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Based in Hubei Province, People’s Republic of China, CHINA AUTOMOTIVE SYSTEMS, INC. is a leading
supplier of power steering components and systems to the Chinese automotive industry and is exporting
into the global market.
The company operates through nine wholly-owned subsidiaries in China and America and nine Sino-foreign
joint ventures in China.
o Henglong USA Corporation
Great Genesis Holdings Limited
Shenyang Jinbei Henglong Automotive Steering System Co., Ltd.
Hubei Henglong Automotive System Group Co., Ltd.
Shashi Jiulong Power Steering Gears Co., Ltd.
o
o Wuhu Henglong Automotive Steering System Co., Ltd.
o Chongqing Henglong Hongyan Automotive System Co., Ltd.
o CAAS Brazil’s Imports And Trade In Automotive Parts Ltd.
o
o
o
Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd.
Jingzhou Qingyan Intelligent Automotive Technology Research Institute Co., Ltd.
Hubei Henglong & KYB Automobile Electric Steering System Co., Ltd.
Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd.
o
o Wuhu Hongrun New Material Co., Ltd.
o Changchun Hualong Automotive Technology Co., Ltd.
Jingzhou Henglong Automotive Parts Co., Ltd.
.
Jingzhou Henglong Automotive Technology (Testing) Center
Wuhan Jielong Electric Power Steering Co., Ltd.
. Wuhan Chuguanjie Automotive Science and Technology Ltd.
Dear Shareholder,
2022 was a challenging year for the Chinese economy as
growth slowed to 3.0%, significantly lower than 8.4%
growth rate in 2021. Chinese GDP growth started off at a
4.8% increase in the first quarter of 2022, the highest growth
of the year, then in a dramatic fashion, dropped to 0.4%
growth rate in the second quarter, rebounded to 3.9% in the
third quarter, and at last, cooled again to 2.9% in the fourth
quarter. Despite the sluggish economic environment and
COVID-19 restrictions, we still managed to grow our sales,
net profit and cash flow from operations in 2022.
Throughout the year, the COVID-19 impact including
lockdowns and travel restrictions, continued to affect supply
chains with delayed shipments of certain computer chips
and other components, reduced real estate development and
construction activities, and stifled consumer spending
including automobiles. As a result, total retail sales in China
declined by 0.2% and investment in real estate development
fell by 10.0% in 2022.
Given these economic conditions, it is not surprising that
automobile sales exhibited unusual volatility during the year.
According to data from the Chinese Association of
Automobile Manufacturers, Chinese automobile sales in the
first quarter of 2022 rose by a scant 0.2% year-over-year
followed by a sales decrease of 13.3% year-over-year in the
second quarter. Third quarter automobile sales rebounded
to growth of 29.4% year-over-year but then fell back to a
decline of 3.3% year-over-year in the fourth quarter. For
2022, total automobile sales increased by only 3.4% year-
over-year. Sales data of passenger vehicles indicated that
different segments experienced significant variation in
growth in 2022. Sedan sales grew by 11.2% year-over-year
and SUV sales rose by 13.5% in 2022. However, MPV sales
declined by 11.3% and crossover passenger vehicles sales
were 20.3% lower. Sales in the commercial vehicle market
fell by 31.9% year-over-year in 2022. Bus sales declined by
19.9% and the much larger truck market suffered a 33.4%
drop.
The one and only bright area was the 93.4% year-over-year
increase in new energy vehicles sales. Passenger EV sales
climbed 94.3% and new energy commercial vehicle sales
rose by 78.9%. This EV market growth was timely as we
have been expanding our line of electric power steering
(“EPS”) products. In fact, over the past two years, we have
been designing specific EPS systems for a number of clients
including Great Wall Motor, Alfa Romeo, and most recently
automobile giant BYD Auto, the largest EV producer in
China. Other major OEMs also using our EPS systems in
their vehicles include JAC, Chery Auto and Fiat Chrysler.
As our new energy product line expands, we expect more
vehicle models from our current clients and new customers
to adopt our EPS technologies.
Our top line grew by 6.3% year-over-year to $529.6 million
in 2022, compared to $498.0 million in 2021 mainly due to
higher EPS product sales. Sales to Chery Automobile
increased by 55.1% year-over-year with higher sales of our
EPS and hydraulic steering products. In addition, our
hydraulic steering sales to other Chinese OEMs rose by 21.7%
year-over-year. Our sales to the commercial vehicle market
in China, following weak truck and bus sales, declined by
25.8% year-over-year in 2022. Net sales of vehicle steering
systems outside China to Chrysler and Ford in North
America were approximately the same in 2022, while sales
to Fiat in Brazil rose by 54.1% year-over-year to $39.3
million. Encouragingly, our total net sales of EPS products
increased by 35.6% year-over-year or by $41 million, to
$156.3 million in 2022, which accounted for 29.5% of total
sales. EPS sales have become one of the largest and fastest
growth contributors to our total sales over the past few years.
Our increased sales were directly related to the success of
our research and development (“R&D”) and engineering
activities. New automobile technologies are becoming a
more important factor in new models to improve fuel
efficiency, performance and reduce emissions as well as
enhanced functions for improved safety, entertainment and
communications. Our R&D expenditures increased to
approximately $36.1 million in 2022 from $28.2 million a
year ago. Newly developed products accounted for
approximately 29.5% of total sales in 2022. Recognizing
our strong capabilities in new product development, BYD
Auto selected us to develop and produce new C-EPS, DP-
EPS and R-EPS steering designs for all its product series.
With these contract awards, we became the first DP-EPS
supplier to BYD. Annual volume of DP-EPS is expected to
reach an annual volume of approximately 300,000 units.
Our DP-EPS, R-EPS and C-EPS steering models are also
expected to be used in a wide number of BYD vehicles.
Product development using these various EPS steering
technologies will also bolster vehicle performance to better
serve our current customers and attract new ones.
The promise of Advanced Driver Assistance Systems
(“ADAS”) is the future of steering with a number of systems
being developed around the world. To develop our own
ADAS, we created a new proprietary EPS product in 2021,
which has been adopted by a number of passenger vehicle
OEMs in China. Our enhanced ADAS system automatically
European brand, Alfa Romeo, for its first luxury plug-in-
hybrid SUV model, the Tonale.
Looking forward, new policies in early 2023 lifted COVID
restrictions and promoted economic growth which will
stimulate vehicle demand over the year as people in China
regain their pre-COVID lives. Other policies stimulating
new energy vehicle sales will further reduce emissions
while making China the largest market for new energy
vehicles. We believe that we are well positioned as new
energy vehicles are more willing to embrace new steering
technologies. We continue to upgrade our legacy products
and to broaden the technologies for our growing portfolio of
steering products to penetrate the new energy markets.
