Net income attributable to parent company’s common shareholders per share -

 

 

Basic

$

0.27

$

0.23

Diluted

$

0.27

$

0.23

 

 

Weighted average number of common shares outstanding -

 

 

Basic

 

30,185,702

 

30,185,702

Diluted

30,185,702

30,193,082

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

4

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Balance Sheets

(In thousands of USD unless otherwise indicated)

    

March 31, 2024

    

December 31, 2023

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

112,557

$

114,660

Pledged cash

 

44,028

 

40,534

Accounts and notes receivable, net - unrelated parties

 

255,119

 

261,237

Accounts and notes receivable, net - related parties

 

11,599

 

8,169

Inventories

 

109,082

 

112,392

Other current assets

 

38,047

 

27,083

Total current assets

 

570,432

 

564,075

Non-current assets:

 

 

Property, plant and equipment, net

 

99,395

 

101,359

Land use rights, net

9,151

9,233

Long-term investments

 

59,278

 

60,173

Other non-current assets

 

32,416

 

31,600

Total assets

$

770,672

$

766,440

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

 

Current liabilities:

 

 

Short-term loans

$

40,471

$

48,005

Accounts and notes payable-unrelated parties

 

228,705

 

240,739

Accounts and notes payable-related parties

 

14,265

 

12,839

Accrued expenses and other payables

 

44,839

 

44,771

Other current liabilities

 

35,409

 

37,385

Total current liabilities

 

363,689

 

383,739

Long-term liabilities:

 

 

Long-term tax payable

8,781

8,781

Other non-current liabilities

 

5,360

 

5,498

Total liabilities

$

377,830

$

398,018

Commitments and Contingencies (See Note 21)

 

 

Mezzanine equity:

Redeemable non-controlling interests

621

613

Stockholders’ equity:

 

 

Common stock, $0.0001 par value - Authorized - 80,000,000 shares; Issued – 32,338,302 and 32,338,302 shares as of March 31, 2024 and December 31, 2023, respectively

$

3

$

3

Additional paid-in capital

 

69,722

 

63,731

Retained earnings-

 

 

Appropriated

 

12,174

 

11,851

Unappropriated

 

292,776

 

284,832

Accumulated other comprehensive income

 

(8,558)

 

(8,258)

Treasury stock – 2,152,600 and 2,152,600 shares as of March 31, 2024 and December 31, 2023, respectively

 

(7,695)

 

(7,695)

Total parent company stockholders’ equity

 

358,422

 

344,464

Non-controlling interests

 

33,799

 

23,345

Total stockholders’ equity

 

392,221

 

367,809

Total liabilities, mezzanine equity and stockholders’ equity

$

770,672

$

766,440

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

5

China Automotive Systems, Inc. and Subsidiaries

Condensed Unaudited Consolidated Statements of Cash Flows

(In thousands of USD unless otherwise indicated)

Three Months Ended March 31, 

    

2024

    

2023

Cash flows from operating activities:

 

  

 

  

Net income

$

9,264

$

7,883

Adjustments to reconcile net income from operations to net cash provided by operating activities:

 

 

Depreciation and amortization

 

5,114

 

4,856

Reversal of credit losses

 

(114)

 

(217)

Deferred income taxes

 

136

 

1,019

Equity in losses/(earnings) of affiliated companies

 

777

 

(137)

Loss on disposal of property, plant and equipment

670

15

(Increase)/decrease in:

 

 

Accounts and notes receivable

 

2,335

 

(17,383)

Inventories

 

3,109

 

8,285

Other current assets

 

1,091

 

(1,206)

Increase/(decrease) in:

 

 

Accounts and notes payable

 

(10,157)

 

1,360

Accrued expenses and other payables

 

96

 

(2,868)

Other current liabilities

 

(1,870)

 

(3,023)

Net cash provided by/(used in) operating activities

 

10,451

 

(1,416)

Cash flows from investing activities:

 

 

Increase in demand loans included in other non-current assets

 

 

(14)

Cash received from disposal of property, plant and equipment sales

 

108

 

31

Payments to acquire property, plant and equipment (including $1,615 and $2,376 paid to related parties for the three months ended March 31, 2024 and 2023, respectively)

 

(4,493)

 

(3,160)

Payments to acquire intangible assets

 

(18)

 

Investments under the equity method

(5,841)

Purchase of short-term investments

 

(14,534)

 

(34,795)

Proceeds from maturities of short-term investments

2,370

26,541

Cash received from long-term investments

 

84

 

557

Net cash used in investing activities

 

(16,483)

 

(16,681)

Cash flows from financing activities:

 

 

Proceeds from bank loans

 

34,347

 

20,135

Repayments of bank loans

 

(41,866)

 

(20,534)

Cash received from capital contributions of a non-controlling interest

15,504

Net cash provided by/(used in) financing activities

 

7,985

 

(399)