Sincerely,
Qizhou Wu
CEO & Director
adapts to changing road conditions, creating a safer and
more consistent steering experience. For the commercial
vehicle markets, we agreed in early 2022 with SCANIA AB,
a world leading provider of transport solutions in more
than 100 countries, to develop an eRCB system for their
trucks and buses. This proprietary eRCB steering system is
the world's first mass-produced fully electric, intelligent
power steering system for commercial vehicles. With this
proprietary EPS system, our advanced driver-assistance
system L4 platform enables vehicles to execute level-4
autonomous driving. We are very excited by the prospects
for our ADAS systems as interest continues to grow from
many vehicle OEMs.
To further enhance our EPS steering products for vehicle
motion control and autonomous driving in the passenger and
commercial vehicle markets, we are utilizing additional
technologies developed by our Swedish subsidiary, Sentient
AB. Sentient already has an established base of global truck
OEMs using their steering technologies. Together, our
combined technologies provide a more functional and
powerful steering solution offering easy updates for further
enhancements. Our close relationship with Sentient
positions us for further global expansion.
We continued to maintain a strong balance sheet buoyed
with net income and strong cash flow from operating
activities in 2022. As of December 31, 2022, total cash and
cash equivalents, pledged cash and short-term investments
were $171.8 million. This total also reflected $20.3 million
in capital expenditures as well as $2.5 million spent
repurchasing 666,074 common shares in 2022. Total parent
company stockholders' equity was $311.7 million as of
December 31, 2022. Net cash flow from operating activities
increased significantly to $48.0 million in 2022 from $28.3
million in 2021. These cash flows and cash on hand provide
the resources to invest in our operations for future growth.
the challenges
Despite all
in 2022, our business
demonstrated strong resilience as we grew our sales, net
income and cash flow from operations. Total sales in 2022
increased by 6.3% year-over-year to $529.6 million with
diluted net income per share increasing by 91.7% year-over-
year to $0.69 in 2022. Our gross margin also increased as
we sold more products with higher technology content
especially our growing EPS product sales.
In addition to our sales in China and North America, we also
grew our presence in Europe the last two years as more
vehicle OEMs there started to recognize the superior quality
of our products, such as our EPS products. We are proud
that our EPS products are now installed in the prestigious
CHINA AUTOMOTIVE SYSTEMS, INC.
INDEX
CAUTIONARY STATEMENT ................................................................................................................................................................ 2
PART I ....................................................................................................................................................................................................... 2
ITEM 1. BUSINESS. ......................................................................................................................................................................... 2
ITEM 1A. RISK FACTORS. ........................................................................................................................................................... 11
ITEM 1B. UNRESOLVED STAFF COMMENTS. ........................................................................................................................ 25
ITEM 2. PROPERTIES. .................................................................................................................................................................. 26
ITEM 3. LEGAL PROCEEDINGS.................................................................................................................................................. 26
ITEM 4. MINE SAFETY DISCLOSURES. .................................................................................................................................... 26
PART II ................................................................................................................................................................................................... 26
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES. ....................................................................................................................................... 26
ITEM 6. RESERVED ...................................................................................................................................................................... 27
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS. ................................................................................................................................................................................... 27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. ................................................ 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ................................................................................. 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE. ................................................................................................................................................................................... 39
ITEM 9A. CONTROLS AND PROCEDURES. .............................................................................................................................. 39
ITEM 9B. OTHER INFORMATION. ............................................................................................................................................. 40
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS................................ 40
PART III .................................................................................................................................................................................................. 41
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. ....................................................... 41
ITEM 11. EXECUTIVE COMPENSATION................................................................................................................................... 44
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS. ........................................................................................................................................................... 45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. ............ 46
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. ............................................................................................... 46
PART IV .................................................................................................................................................................................................. 47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ............................................................................ 47
CONSOLIDATED BALANCE SHEETS ........................................................................................................................................... 49
CONSOLIDATED STATEMENTS OF INCOME OR LOSS ........................................................................................................... 50
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OR LOSS ......................................................................... 51
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY ................................................................... 51
CONSOLIDATED STATEMENTS OF CASH FLOWS ................................................................................................................... 52
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) ........................................................................................ 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ......................................................................................................... 54
CAUTIONARY STATEMENT
This Annual Report on Form 10-K 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 Annual Report or other reports or documents the Company files with the Securities and Exchange
Commission, the “SEC,” 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-K is filed, and the
Company does not intend to update any of the forward-looking statements after the date this Annual Report on Form 10-K is filed to
confirm these statements to actual results, unless required by law.
ITEM 1. BUSINESS.
COMPANY HISTORY
PART I
China Automotive Systems, Inc., “China Automotive” or the “Company,” was incorporated in the State of Delaware on June 29, 1999.
Through its subsidiary, Great Genesis Holdings Limited, “Genesis,” a corporation organized under the laws of the Hong Kong Special
Administrative Region, China, it owns interests in eight Sino-joint ventures and seven wholly-owned subsidiaries in the People’s
Republic of China, “China” or the “PRC,” which manufacture power steering systems and/or related products for different segments of
the automobile industry. Genesis also owns interests in a Brazil-based trading company, which engages mainly in the import and sales
of automotive parts in Brazil.
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.
Unless the context indicates otherwise, the Company uses the terms “the Company,” “we,” “our” and “us” to refer to China Automotive
collectively on a consolidated basis.
BUSINESS OVERVIEW
The Company is a holding company and has no significant business operations or assets other than its interest in Genesis and HLUSA.
Genesis mainly engages in the manufacture and sale of automotive systems and components through its controlled subsidiaries and the
joint ventures, as described below.
Set forth below is an organizational chart as at December 31, 2022.
CHINA AUTOMOTIVE SYSTEMS, INC.
2
FY 2022 ANNUAL REPORT
CHINA AUTOMOTIVE SYSTEMS, INC. [NASDAQ:CAAS]
↓100%
Great Genesis Holdings Limited
↓
↓100%
Hubei
Henglong
Automotive
System Group
Co., Ltd.
"Hubei Henglong"1
↓
↓70%
Shenyang
Jinbei Henglong
Automotive
Steering System
Co., Ltd.
"Shenyang"2
↓100%
Jingzhou
Henglong
Automotive
Parts
Co., Ltd.
↓100%
Shashi
Jiulong
Power
Steering
Gears
Co., Ltd.
↓100%
Wuhu
Henglong
Automotive
Steering
System Co.,
Ltd.
↓85%
Wuhan
Jielong
Electric
Power
Steering Co.,
Ltd.
"Jiulong"4
"Wuhu"5
"Henglong"3
↓
↓100%
Jingzhou
Henglong
Automotive
Technology
(Testing)
Center
"Testing
Center"9
"Jielong"6
↓
↓85%
Wuhan
Chuguanjie
Automotive
Science and
Technology
Ltd.
"Wuhan
Chuguanjie"10
↓100%
Hubei
Henglong
Group
Shanghai
↓95.84%
↓70%
CAAS
Chongqing
Brazil's
Henglong
Imports and
Hongyan
Automotive
Trade in
System Co., Automotive Automotive
Electronics
Parts Ltd.
Research and
Development
Ltd.
"Chongqing
“Shanghai
"Brazil
Henglong"7 Henglong"8 Henglong”11
Ltd.
↓100%
Henglong USA Corporation
↓66.6%
Hubei
Henglong
& KYB
↓51%
Hyoseong
(Wuhan)
Motion
Automobile Mechatronics
System
Co., Ltd.
Electric
Steering
System
Co., Ltd.
↓62%
Wuhu
Hongrun
New
Material
Co., Ltd.
↓100%
Changchun
Hualong
Automotive
Technology
Co., Ltd.
“Henglong
KYB”13
“Wuhan
“Wuhu
Hyoseong”14 Hongrun”15
“Changchun
Hualong”16
1. 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.
2. Shenyang was established in 2002 and focuses on power steering parts for light duty vehicles.
3. Henglong was established in 1997 and mainly engages in the production of rack and pinion power steering gears for cars and light-
duty vehicles.
4. Jiulong was established in 1993 and mainly engages in the production of integral power steering gears for heavy-duty vehicles.
5. Wuhu was established in 2006 and mainly engages in the production and sales of automobile steering systems. In April 2021, the
Company obtained an additional 22.67% equity in Wuhu for total consideration of RMB 6.9 million, equivalent to approximately
$1.1 million, from the other shareholder. The Company retained its controlling interest in Wuhu and the acquisition of the non-
controlling interest was accounted for as an equity transaction.
6. Jielong was established in 2006 and mainly engages in the production and sales of automobile steering columns.
7. 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.
8. 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 sale 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.
In December 2009, Henglong, a subsidiary of Genesis, formed Testing Center, which mainly engages in the research and
development of new products.
9.
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 May 2020, Wuhan Chuguanjie merged with another subsidiary, Universal Sensor Application Inc., “USAI”, which was
established in 2005 and mainly engages in the production and sales of sensor modules.
12. 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 sale of automotive electronics.
13. 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
CHINA AUTOMOTIVE SYSTEMS, INC.
3
FY 2022 ANNUAL REPORT
of automobile electronic systems. Hubei Henglong owns 66.6% of the shares of this entity and has consolidated it since its
establishment.
14. 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.
15. 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.
16. 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.
The Company has business relationships with more than sixty vehicle manufacturers, including the five largest automobile
manufacturers in China, such as SAIC Motor Co., Ltd, China FAW Group Co., Ltd and others; Shenyang Brilliance Jinbei Co., Ltd, one
of the largest light vehicle manufacturers in China; BYD Auto Co., Ltd., Zhejiang Geely Automobile Co., Ltd., and Great Wall Motors
Co., Ltd., three of the largest privately owned car manufacturers in China. All of them are our key customers. For overseas customers,
the Company has supplied power steering gear to Fiat Chrysler North America since 2009 and to Ford Motor Company since 2016.
THE HOLDING FOREIGN COMPANIES ACCOUNTABLE ACT
Pursuant to the Holding Foreign Companies Accountable Act, if the SEC determines that we have filed audit reports issued by a
registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit
our shares from being traded on a national securities exchange or in the over-the-counter trading market in the United States. On
December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or
investigate completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor. In
April 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of the annual report
on Form 10-K for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its
December 16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to
inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-
Identified Issuer under the HFCAA after we file this annual report on Form 10-K. Each year, the PCAOB will determine whether it can
inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If PCAOB determines in
the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong and
we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements
filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following the filing of
the annual report on Form 10-K for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-
Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the
prohibition on trading under the HFCAA and our securities may be delisted from Nasdaq as a result. Delisting of our securities would
force holders of our securities to sell their securities. Further, we may be prohibited from listing our securities on another U.S. securities
exchange. The market price of our securities could be adversely affected as a result of anticipated negative impacts of such legislative
or executive actions upon, as well as negative investor sentiment toward, companies with significant operations in mainland China and
Hong Kong that are listed in the United States, regardless of whether such actions are implemented and regardless of our actual operating
performance. See “Item 1A. Risk Factors—Risks Related To Doing Business In China And Other Countries Besides The United States—
The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements
and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such
inspections.” And “Item 1A. Risk Factors—Risks Related To Doing Business In China And Other Countries Besides The United
States—Our shares may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to
inspect or investigate completely auditors located in China. The delisting of the shares, or the threat of being delisted, may materially
and adversely affect the value of your investment.”
OUR CORPORATE STRUCTURE
The Company is not a PRC operating company but a Delaware holding company with operations primarily conducted through its wholly
owned direct subsidiaries, Genesis and HLUSA, and its several indirect subsidiaries that are either wholly owned or majority owned by
either Genesis or HLUSA. Our investors hold shares of common stock in China Automotive, the Delaware holding company.
We do not have or intend to set up any subsidiary or enter into any contractual arrangements to establish a variable interest entity
structure with any entity in China.
CHINA AUTOMOTIVE SYSTEMS, INC.
4
FY 2022 ANNUAL REPORT
Our holding company structure presents unique risks as our investors may never directly hold equity interests in our operating
subsidiaries and will be dependent upon dividends and other distributions from our subsidiaries to finance our cash flow needs. Our
ability to receive dividends and other contributions from our subsidiaries are significantly affected by regulations promulgated by Hong
Kong and PRC authorities. Any change in the interpretation of existing rules and regulations or the promulgation of new rules and
regulations may materially affect our operations and or the value of our securities, including causing the value of our securities to
significantly decline or become worthless. For a detailed description of the risks facing the Company associated with our structure,
please refer to “Item 1A. Risk Factors – Risks Related to Doing Business in China and Other Countries Besides the United States.”
Currently, PRC laws and regulations do not prohibit direct foreign investment in our operating subsidiaries. Nonetheless, in light of the
recent statements and regulatory actions by the PRC government, such as those related to the promulgation of regulations prohibiting
foreign ownership of Chinese companies operating in certain industries, which are constantly evolving, and anti-monopoly concerns,
we may be subject to the risks of uncertainty of any future actions of the PRC government in this regard, which would likely result in a
material change in our operations, including our ability to continue our existing holding company structure, carry on our current business,
accept foreign investments, and offer or continue to offer securities to our investors, and the resulting adverse change in value to our
common stock. We may also be subject to penalties and sanctions imposed by the PRC regulatory agencies, including the China
Securities Regulatory Commission, or CSRC, if we fail to comply with such rules and regulations, which would likely adversely affect
the ability of the Company’s securities to continue to trade on Nasdaq, which would likely cause the value of our securities to
significantly decline or become worthless.
As of the date of this report, there is no Chinese Communist Party official who sits on CAAS’ board of directors and CAAS’ certificate
of incorporation and bylaws do not contain any charter of the Chinese Communist Party.
DOING BUSINESS IN CHINA
As a result of our operations in China, the Chinese government may intervene in or exert influence over our operations at any time with
little or no advanced notice, which could result in a material change in our operations and/or the value of our securities. For example,
the Chinese government has recently published new policies that significantly affected certain industries such as the education and
internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding any industry
that could adversely affect the business, financial condition and results of operations of our company.