Effects of exchange rate on cash, cash equivalents and pledged cash

 

(562)

 

2,428

Net increase/(decrease) in cash, cash equivalents and pledged cash

 

1,391

 

(16,068)

Cash, cash equivalents and pledged cash at beginning of the period

 

155,194

 

158,951

Cash, cash equivalents and pledged cash at end of the period

$

156,585

$

142,883

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

6

Table of Contents

China Automotive Systems, Inc. and Subsidiaries

Notes to Condensed Unaudited Consolidated Financial Statements

Three Months Ended March 31, 2024 and 2023

1.           Organization and business

China Automotive Systems, Inc., “China Automotive,” was incorporated in the State of Delaware on June 29, 1999 under the name Visions-In-Glass, Inc. China Automotive, including, when the context so requires, its subsidiaries, is referred to herein as the “Company.” The Company is primarily engaged in the manufacture and sale of automotive systems and components, as described below.

Great Genesis Holdings Limited, a company incorporated in Hong Kong on January 3, 2003 under the Companies Ordinance of Hong Kong as a limited liability company, “Genesis,” is a wholly-owned subsidiary of the Company.

Henglong USA Corporation, “HLUSA,” which was incorporated on January 8, 2007 in Troy, Michigan, is a wholly-owned subsidiary of the Company, and mainly engages in marketing of automotive parts in North America, and provides after-sales service and research and development, “R&D”, support.

The Company owns interests in the following subsidiaries incorporated in the People’s Republic of China, the “PRC,” and Brazil as of March 31, 2024 and December 31, 2023.

Percentage Interest

 

    

March 31, 

    

December 31, 

 

Name of Entity

2024

2023

 

Shashi Jiulong Power Steering Gears Co., Ltd., “Jiulong” 1

 

100.00

%  

100.00

%

Jingzhou Henglong Automotive Parts Co., Ltd., “Henglong” 2

 

100.00

%  

100.00

%

Shenyang Jinbei Henglong Automotive Steering System Co., Ltd., “Shenyang” 3

 

70.00

%  

70.00

%

Wuhan Jielong Electric Power Steering Co., Ltd., “Jielong” 4

 

85.00

%  

85.00

%

Wuhu Henglong Automotive Steering System Co., Ltd., “Wuhu” 5

 

100.00

%  

100.00

%

Hubei Henglong Automotive System Group Co., Ltd., “Hubei Henglong” 6

 

100.00

%  

100.00

%

Jingzhou Henglong Automotive Technology (Testing) Center, “Testing Center” 7

 

100.00

%  

100.00

%

Chongqing Henglong Hongyan Automotive System Co., Ltd., “Chongqing Henglong” 8

 

70.00

%  

70.00

%

CAAS Brazil’s Imports and Trade In Automotive Parts Ltd., “Brazil Henglong” 9

 

95.84

%  

95.84

%

Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie” 10

 

85.00

%  

85.00

%

Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong” 11

 

100.00

%  

100.00

%

Hubei Henglong & KYB Automobile Electric Steering System Co., Ltd., “Henglong KYB” 12

 

60.00

%  

66.60

%

Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., “Wuhan Hyoseong” 13

51.00

%  

51.00

%

Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun” 14

62.00

%

62.00

%

Changchun Hualong Automotive Technology Co., Ltd., “Changchun Hualong” 15

100.00

%

100.00

%

Hubei Zhirong Automobile Technology Co., Ltd., “Zhirong” 16

100.00

%

100.00

%

1.Jiulong was established in 1993 and mainly engages in the production of integral power steering gears for heavy-duty vehicles.
2.Henglong was established in 1997 and mainly engages in the production of rack and pinion power steering gears for cars and light duty vehicles.
3.Shenyang was established in 2002 and focuses on power steering parts for light duty vehicles.
4.Jielong was established in 2006 and mainly engages in the production and sales of automotive steering columns.
5.Wuhu was established in 2006 and mainly engages in the production and sales of automobile steering systems.
6.On March 7, 2007, Genesis established Hubei Henglong, formerly known as Jingzhou Hengsheng Automotive System Co., Ltd., its wholly-owned subsidiary, to engage in the production and sales of automotive steering systems. On July 8, 2012, Hubei Henglong changed its name to Hubei Henglong Automotive System Group Co., Ltd.