Furthermore, the Chinese government has also recently indicated an intent to exert more oversight and control over securities offerings
and other capital markets activities that are conducted outside of China and over foreign investment in China-based companies. Any
such action, once taken by the Chinese government, could significantly limit or completely hinder our ability to offer or continue to
offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.
Recently, the Chinese government initiated a series of regulatory actions and statements to regulate business operations in China,
including enforcement actions against illegal activities in the securities market, enhancing supervision over China-based companies
listed outside of China using the variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews,
and expanding the efforts in anti-monopoly enforcement. For example, on July 6, 2021, the relevant PRC government authorities made
public the Opinions on Intensifying Crack-Down on Illegal Securities Activities. These opinions emphasized the need to strengthen the
administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take
measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based
overseas-listed companies. On November 14, 2021, the Cyberspace Administration of China (the “CAC”) released the draft
Administrative Regulations on Cyber Data Security (the “Draft Cyber Data Security Regulations”) for public comments, which requires,
among others, that a prior cybersecurity review should be required for listing abroad of data processors which process over one million
users’ personal information, and the listing of data processors in Hong Kong which affects or may affect national security.
The Chinese government may further promulgate relevant laws, rules and regulations that may impose additional and significant
obligations and liabilities on overseas listed Chinese companies regarding data security, cross-border data flow, anti-monopoly and
unfair competition, and compliance with China’s securities laws. It is uncertain whether or how these new laws, rules and regulations
and the interpretation and implementation thereof may affect us, but among other things, our ability to obtain external financing through
the issuance of equity securities in the United States, Hong Kong or other markets could be negatively affected, and as a result, the
trading prices of our securities could significantly decline or become worthless. For a detailed description of risks related to our doing
business in China, see “Item 1A. Risk Factors - Risks Related To Doing Business In China And Other Countries Besides The United
States.”
PERMISSIONS REQUIRED FROM THE PRC AUTHORITIES FOR OUR OPERATIONS
We conduct our business primarily through our subsidiary Genesis, which owns interests in eight Sino-joint ventures and seven wholly
owned subsidiaries in the PRC. Our operations in China are governed by PRC laws and regulations. As advised by our PRC counsel,
Zhong Lun Law Firm, as of the date of this report, these entities have obtained the requisite licenses and permits from the PRC
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
government authorities that are material for their business operations, including, among others, certain business licenses, approvals for
the establishment of enterprises with foreign investment, approvals for overseas direct investment and environmental and occupational
safety and health approvals. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the
enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals
for the functions and services of our platform in the future.
On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by
Domestic Companies, or the Trial Measures, which will come into effect on March 31, 2023. On the same day, the CSRC also published
a series of guidance and Q&As in connection with the implementation of the Trial Measures. The Trial Measures established (i) a list
outlining the circumstances where a PRC domestic company is prohibited from offering and listing securities overseas (the “Trial
Measures Negative List”) and (ii) a new filing-based regime to regulate overseas offerings and listings by PRC domestic companies.
According to the Trial Measures, in connection with an overseas offering of securities (including shares, depository receipts, corporate
bonds convertible into shares and other equity securities) and listing by a PRC domestic company, either in a direct or indirect manner,
the issuer must file certain documents with the CSRC (the “Trial Measures Filing Obligations”). An indirect offering and listing is
determined by a set of quantifiable standards. For example, any overseas offering and listing by an issuer that meets both of the following
standards will be deemed to be indirect: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as
documented in its audited consolidated financial statements for the most recent accounting year is accounted for by PRC domestic
companies, and (ii) the main parts of the issuer’s business activities are conducted in mainland China, or its main places of business are
located in mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or
domiciled in mainland China.
The Trial Measures provide the CSRC with the authority to warn, fine, and issue injunctions against PRC domestic companies, their
controlling shareholders, advisors, and other responsible persons in connection with a listing or offering securities (collectively, the
“Subject Entities”), as well as individuals directly responsible for these Subject Entities (the “Subject Individuals”). In cases of serious
violation, the relevant responsible persons may be prohibited from entering the securities market1 by the CSRC and may be held
criminally liable. For failure to comply with the Trial Measures Negative List or the Trial Measures Filing Obligations, or materially
false or misleading statements in the filing and reporting required by the Trial Measures, PRC domestic companies and their controlling
shareholders, if the controlling shareholders induced the PRC domestic companies’ failure to comply, severally, may face warnings,
injunctions to comply, and fines between RMB 1.0 million and 10.0 million. The Subject Individuals in these entities may severally,
face warnings and fines between RMB 0.5 million and 5.0 million. Advisors in listings or offerings of securities that failed to dutifully
advise the PRC domestic companies and their controlling shareholders in complying with the Trial Measures and caused such failures
to comply can face warnings and fines between RMB 0.5 million and 5.0 million. The Subject Individuals of these advisor entities may,
severally, face warnings and fines between RMB 0.2 million and 2.0 million.
Because our shares have already listed on Nasdaq, we believe we will be deemed as an “Existing Issuer” pursuant to the Trial Measures
and the implementation guidance and, accordingly, are not required to complete the filing procedures with the CSRC for our historical
securities offering. Nevertheless, in the event that we conduct any securities issuance or offering in the future that would be captured by
the Trial Measures after they come into effect, we will have to complete the filing procedures with the CSRC within three (3) business
days following the closing of thesuch securities issuance or offering.
Therefore, in connection with our business operations and issuance or offering of securities to foreign investors, under currently effective
PRC laws, regulations, and rules, and taking the Trial Measures into account, as of the date of this annual report, we and our PRC
subsidiaries (i) are not required to obtain permissions from, or complete the filing procedures with, the CSRC for our prior issuances
and offerings of securities to foreign investors which were completed before the date of implementation of the Trial Measures, but are
required to go through filing procedures with CSRC for our future issuances or offerings of securities (including shares, depository
receipts, corporate bonds convertible into shares and other equity securities) to foreign investors if we meet certain conditions set forth
in the Trial Measures to be considered as an indirect overseas offering and listing by a PRC domestic company, (ii) are not required to
go through cybersecurity review by the CAC for our issuance or offering of securities to foreign investors, and (iii) are not required to
obtain any prior permission or approval from any other PRC government authorities for our issuance or offering of securities to foreign
investors. If we and our subsidiaries are deemed to be a critical information infrastructure operator, or CIIO, or a network platform
operator, whose network product or service purchasing or data processing activities affect or may affect national security, we would be
required to go through a cybersecurity review by the CAC. As of the date of this annual report, neither we nor any of our subsidiaries
has been identified as a CIIO by any government authority, involved in any investigations or become subject to a cybersecurity review
by the CAC based on the Cybersecurity Review Measures. However, there might remain some uncertainty as to how relevant rules
published by the PRC government authorities will be interpreted or implemented, and our opinions summarized above are subject to
any new laws, rules, and regulations or detailed implementations and interpretations in any form. We cannot assure you that the relevant
PRC government authorities, including the CSRC and the CAC, would reach the same conclusion and hence, we may face regulatory
actions or other sanctions from them. For more details, see “Item 1A. Risk Factors - Risks Relating to Doing Business in China - The
PRC government has significant oversight over the conduct of the business of our PRC subsidiaries; such oversight could result in a
material change in our operations and/or the value of our securities or could significantly limit our ability to offer or continue to offer
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
securities and/or other securities to investors and cause the value of such securities to significantly decline.” and “Item 1A - Risk Factors
- Risks Relating to Doing Business in China - The approval of and filing with the CSRC or other PRC government authorities may be
required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will
be able to obtain such approval or complete such filing.”
CASH FLOWS THROUGH OUR ORGANIZATION
China Automotive is a holding company with no operations of its own. We conduct our operations in China primarily through our
subsidiaries, particularly Genesis, which owns interests in eight Sino-joint ventures and seven wholly owned subsidiaries in the PRC.
As a result, although other means are available for us to obtain financing at the holding company level, China Automotive’s ability to
pay dividends to the shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries. If any
of our subsidiaries incurs debt on its own behalf, the instruments governing such debt may restrict its ability to pay dividends to China
Automotive. In addition, our PRC subsidiaries are permitted to pay dividends to China Automotive only out of their retained earnings,
if any, as determined in accordance with PRC accounting standards and regulations. Further, our PRC subsidiaries are required to make
appropriations to certain statutory reserve funds, which are not distributable as cash dividends except in the event of a solvent liquidation
of the companies.
We may rely on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements,
including the funds necessary to pay dividends and other cash distributions to our shareholders or to service any debt we may incur. If
any of our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to
pay dividends or make other distributions to us. Under PRC laws and regulations, our PRC subsidiaries may pay dividends only out of
their respective accumulated profits as determined in accordance with PRC accounting standards and regulations. In addition, a wholly
foreign-owned enterprise is required to set aside at least 10% of its accumulated after-tax profits each year, if any, to fund a certain
statutory reserve fund, until the aggregate amount of such fund reaches 50% of its registered capital. Such reserve funds cannot be
distributed to us as dividends. At its discretion, a wholly foreign-owned enterprise may allocate a portion of its after-tax profits based
on PRC accounting standards to an enterprise expansion fund, or a staff welfare and bonus fund. In addition, registered share capital
and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating
subsidiary. The amounts restricted include the paid-up capital and the statutory reserve funds of our PRC subsidiaries, totaling RMB
465.9 million, RMB 499.8 million, RMB 504.7 million and RMB 508.8 million as of December 31, 2019, 2020, 2021 and 2022,
respectively.
Under PRC law, China Automotive may provide funding to its PRC subsidiaries only through capital contributions or loans.
During the fiscal years ended December 31, 2019, 2020, 2021 and 2022, the Company received loans which were interest free from its
subsidiaries in the aggregate amount of $4.3 million, $6.6 million, $2.5 million and $6.1 million, respectively, and no principal was
repaid in such years.
Although the Company announced a special cash dividend of $0.18 per common share to the Company’s shareholders of record as of
the close of business on June 26, 2014, it does not anticipate paying any other cash dividends in the foreseeable future. The Company
currently intends to retain future earnings, if any, to finance operations and the expansion of its business. Any future determination to
pay cash dividends will be at the discretion of the Company’s board of directors and will be based upon the Company’s financial
condition, operating results, capital requirements, plans for expansion, restrictions imposed by any financing arrangements and any other
factors that the Company’s board of directors deems relevant.
INTELLECTUAL PROPERTY RIGHTS
Intellectual Property rights, “IP,” are important in helping the Company maintain its competitive position. Currently, the Company owns
IP rights, including two trademarks covering automobile parts, “HL” and “JL,” and more than eighty-five patents registered in China
covering power steering technology. The Company is in the process of integrating new advanced technologies such as electronic chips
in power steering systems into its current production line and is pursuing aggressive strategies in technology to maintain a competitive
edge within the automobile industry. In December 2009, the Company, through Henglong, formed Testing Center and cooperated with
Nanyang Ind. Co. Ltd. and Tsinghua University to engage in the research and development of new products, such as Electric Power
Steering (“EPS”), integral rack and pinion power steering and high pressure power steering, to optimize current products design and to
develop new, cost-saving manufacturing processes. In January 2015, Hubei Henglong formed Shanghai Henglong, which mainly
engages in the design and sale of automotive electronics, to capture the market opportunities for EPS, which were included in traditional
hydraulic power steering products by many automobile makers. In November 2017, Hubei Henglong formed Jingzhou Qingyan
Intelligent Automotive Technology Research Institute Co., Ltd.(“Jingzhou Qingyan”), which mainly engages in the research and
development of intelligent automotive technology. In August 2018, Hubei Henglong established a non-wholly owned subsidiary, Hubei
Henglong KYB Automobile Electric Steering System Co., Ltd., which mainly engages in design, manufacture, sales and after-sales
service of automobile electronic systems. In March 2019, Hubei Henglong established a non-wholly owned subsidiary, Hyoseong
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
(Wuhan) Motion Mechatronics System Co., Ltd., which mainly engages in the design, manufacture and sales of automotive motors and
electromechanical integrated systems. 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. In April 2020, Hubei
Henglong acquired 100.0% of the equity interests of Changchun Hualong Automotive Technology Co. Ltd., “Changchun Hualong”,
which mainly engages in design and R&D of automotive parts. In April 2021, Hubei Henlgong acquired 100.0% of the equity interests
of Wuhu Henglong Automotive Steering Systems Co., Ltd., “Wuhu”, which mainly engages in the production and sales of automobile
steering systems. Jingzhou Qingyan deregistered from the local business administration on June 22, 2022.
STRATEGIC PLAN
The Company’s short to medium term strategic plan is to focus on both domestic and international market expansion. To achieve this
goal and higher profitability, the Company focuses on brand recognition, quality control, cost efficiency, research and development and
strategic acquisitions. Set forth below are the Company’s programs:
— Brand Recognition. Under the brands of Henglong and Jiulong, the Company offers four separate series of power steering sets
and 310 models of power steering sets, steering columns and steering hoses.
— Quality Control. The Henglong and Jiulong manufacturing facilities obtained the ISO/TS 16949 System Certification in
January 2004, a well-recognized quality control system in the auto industry developed by TUVRheindland of Germany.
— Cost Efficiency. By improving the Company’s production ability and enhancing equipment management, optimizing the
process and products structure, perfecting the supplier system and cutting production cost, the Company’s goal is to achieve a
more competitive profit margin.
— Research and Development. The Company established Testing Center for the research and development of products and, by
partnering with Nanyang Ind. Co. Ltd. and Tsinghua University for the development of advanced steering systems, the
Company’s objective is to gain increased market share in China.
— International Expansion. The Company has entered into agreements with several international vehicle manufacturers and auto
parts modules suppliers and carried on preliminary negotiations regarding future development projects.