7

7.In December 2009, Henglong, a subsidiary of Genesis, formed Testing Center, which mainly engages in the research and development of new products.
8.On February 21, 2012, Hubei Henglong and SAIC-IVECO Hongyan Company, “SAIC-IVECO,” established a Sino-foreign joint venture company, Chongqing Henglong, to design, develop and manufacture both hydraulic and electric power steering systems and parts.
9.On August 21, 2012, Brazil Henglong was established as a Sino-foreign joint venture company by Hubei Henglong and two Brazilian citizens, Ozias Gaia Da Silva and Ademir Dal’ Evedove. Brazil Henglong engages mainly in the import and sales of automotive parts in Brazil. In May 2017, the Company obtained an additional 15.84% equity interest in Brazil Henglong for nil consideration. The Company retained its controlling interest in Brazil Henglong and the acquisition of the non-controlling interest was accounted for as an equity transaction.
10.In May 2014, together with Hubei Wanlong, Jielong formed a subsidiary, Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie”, which mainly engages in research and development, manufacture and sales of automobile electronic systems and parts. Wuhan Chuguanjie is located in Wuhan, China.
11.In January 2015, Hubei Henglong formed Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., “Shanghai Henglong”, which mainly engages in the design and sales of automotive electronics.
12.In August 2018, Hubei Henglong and KYB (China) Investment Co., Ltd. (“KYB”) established Hubei Henglong KYB Automobile Electric Steering System Co., Ltd., “Henglong KYB”, which mainly engages in design, manufacture, sales and after-sales service of automobile electronic systems. Hubei Henglong owns 66.6% of the shares of this entity and has consolidated it since its establishment. In March 2024, KYB obtained an additional 6.6% equity interest in Henglong KYB for total consideration of RMB 110.0 million, equivalent to approximately $15.5 million. The Company retained its controlling interest in Henglong KYB.
13.In March 2019, Hubei Henglong and Hyoseong Electric Co., Ltd. established Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., “Wuhan Hyoseong”, which mainly engages in the design, manufacture and sales of automotive motors and electromechanical integrated systems. Hubei Henglong owns 51.0% of the shares of Wuhan Hyoseong and has consolidated it since its establishment.
14.In December 2019, Hubei Henglong formed Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun”, which mainly engages in the development, manufacturing and sale of high polymer materials. Hubei Henglong owns 62.0% of the shares of Wuhu Hongrun and has consolidated it since its establishment.
15.In April 2020, Hubei Henglong acquired 100.0% of the equity interests of Changchun Hualong Automotive Technology Co., Ltd., “Changchun Hualong”, for total consideration of RMB 1.2 million, equivalent to approximately $0.2 million from an entity controlled by Hanlin Chen. Before the acquisition, 52.1% of the shares of Changchun Hualong were ultimately owned by Hanlin Chen and 47.9% of the shares were owned by third parties. Changchun Hualong mainly engages in design and R&D of automotive parts.
16.In June 2023, Hubei Henglong contributed certain equipment and intangible assets to Hubei Zhirong Automobile Technology Co., Ltd., “Zhirong”, representing 100% of Zhirong’s paid-up capital. Zhirong mainly engages in inspection and testing of automotive products.

The Company has business relationships with more than sixty vehicle manufacturers, including BYD Auto Co., Ltd., Zhejiang Geely Automobile Co., Ltd., and Chery Automobile Co., Ltd., three of the largest privately owned car manufacturers in China, Chongqing Changan Automobile Co., Ltd., the largest state-owned car manufacturers in China, SAIC Motor Co., Ltd., FAW Group and others. All of them are our key customers. For overseas customers, the Company has supplied power steering gear to Stellantis N.V. since 2009 and to Ford Motor Company since 2016.

8

2.           Basis of presentation and significant accounting policies

(a)

Basis of Presentation

Basis of Presentation – The accompanying condensed unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. The details of subsidiaries are disclosed in Note 1. Significant inter-company balances and transactions have been eliminated upon consolidation. The condensed unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions in Regulation S-X. Accordingly they do not include all of the information and footnotes required by such accounting principles for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

The accompanying interim condensed consolidated financial statements are unaudited, but in the opinion of the Company’s management, contain all necessary adjustments, which include normal recurring adjustments, for a fair statement of the results of operations, financial position and cash flows for the interim periods presented.

The condensed consolidated balance sheet as of December 31, 2023 is derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2024.

Estimation - The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Foreign Currencies - China Automotive and HLUSA maintain their books and records in United States Dollars, “USD,” their functional currency. The Company’s subsidiaries based in the PRC and Genesis maintain their books and records in Renminbi, “RMB,” their functional currency. The Company’s subsidiary based in Brazil maintains its books and records in Brazilian real, “BRL,” its functional currency. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 830, foreign currency transactions denominated in currencies other than the functional currency are remeasured into the functional currency at the rate of exchange prevailing at the balance sheet date for monetary items. Nonmonetary items are remeasured at historical rates. Income and expenses are remeasured at the rate in effect on the transaction dates. Transaction gains and losses, if any, are included in the determination of net income for the period.

(b)

Recent Accounting Pronouncements

No accounting standards newly issued during the three months ended March 31, 2024 had a material impact on the Company’s financial statements or disclosures.

(c)

Significant Accounting Policies

There have been no updates to the significant accounting policies set forth in the notes to the consolidated financial statements for the year ended December 31, 2023.