— Acquisitions. The Company is exploring opportunities to create long-term growth through new ventures or acquisitions of other
auto component manufacturers. The Company will seek acquisition targets that meet the following criteria:
companies that can be easily integrated into product manufacturing and corporate management;
companies that have strong joint venture partners that would become major customers; and
companies involved with power steering systems.
CUSTOMERS
The Company’s five largest customers represented 42.8% of the Company’s total sales for the year ended December 31, 2022. The
following table sets forth information regarding the Company’s five largest customers.
Name of Major Customers
Fiat Chrysler North America
Hubei Hongrun
Great Wall Motors
BYD Auto Co., Ltd.,
Chery Automobile Co.,Ltd.
Total
Percentage of Total
Revenue in 2022
20.2 %
6.2 %
5.9 %
5.3 %
5.2 %
42.8 %
The Company primarily sells its products to the above-mentioned customers, which, except for Hubei Hongrun, are original equipment
manufacturing, “OEM”, customers; it also has excellent relationships with them, including serving as their first-rank supplier and
developer for product development for new models. While the Company intends to continue to focus on retaining and winning this
business, it cannot ensure that it will succeed in doing so. It is difficult to keep doing business with the above mentioned OEM customers
as a result of severe price competition and customers’ diversification of their supply base. The Company’s business would be materially
and adversely affected if it loses one or more of these major customers.
SALES AND MARKETING
The Company’s sales and marketing team has 98 sales persons, which are divided into an OEM team, a sales service team and a working
group dedicated to international business. These sales and marketing teams provide a constant interface with the Company’s key
customers. They are located in all major vehicle producing regions to more effectively represent the Company’s customers’ interests
within the Company’s organization, to promote their programs and to coordinate their strategies with the goal of enhancing overall
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
service and satisfaction. The Company’s ability to support its customers is further enhanced by its broad presence in terms of sales
offices, manufacturing facilities, engineering technology centers and joint ventures.
The Company’s sales and marketing organization and activities are designed to create overall awareness and consideration of, and
therefore to increased sales of the Company’s modular systems and components. To achieve that objective, the Company organized
delegations to visit the United States, Korea, India and Japan and has supplied power steering gear to Fiat Chrysler North America
(“Fiat”). Through these activities, the Company has generated potential business interest as a strong base for future development.
DISTRIBUTION
The Company’s distribution system covers all of China. The Company has established sales and service offices with certain significant
customers to deal with matters related to such customers in a timely fashion. The Company also established distribution warehouses
close to major customers to ensure timely deliveries. The Company maintains strict control over inventories. Each of these sales and
service offices sends back to the Company, through e-mail or fax, information related to the inventory and customers’ needs. The
Company guarantees product delivery in 8 hours for those customers who are located within 200 km from the Company’s distribution
warehouses, and 24 hours for customers who are located outside of 200 km from the Company’s distribution warehouses. Delivery time
is a very important competitive factor in terms of customer decision making, together with quality, pricing and long-term relationships.
The Company has two distribution warehouses in the United States, which are located in Michigan and Texas, respectively. The
warehouses deliver parts to customers every day.
EMPLOYEES AND FACILITIES
As of December 31, 2022, the Company employed approximately 4,093 persons, including approximately:
1,139 by Henglong (including Testing Center formed by Henglong);
686 by Jiulong;
152 by Shenyang;
113 by Wuhu;
282 by Jielong;
124 by Wuhan Chuguanjie;
832 by Hubei Henglong;
24 by HLUSA;
66 by Chongqing Henglong;
68 by Brazil Henglong;
538 by Henglong KYB;
35 by Wuhan Hyoseong;
13 by Wuhu Hongrun; and
21 by Chuangchun Hualong.
As of December 31, 2022, Henglong, Jiulong, Shenyang, Chongqing, Wuhan Chuguanjie, Hubei Henglong and Wuhu had a
manufacturing and administration area of 111,211 square meters, 39,478 square meters, 35,354 square meters, 57,849 square meters,
53,675 square meters, 277,269 square meters and 83,705 square meters, respectively.
Hubei Province, which is home to Dongfeng, one of the largest automakers in China, provides an ample supply of inexpensive but
skilled labor to automotive-related industries. The annual production of one of the Company’s main products, power steering gears, was
approximately 8.1 million units and 7.8 million units in 2022 and 2021, respectively. Although the production process continues to rely
heavily on manual labor, the Company has invested substantially in high-level production machinery to improve capacity and production
quality. Approximately $53.7 million was spent over the last three years to purchase professional-grade equipment and extend
workshops.
RAW MATERIALS
The Company purchases various manufactured components and raw materials for use in its manufacturing processes. The principal
components and raw materials the Company purchases include castings, finished sub-components, aluminum, steel, fabricated metal
electronic parts and molded plastic parts. The most important raw material is steel. The Company enters into purchase agreements with
local suppliers. The annual purchase plans are determined at the beginning of the calendar year but are subject to revision every
three months as a result of customers’ orders. A purchase order is made according to monthly production plans. This protects the
Company from building up inventory when the orders from customers change.
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
The Company’s purchases from its ten largest suppliers represented in the aggregate 24.8% of all components and raw materials it
purchased for the year ended December 31, 2022, and none of them provided more than 10% of total purchases.
All components and raw materials are available from numerous sources. The Company has not, in recent years, experienced any
significant shortages of manufactured components or raw materials and normally does not carry inventories of these items in excess of
what is reasonably required to meet its production and shipping schedules.
RESEARCH AND DEVELOPMENT
The Company owns the Testing Center, a Hubei Provincial-Level technical center, which has been approved by the Hubei Economic
Commission. The center has a staff of about 227, including 94 engineers, primarily focusing on steering system R&D, tests, production
process improvement and new material and production methodology application.
In addition, the Company has formed Shanghai Henglong to engage in the design and sale of automotive electronics, including key parts
of EPS.
The Company believes that its engineering and technical expertise, together with its emphasis on continuing research and development,
allow it to use the latest technologies, materials and processes to solve problems for its customers and to bring new, innovative products
to market. The Company believes that continued research and development activities, including engineering, are critical to maintaining
its pipeline of technologically advanced products. The Company has aggressively managed costs in other portions of its business in
order to increase its total expenditures for research and development activities, including engineering, at approximately $36.1 million
and $28.2 million for the years ended December 31, 2022 and 2021, respectively. In 2022 and 2021, the sales of such newly developed
products accounted for about 29.5% and 23.2%, respectively, of total sales.
COMPETITION
The automotive components industry is extremely competitive. The Company’s customers consider criteria including quality, price/cost
competitiveness, system and product performance, reliability and timeliness of delivery, new product and technology development
capability, excellence and flexibility in operations, degree of global and local presence, effectiveness of customer service and overall
management capability. The power steering system market is fragmented in China, and the Company has seven major competitors. Of
these competitors, two are Sino-foreign joint ventures while the other five are state-owned. Like many competitive industries, there is
pressure on downward selling prices.
The Company’s major competitors, including Shanghai ZF, Nexteer and First Auto FKS, “FKS,” are component suppliers to specific
automobile manufacturers. Shanghai ZF is the joint venture of SAIC and ZF Germany, which is an exclusive supplier to SAIC-
Volkswagen and SAIC-GM. FKS is a joint venture between First Auto Group and Japan’s Koyo Company and its main customer is
FAW-Volkswagen Company.
While the Chinese government limits foreign ownership of auto assemblers to 50%, there is no analogous limitation in the automotive
components industry. Thus, opportunities exist for foreign component suppliers to set up factories in China. These overseas competitors
employ technology that may be more advanced and may have existing relationships with global automobile assemblers, but they are
generally not as competitive as the Company in China in terms of production cost and flexibility in meeting client requirements.
CHINESE AUTOMOBILE INDUSTRY
The Company is a supplier of automotive parts and most of its operations are located in China. An increase or decrease in the output
and sales of Chinese vehicles could result in an increase or decrease of the Company’s results of operations. According to the latest
statistics from the China Association of Automobile Manufacturers, “CAAM”, the output and sales volume of passenger vehicles in
2022 was 23.8 million and 23.6 million units respectively, an increase of 11.2% and 9.5%, respectively, compared to 2021. The output
and sales volume of commercial vehicles in 2022 was 3.2 million and 3.3 million units, respectively, a decrease of 31.9% and 31.2%,
respectively, compared to 2021. In 2022, the Company’s sales of steering gears for passenger vehicles increased by 15.6% and the sales
of steering gears for commercial vehicles decreased by 26.1%, compared to 2021 in China.
ENVIRONMENTAL COMPLIANCE
The Company is subject to the requirements of U.S. federal, state, local and non-U.S., including China’s, environmental and occupational
safety and health laws and regulations. These include laws regulating air emissions, water discharge and waste management. The
Company has an environmental management structure designed to facilitate and support its compliance with these requirements globally.
Although the Company intends to comply with all such requirements and regulations, it cannot provide assurance that it is at all times
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
in compliance. The Company has made and will continue to make capital and other expenditures to comply with environmental
requirements, although such expenditures were not material during the past two years. Environmental requirements are complex, change
frequently and have tended to become more stringent over time. Accordingly, the Company cannot assure that environmental
requirements will not change or become more stringent over time or that its eventual environmental cleanup costs and liabilities will not
be material.
During the years ended December 31, 2022 and 2021, the Company did not make any material capital expenditures relating to
environmental compliance.
FINANCIAL INFORMATION AND GEOGRAPHIC AREAS
Financial information about sales and long-term assets by major geographic region can be found in Note 27, “Segment Reporting” to
the consolidated financial statements in this Report. The following table summarizes the percentage of sales and total assets by major
geographic regions:
Geographic region:
China
United States
Other foreign countries
Total consolidated
WEBSITE ACCESS TO SEC FILINGS
Net Sales
Long-term assets
Year Ended December 31, As of December 31,
2022
2021
2022
2021
62.6 %
25.5
11.9
100.0 %
65.3 %
27.0
7.7
100.0 %
98.5 %
0.6
0.9
100.0 %
99.2 %
0.5
0.3
100.0 %
The Company files electronically with, or furnishes to, the SEC its annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports pursuant to Section 13(a) of the Securities Exchange Act of 1934. The Company
makes available free of charge on its web site (www.caasauto.com) all such reports as soon as reasonably practicable after they are filed.
The SEC maintains an Internet site that contains reports, proxy information and information statements, and other information regarding
issuers that file electronically with the SEC. The address of that website is http://www.sec.gov.
ITEM 1A. RISK FACTORS.
Any investment in the Company’s securities involves a high degree of risk. You should carefully consider the risks described below,
together with the information contained elsewhere in this Annual Report, before you make a decision to invest in the Company. The
Company’s business, financial conditions and results of operations could be materially and adversely affected by many risk factors.
Because of these risk factors, actual results might differ significantly from those projected in any forward-looking statements. Factors
that might cause such differences include, among others, the following:
RISKS RELATED TO THE COMPANY’S BUSINESS AND INDUSTRY
The cyclical nature of automotive production and sales could result in a reduction in automotive sales, which could adversely affect
the Company’s business and results of operations.
The Company’s business relies on automotive vehicle production and sales by its customers, which are highly cyclical and depend on
general economic conditions and other factors, including consumer spending and preferences and the price and availability of gasoline.
They also can be affected by labor relations issues, regulatory requirements and other factors. In the last two years, the price of
automobiles in China has generally declined. Additionally, the volume of automotive production in China has fluctuated from year
to year, which gives rise to fluctuations in the demand for the Company’s products. Therefore, any significant economic decline could
result in a reduction in automotive production and sales by the Company’s customers and could have a material adverse effect on the
Company’s results of operations. Moreover, if the prices of automobiles keep declining, the selling price of automotive parts also would
decrease, which would result in lower revenues and profitability.
Increasing costs for manufactured components and raw materials may adversely affect the Company’s profitability.
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
The Company uses a broad range of manufactured components and raw materials in its products, including castings, electronic
components, finished sub-components, molded plastic parts, fabricated metal, aluminum, steel and resins. Because it may be difficult to
pass increased prices for these items on to the Company’s customers, a significant increase in the prices of the Company’s components
and materials could materially increase the Company’s operating costs and adversely affect its profit margins and profitability.
Because the Company is a holding company with substantially all of its operations conducted through its subsidiaries, its
performance will be affected by the performance of its subsidiaries.
The Company almost has no operations independent of those of Genesis and its subsidiaries, and the Company’s principal assets are its
investments in Genesis and its subsidiaries and affiliates. As a result, the Company is dependent upon the performance of Genesis and
its subsidiaries and will be subject to the financial, business and other factors affecting Genesis as well as general economic and financial
conditions. As substantially all of the Company’s operations are, and will be, conducted through its subsidiaries, the Company will be
dependent on the cash flow of its subsidiaries to meet its obligations.
Because virtually all of the Company’s assets are, and will be, held by operating subsidiaries, the claims of the Company’s stockholders
will be structurally subordinate to all existing and future liabilities, obligations and trade payables of such subsidiaries. In the event of
the Company’s bankruptcy, liquidation or reorganization, its assets and those of its subsidiaries will be available to satisfy the claims of
the Company’s stockholders only after all of its and its subsidiaries’ liabilities and obligations have been paid in full.
With the automobile parts markets being highly competitive and many of the Company’s competitors having greater resources than
it does, the Company may not be able to compete successfully.
The automobile parts industry is a highly competitive business. The Company’s customers consider criteria including:
quality;
price/cost competitiveness;
system and product performance;
reliability and timeliness of delivery;
new product and technology development capability;
excellence and flexibility in operations;
degree of global and local presence;
effectiveness of customer service; and
overall management capability.