9

3.           Accounts and notes receivable, net

The Company’s accounts and notes receivable, net as of March 31, 2024 and December 31, 2023 are summarized as follows (figures are in thousands of USD):

    

March 31, 2024

    

December 31, 2023

Accounts receivable - unrelated parties

$

146,898

$

164,231

Notes receivable - unrelated parties (1)

 

123,629

 

112,605

Total accounts and notes receivable - unrelated parties

 

270,527

 

276,836

Less: allowance for credit losses - unrelated parties

 

(15,408)

 

(15,599)

Accounts and notes receivable, net - unrelated parties

 

255,119

 

261,237

Accounts and notes receivable - related parties

13,048

9,573

Less: allowance for credit losses - related parties

(1,449)

(1,404)

Accounts and notes receivable, net - related parties

 

11,599

 

8,169

Accounts and notes receivable, net

$

266,718

$

269,406

(1)

Notes receivable represent accounts receivable in the form of bills of exchange for which acceptances are guaranteed and settlements are handled by banks.

As of March 31, 2024 and December 31, 2023, the Company pledged its notes receivable with amounts of $8.3 million and $11.5 million, respectively, as collateral for banks to endorse the payment of the Company’s notes payable to the noteholders upon maturity (See Note 8).

As of March 31, 2024 and December 31, 2023, the Company pledged its accounts receivable with amounts of $0.5 million and $0.5 million, respectively, as collateral for banks to obtain the long-term loans.

Provision for doubtful accounts and notes receivable, as reversed in the unaudited consolidated statements of operations, amounted to $0.1 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively.

During the three months ended March 31, 2024, the Company’s five largest customers accounted for 48.7% of its consolidated net product sales, with one customer individually accounting for more than 10% of consolidated net product sales, i.e., 18.8%. As of March 31, 2024, approximately 9.9% of accounts receivable were from trade transactions with the aforementioned customer.

During the three months ended March 31, 2023, the Company’s five largest customers accounted for 45.2% of its consolidated net product sales, with one customer individually accounting for more than 10% of consolidated net sales, i.e., 22.1%. As of March 31, 2023, approximately 7.0% of accounts receivable were from trade transactions with the aforementioned customer.

4.           Inventories

The Company’s inventories as of March 31, 2024 and December 31, 2023 consisted of the following (figures are in thousands of USD):

    

March 31, 2024

    

December 31, 2023

Raw materials

$

24,886

$

28,505

Work in progress

 

18,142

 

17,123

Finished goods

59,551

62,760

Cost of R&D service

 

6,503

 

4,004

Total

$

109,082

$

112,392

The Company recorded $1.8 million and $1.2 million of inventory write-down to cost of products sold for the three months ended March 31, 2024 and 2023, respectively.

10

5.           Long-term investments

The Company’s long-term investments as of March 31, 2024 and December 31, 2023, are summarized as follows (figures are in thousands of USD):

    

March 31, 2024

    

December 31, 2023

Chongqing Venture Fund

$

13,006

$

13,158

Hubei Venture Fund

 

12,128

 

12,217

Suzhou Qingshan

8,378

8,409

Suzhou Venture Fund

 

3,269

 

3,387

Suzhou Mingzhi (1)

 

1,259

 

1,261

Sentient AB

19,981

20,417

Henglong Tianyu

 

766

 

793

Jiangsu Intelligent

491

531

Total

$

59,278

$

60,173

(1)In June 2023, Hubei Henglong entered into an agreement with other parties to establish a limited partnership, Suzhou Mingzhi Intelligent Manufacturing Industry Investment Fund L.P., “Suzhou Mingzhi”. As of March 31, 2024, Hubei Henglong has paid RMB 9.0 million, equivalent to approximately $1.2 million, representing 19.74% of Suzhou Mingzhi’s equity. As a limited partner, Hubei Henglong has more than virtually no influence over Suzhou Mingzhi’s operating and financial policies. The investment is accounted for using the equity method.

The condensed financial information of the Company’s significant equity investee for the three months ended March 31, 2024 and 2023, Chongqing Venture Fund and Suzhou Venture Fund, is summarized as follows (figures are in thousands of USD):

Three Months Ended March 31, 

    

2024

    

2023

Revenue

$

$

Gross profit

 

 

Gain from continuing operations

 

(1,824)

 

3,957

Net gain

$

(1,824)

3,957

6.           Property, plant and equipment, net

The Company’s property, plant and equipment, net as of March 31, 2024 and December 31, 2023 are summarized as follows (figures are in thousands of USD):

    

March 31, 2024

    

December 31, 2023

Costs:

 

  

 

  

Machinery and equipment

$

241,842

$

241,761

Buildings

63,526

64,390

Electronic equipment

 

5,820

 

5,804

Motor vehicles

 

4,705

 

4,587

Construction in progress

 

12,945

 

11,821

Total amount of property, plant and equipment

 

328,838

 

328,363

Less: Accumulated depreciation (1)

 

(228,875)

 

(226,436)

Less: Impairment

(568)

(568)

Total amount of property, plant and equipment, net (2)

$

99,395

$

101,359

(1)Depreciation charges were $4.7 million and $4.5 million for the three months ended March 31, 2024 and 2023, respectively.
(2)As of March 31, 2024 and December 31, 2023, the Company pledged property, plant and equipment and land use rights with net book value of approximately $18.1 million and $43.3 million, respectively, as security for its comprehensive credit facilities with banks in China.

11

7.           Bank Loans

Loans consist of the following as of March 31, 2024 and December 31, 2023 (figures are in thousands of USD):

    

March 31, 2024

    

December 31, 2023

Short-term bank loans

$

40,471

$

48,005

Long-term bank loans

 

1,142

 

1,221

Total

$

41,613

$

49,226

The Company entered into credit facility agreements with various banks, which were secured by property, plant and equipment and land use rights of the Company. The total credit facility amount was $165.6 million and $195.8 million, respectively, as of March 31, 2024 and December 31, 2023. As of March 31, 2024 and December 31, 2023, the Company has drawn down loans under these facilities with an aggregate amount of $41.6 million and $49.2 million, respectively. The weighted average interest rate was 2.7% and 2.6% per annum, for the three months ending March 31, 2024 and the year ended December 31, 2023, respectively.

The Company must use the loans for the purpose as prescribed in the loan contracts. If the Company fails to do so, it will be charged penalty interest and/or trigger early repayment. The Company complied with such financial covenants during the three months ended March 31, 2024.

8.           Accounts and notes payable

The Company’s accounts and notes payable as of March 31, 2024 and December 31, 2023 are summarized as follows (figures are in thousands of USD):

    

March 31, 2024

    

December 31, 2023

Accounts payable - unrelated parties

$

131,236

$

147,712

Notes payable - unrelated parties (1)

 

97,469

 

93,027

Accounts and notes payable - unrelated parties

 

228,705

 

240,739

Accounts and notes payable - related parties

 

14,265

 

12,839

Total

$

242,970

$

253,578

(1)Notes payable represent payables in the form of notes issued by the banks. As of March 31, 2024 and December 31, 2023, the Company has pledged cash of $42.8 million and $39.3 million, respectively. As of March 31, 2024 and December 31, 2023, the Company has pledged notes receivable of $8.3 million and $11.5 million, respectively, as collateral for banks to endorse the payment of the Company’s notes payable to the noteholders upon maturity. The Company entered into credit facility agreements with various banks, which were secured by property, plant and equipment and land use rights of the Company. As of March 31, 2024 and December 31, 2023, the Company has used credit facilities for issue of bank notes with amount of $41.3 million and $47.4 million.

9.           Accrued expenses and other payables

The Company’s accrued expenses and other payables as of March 31, 2024 and December 31, 2023 are summarized as follows (figures are in thousands of USD):

    

March 31, 2024

    

December 31, 2023

Accrued expenses

$

10,684

$

10,464

Warranty reserves (1)

31,665

30,440

Payables for overseas transportation and custom clearance

400

Dividends payable to holders of non-controlling interests

423

424

Other payables

2,067

3,043

Balance at end of year/period

$

44,839

$

44,771

(1)The Company provides for the estimated cost of product warranties when the products are sold. Such estimates of product warranties are based on, among other things, historical experience, product changes, material expenses, services and transportation expenses arising from the manufactured products. Estimates will be adjusted on the basis of actual claims and circumstances.

12

For the three months ended March 31, 2024 and 2023, the warranties activities were as follows (figures are in thousands of USD):

Three Months Ended March 31, 

    

2024

    

2023

Balance at beginning of the period

$

30,440

$

32,435

Additions during the period

 

3,863

 

4,611

Settlement within the period

 

(2,587)

 

(3,448)

Foreign currency translation gain

 

(51)

 

434

Balance at end of the period

$

31,665

$

34,032

10.         Redeemable non-controlling interests

In September 2020, one of the Company’s subsidiaries issued shares to Hubei Venture Fund amounting to RMB 5.0 million, equivalent to approximately $0.7 million translated at spot rate of transaction date. The shares will be transferred to the Company and the other shareholder of the subsidiary on a pro rata basis at the holder’s option if the subsidiary fails to complete a qualified IPO in a pre-agreed period of time after their issuance with a transfer price of par plus 6.0% per year. As of March 31, 2024, $0.6 million of the shares are subject to purchase by the Company and are therefore accounted for as redeemable non-controlling interests in mezzanine equity.

For the three months ended March 31, 2024 and 2023, the Company recognized accretion of $0.008 million and $0.008 million, respectively, to the redemption value of the shares over the period starting from the issuance date with a corresponding reduction to retained earnings.

11.         Additional paid-in capital

The Company’s positions in respect of the amounts of additional paid-in capital for the three months ended March 31, 2024 and 2023, are summarized as follows (figures are in thousands of USD):

Three Months Ended March 31, 

    

2024

    

2023

Balance at beginning of the period

$

63,731

$

63,731

Contribution by the non-controlling interest of Henglong KYB

5,991

Balance at end of the period

$

69,722

$

63,731

12.         Retained earnings

Appropriated

Pursuant to the relevant PRC laws, the profits distribution of the Company’s subsidiaries, which are based on their PRC statutory financial statements, are available for distribution in the form of cash dividends after these subsidiaries have paid all relevant PRC tax liabilities, provided for losses in previous years, and made appropriations to statutory surplus at 10% of their respective after-tax profits each year. When the statutory surplus reserve reaches 50% of the registered capital of a company, no additional reserve is required. For the three months ended March 31, 2024 and 2023, the subsidiary in China appropriated statutory reserve of $0.3 million and nil, respectively.

The Company’s activities in respect of the amounts of appropriated retained earnings for the three months ended March 31, 2024 and 2023, are summarized as follows (figures are in thousands of USD):

Three Months Ended March 31, 

    

2024

    

2023

Balance at beginning of the period

$

11,851

$

11,851

Appropriation of retained earnings

323

Balance at end of the period

$

12,174

$

11,851

13

Unappropriated

The Company’s activities in respect of the amounts of the unappropriated retained earnings for the three months ended March 31, 2024 and 2023, are summarized as follows (figures are in thousands of USD):

Three Months Ended March 31, 

    

2024

    

2023

Balance at beginning of the period

$

284,832

$

247,174

Net income attributable to parent company

8,275

6,828

Accretion to redemption value of redeemable non-controlling interests

(8)

(8)

Appropriation of retained earnings

(323)

Balance at end of the period

$

292,776

$

253,994

13.         Accumulated other comprehensive income

The Company’s activities in respect of the amounts of accumulated other comprehensive income for the three months ended March 31, 2024 and 2023, are summarized as follows (figures are in thousands of USD):

Three Months Ended March 31, 

    

2024

    

2023

Balance at beginning of the period

$

(8,258)

$

(3,413)

Foreign currency translation adjustment attributable to parent company

 

(300)

 

4,288

Balance at end of the period

$

(8,558)

$

875

14.         Treasury stock

Treasury stock represents shares repurchased by the Company that are no longer outstanding and are held by the Company. Treasury stock is accounted for under the cost method. On March 29, 2022, the Board of Directors of the Company approved a share repurchase program under which the Company was permitted to repurchase up to $5.0 million of its common stock from time to time in the open market at prevailing market prices not to exceed $4.00 per share through March 30, 2023. As of March 31, 2024 and December 31, 2023, the Company had repurchased 666,074 shares of the Company’s common stock under the program and the total number of shares held in treasury was 2,152,600. The repurchased shares are presented as “treasury stock” on the balance sheet.

15.         Non-controlling interests

The Company’s activities in respect of the amounts of the non-controlling interests’ equity for the three months ended March 31, 2024 and 2023, are summarized as follows (figures are in thousands of USD):

Three Months Ended March 31, 

    

2024

    

2023

Balance at beginning of the period

$

23,345

$

15,182

Net income attributable to non-controlling interests

 

989

 

1,055

Foreign currency translation adjustment attributable to non-controlling interests

 

(48)

 

266

Contribution by the non-controlling interest of Henglong KYB

9,513

Balance at end of the period

$

33,799

$

16,503

16.         Net product sales

Revenue Disaggregation

Management has concluded that the disaggregation level is the same under both the revenue standard and the segment reporting standard. Please refer to Note 23.

14

Payment to Customer

The Company accounts for consideration payable to a customer as a reduction of revenue at the later of revenue recognition and the Company’s promise to pay the consideration.

Contract Liabilities

Contract liabilities are mainly customer deposits. As of March 31, 2024 and December 31, 2023, the Company has customer deposits of $8.8 million and $8.6 million, respectively, which were included in other current liabilities on the consolidated balance sheets. During the three months ended March 31, 2024, $2.1 million was received and $1.9 million (including $1.9 million from the beginning balance of customer deposits) was recognized as net product sales revenue. During the three months ended March 31, 2023, $2.3 million was received and $1.3 million (including $1.2 million from the beginning balance of customer deposits) was recognized as net product sales revenue. Customer deposits represent non-refundable cash deposits for customers to secure rights to an amount of products produced by the Company under supply agreements. When the products are shipped to customers, the Company will recognize revenue and bill the customers to reduce the amount of the customer deposit liability.

17.         Financial expense, net

During the three months ended March 31, 2024 and 2023, the Company recorded financial expense, net which is summarized as follows (figures are in thousands of USD):

Three Months Ended March 31, 

    

2024

    

2023

Interest income

$

444

$

219

Foreign exchange loss, net

 

(359)

 

(565)

Bank charges

 

(97)

 

(76)

Total financial expense, net

$

(12)

$

(422)

18.         Income per share

Basic income per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted income per share is computed using the weighted average number of ordinary shares and dilutive ordinary share equivalents outstanding during the period. The dilutive effect of outstanding stock options is determined based on the treasury stock method.

The calculations of basic and diluted income per share attributable to the parent company for the three months ended March 31, 2024 and 2023, were as follows (figures are in thousands of USD, except share and per share amounts):

Three Months Ended March 31, 

    

2024

    

2023

Numerator:

 

  

 

  

Net income attributable to the parent company’s common shareholders - Basic and Diluted

$

8,267

$

6,820

Denominator:

 

 

Weighted average shares outstanding

 

30,185,702

 

30,185,702

Dilutive effects of stock options

 

 

7,380

Denominator for dilutive income per share - Diluted

 

30,185,702

 

30,193,082

Net income per share attributable to parent company’s common shareholders – Basic

$

0.27

$

0.23

Net income per share attributable to parent company’s common shareholders - Diluted

$

0.27

$

0.23

As of March 31, 2024, the exercise prices for all outstanding stock options exceeded the weighted average market price of the Company’s common stock during the three months ended March 31, 2024. Therefore, these stock options were excluded from the calculation of the diluted income per share for the corresponding periods presented.

As of March 31, 2023, the exercise prices for all outstanding stock options were below the weighted average market price of the Company’s common stock during the three months ended March 31, 2023. These stock options were included in the calculation of the diluted income per share for the corresponding periods presented.

15

19.         Significant concentrations

A significant portion of the Company’s business is conducted in the PRC where the currency is the RMB. Regulations in China permit foreign owned entities to freely convert the RMB into foreign currency for transactions that fall under the “current account”, which includes trade related receipts and payments, interest and dividends. Accordingly, the Company’s China subsidiaries may use RMB to purchase foreign currency for settlement of such “current account” transactions without pre-approval.

China Automotive, the parent company, may depend on dividend payments from Genesis and HLUSA, which are generated from their subsidiaries in China, “China-based Subsidiaries,” after they receive payments from the China-based Subsidiaries. Regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Under PRC law China-based Subsidiaries are required to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to their general reserves until the cumulative amount reaches 50% of their paid-in capital. These reserves are not distributable as cash dividends, or as loans or advances. These foreign-invested enterprises may also allocate a portion of their after-tax profits, at the discretion of their boards of directors, to their staff welfare and bonus funds. Any amounts so allocated may not be distributed and, accordingly, would not be available for distribution to Genesis and HLUSA.

The PRC government also imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currencies out of China. The China-based Subsidiaries may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currencies. If China Automotive is unable to receive dividend payments from its subsidiaries, including the China-based subsidiaries, China Automotive may be unable to effectively finance its operations or pay dividends on its shares.

Transactions other than those that fall under the “current account” and that involve conversion of RMB into foreign currency are classified as “capital account” transactions; examples of “capital account” transactions include repatriations of investment by or loans to foreign owners, or direct equity investments in a foreign entity by a China domiciled entity. “Capital account” transactions require prior approval from China’s State Administration of Foreign Exchange, or SAFE, or its provincial branch to convert a remittance into a foreign currency, such as U.S. Dollars, and transmit the foreign currency outside of China.

This system could be changed at any time and any such change may affect the ability of the Company or its subsidiaries in China to repatriate capital or profits, if any, outside China. Furthermore, SAFE has a significant degree of administrative discretion in implementing the laws and has used this discretion to limit convertibility of current account payments out of China. Whether as a result of a deterioration in the Chinese balance of payments, a shift in the Chinese macroeconomic prospects or any number of other reasons, China could impose additional restrictions on capital remittances abroad. As a result of these and other restrictions under the laws and regulations of the People’s Republic of China, or the PRC, the Company’s China subsidiaries are restricted in their ability to transfer a portion of their net assets to the parent. The Company has no assurance that the relevant Chinese governmental authorities in the future will not limit further or eliminate the ability of the Company’s China-based subsidiaries to purchase foreign currencies and transfer such funds to the Company to meet its liquidity or other business needs. Any inability to access funds in China, if and when needed for use by the Company outside of China, could have a material and adverse effect on the Company’s liquidity and its business.

16

20.         Related party transactions and balances

Related party transactions are as follows (figures are in thousands of USD):

Related party sales

Three Months Ended March 31, 

    

2024

    

2023

Merchandise sold to related parties

$

11,360

$

13,576

Materials and others sold to related parties

 

472

 

592

Rental income obtained from related parties

 

97

 

63

Total

$

11,929

$

14,231

Related party purchases

Three Months Ended March 31, 

    

2024

    

2023

Materials purchased from related parties

$

6,968

$

7,015

Equipment purchased from related parties

 

670

 

243

Others purchased from related parties

106

21

Total

$

7,744

$

7,279

Related party receivables

    

March 31, 2024

    

December 31, 2023

Accounts and notes receivable, net from related parties

$

11,599

$

8,169

Related party advance payments

    

March 31, 2024

    

December 31, 2023

Advance payments for property, plant and equipment to related parties

$

6,694

$

5,759

Advance payments and others to related parties

 

1,936

 

1,991

Total

$

8,630

$

7,750

Related party payables

    

March 31, 2024

    

December 31, 2023

Accounts and notes payable

$

14,265

$

12,839

These transactions were consummated under similar terms as those with the Company’s third-party customers and suppliers.

As of March 31, 2024, Hanlin Chen, the chairman of the board of directors of the Company, owns 57.39% of the common stock of the Company and has the effective power to control the vote on substantially all significant matters without the approval of other stockholders.

21.         Commitments and contingencies

Legal proceedings

The Company is not a party to any pending or, to the best of the Company’s knowledge, any threatened legal proceedings and no director, officer or affiliate of the Company, or owner of record of more than five percent of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

17

Other commitments and contingencies

In addition to the bank loans, notes payables and the related interest and other payables, the following table summarizes the Company’s major commitments and contingencies as of March 31, 2024 (figures are in thousands of USD):

Payment obligations by period

    

2024

    

2025

    

2026

    

Thereafter

    

Total

Obligations for investment contracts

$

$

2,960

$

$

$

2,960

Obligations for purchasing and service agreements

18,485

3,362

21,847

Total

$

18,485

$

6,322

$

$

$

24,807

22.         Off-balance sheet arrangements

As of March 31, 2024 and December 31, 2023, the Company did not have any significant transactions, obligations or relationships that could be considered off-balance sheet arrangements.

23.         Segment reporting

The accounting policies of the product sectors (each entity manufactures and sells different products and represents a different product sector) are the same as those described in the summary of significant accounting policies disclosed in the Company’s 2023 Annual Report on Form 10-K except that the disaggregated financial results for the product sectors have been prepared using a management approach, which is consistent with the basis and manner in which management internally disaggregates financial information for the purposes of assisting them in making internal operating decisions. Generally, the Company evaluates performance based on stand-alone product sector operating income and accounts for inter-segment sales and transfers as if the sales or transfers were to third parties, at current market prices. Each product sector is considered a reporting segment.

As of March 31, 2024, in addition to the holding company (Genesis), the Company had 15 product sectors, six of which were principal profit makers and were reported as separate sectors and engaged in the production and sales of power steering, Henglong, Jiulong, Wuhu, Henglong KYB, Hubei Henglong and Brazil Henglong. The other nine sectors were engaged in the development, manufacturing and sale of high polymer materials (Wuhu Hongrun), power steering parts (Shenyang), R&D services (Changchun Hualong), automobile steering columns (Jielong), provision of after-sales and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), manufacture and sales of automobile electronic systems and parts (Wuhan Chuguanjie), manufacture and sales of automotive motors and electromechanical integrated systems (Wuhan Hyoseong) and inspection and testing of automotive products (Zhirong).

As of March 31, 2023, in addition to the holding company (Genesis), the Company had 15 product sectors, six of which were principal profit makers and were reported as separate sectors and engaged in the production and sales of power steering, Henglong, Jiulong, Wuhu, Henglong KYB, Hubei Henglong and Brazil Henglong. The other nine sectors were engaged in the development, manufacturing and sale of high polymer materials (Wuhu Hongrun), power steering parts (Shenyang), R&D services (Changchun Hualong), automobile steering columns (Jielong), provision of after-sales and R&D services (HLUSA), production and sale of power steering (Chongqing Henglong), manufacture and sales of automobile electronic systems and parts (Wuhan Chuguanjie), research and development of intelligent automotive technology (Jingzhou Qingyan) and manufacture and sales of automotive motors and electromechanical integrated systems (Wuhan Hyoseong).

18

The Company’s product sector information for the three months ended March 31, 2024 and 2023, is as follows (figures are in thousands of USD):

Net Product Sales

Net Income/(Loss)

Three Months Ended

Three Months Ended

March 31, 

March 31, 

    

2024

    

2023

    

2024

    

2023

Henglong

$

58,716

$

61,631

$

2,454

$

1,609

Jiulong

 

16,752

 

16,820

 

779

 

(369)

Wuhu

 

8,860

 

7,899

 

(535)

 

452

Hubei Henglong

 

30,383

 

34,657

 

1,305

 

774

Henglong KYB

 

34,997

 

37,196

 

2,697

 

2,778

Brazil Henglong

12,701

10,762

1,623

1,370

Other Entities

 

29,000

 

22,115