The Company’s competitors include independent suppliers of parts, as well as suppliers formed by spin-offs from the Company’s
customers, who are becoming more aggressive in selling parts to other vehicle manufacturers. Depending on the particular product, the
number of the Company’s competitors varies significantly. Many of the Company’s competitors have substantially greater revenues and
financial resources than it does, as well as stronger brand names, consumer recognition, business relationships with vehicle
manufacturers, and geographic presence than it has. The Company may not be able to compete favorably and increased competition
may substantially harm its business, business prospects and results of operations.
Internationally, the Company faces different market dynamics and competition. The Company may not be as successful as its
competitors in generating revenues in international markets due to the lack of recognition of its products or other factors. Developing
product recognition overseas is expensive and time-consuming and the Company’s international expansion efforts may be more costly
and less profitable than it expects. If the Company is not successful in its target markets, its sales could decline, its margins could be
negatively impacted and it could lose market share, any of which could materially harm the Company’s business, results of operations
and profitability.
Pricing pressure by automobile manufacturers on their suppliers may adversely affect the Company’s business and results of
operations.
Recently, pricing pressure from automobile manufacturers has been prevalent in the automotive parts industry in China. Virtually all
vehicle manufacturers seek price reductions each year. Although the Company has tried to reduce costs and resist price reductions, these
reductions have impacted the Company’s sales and profit margins. If the Company cannot offset continued price reductions through
improved operating efficiencies and reduced expenditures, price reductions will have a material adverse effect on the Company’s results
of operations.
The Company’s business, revenues and profitability would be materially and adversely affected if it loses any of its large customers.
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FY 2022 ANNUAL REPORT
For the year ended December 31, 2022, approximately 20.2%, 6.2%, 5.9%, 5.3% and 5.2% of the Company’s sales were to Fiat Chrysler
North America, Hubei Hongrun, Great Wall Motors, BYD Auto. and Chery Automobile Co.,Ltd., the Company’s five largest customers
in 2022, respectively. In total, these five customers accounted for 42.8% of total sales in 2022. For the year ended December 31, 2021,
approximately 21.2%, 9.0%, 5.1%, 5.1% and 4.4% of the Company’s sales were to Fiat Chrysler North America, Great Wall Motors,
Hubei Hongrun, Beiqi Foton and Ford Motor Company, the Company’s five largest customers in 2021, respectively. In total, these five
customers accounted for 44.8% of total sales in 2021. The loss of, or significant reduction in purchases by, one or more of these major
customers could adversely affect the Company’s business.
The Company may not be able to collect receivables incurred by customers.
The Company currently sells its products on credit and its ability to receive payment for its products depends on the continued
creditworthiness of its customers. Although the Company has long-term relationships with its major customers, the customer base may
change if its sales increase because of the Company’s expanded capacity. If the Company is not able to collect its receivables, its
profitability will be adversely affected.
In November 2020, Intermediate People’s Court of Shenyang, Liaoning province, China, accepted the bankruptcy reorganization
application of one of our customers. As of December 31, 2022 and 2021, the Company had accounts and notes receivable with a total
amount of $6.0 million and $6.6 million, respectively, due from this customer and its subsidiaries, which receivables we considered in
significant doubt of collectability. The Company provided full allowance for these receivables.
The Company may be subject to product liability and warranty and recall claims, which may increase the costs of doing business
and adversely affect the Company’s financial condition and liquidity.
The Company may be exposed to product liability and warranty claims if its products actually or allegedly fail to perform as expected
or the use of its products results, or is alleged to result, in bodily injury and/or property damage. The Company started to pay some of
its customers’ increased after-sales service expenses due to consumer rights protection policies of “recall” issued by the Chinese
government in 2004, such as the recalling flawed vehicles policy. Beginning in 2004, automobile manufacturers unilaterally required
their suppliers to pay a “3-R Guarantees” service charge for repair, replacement and refund in an amount of about 1%-5% of the total
amount of parts supplied. Accordingly, the Company has experienced and will continue to experience higher after-sales service
expenses. Product liability, warranty and recall costs may have a material adverse effect on the Company’s financial condition.
The Company is subject to environmental and safety regulations, which may increase the Company’s compliance costs and may
adversely affect its results of operations.
The Company is subject to the requirements of environmental and occupational safety and health laws and regulations in China. The
Company cannot provide assurance that it has been or will be at all times in full compliance with all of these requirements, or that it will
not incur material costs or liabilities in connection with these requirements. Additionally, these regulations may change in a manner that
could have a material adverse effect on the Company’s business, results of operations and financial condition. The capital requirements
and other expenditures that may be necessary to comply with environmental requirements could increase and become a material expense
of doing business.
Non-performance by the Company’s suppliers may adversely affect its operations by delaying delivery or causing delivery failures,
which may negatively affect demand, sales and profitability.
The Company purchases various types of equipment, raw materials and manufactured component parts from its suppliers. The Company
would be materially and adversely affected by the failure of its suppliers to perform as expected. The Company could experience delivery
delays or failures caused by production issues or delivery of non-conforming products if its suppliers fail to perform, and it also faces
these risks in the event any of its suppliers becomes insolvent or bankrupt.
The Company’s business and growth may suffer if it fails to attract and retain key personnel.
The Company’s ability to operate its business and implement its strategies effectively depends on the efforts of its executive officers
and other key employees. The Company depends on the continued contributions of its senior management and other key personnel. The
Company’s future success also depends on its ability to identify, attract and retain highly skilled technical staff, particularly engineers
and other employees with mechanics and electronics expertise, and managerial, finance and marketing personnel. The Company does
not maintain a key person life insurance policy on Mr. Hanlin Chen or Mr. Qizhou Wu. The loss of the services of any of the Company’s
key employees or the failure to attract or retain other qualified personnel could substantially harm the Company’s business.
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FY 2022 ANNUAL REPORT
The Company’s management controls approximately 65.15% of its outstanding common stock and may have conflicts of interest
with the Company’s minority stockholders.
As of December 31, 2022, members of the Company’s management beneficially own approximately 65.15% of the outstanding shares
of the Company’s common stock. As a result, except for the related party transactions that require approval of the audit committee of
the board of directors of the Company, these majority stockholders have control over decisions to enter into any corporate transaction,
which could result in the approval of transactions that might not maximize overall stockholders’ value. Additionally, these stockholders
control the election of members of the Company’s board, have the ability to appoint new members to the Company’s management team
and control the outcome of matters submitted to a vote of the holders of the Company’s common stock. The interests of these majority
stockholders may at times conflict with the interests of the Company’s other stockholders. The Company regularly engages in
transactions with entities controlled by one or more of its officers and directors, including those controlled by Mr. Hanlin Chen, the
chairman of the board of directors of the Company and its controlling stockholder.
There is a limited public float of the Company’s common stock, which can result in the Company’s stock price being volatile and
prevent the realization of a profit on resale of the Company’s common stock or derivative securities.
There is a limited public float of the Company’s common stock. As of December 31, 2022, approximately 34.85% of the Company’s
outstanding common stock is considered part of the public float. The term “public float” refers to shares freely and actively tradable on
the NASDAQ Capital Market and not owned by officers, directors or affiliates, as such term is defined under the Securities Act. As a
result of the limited public float and the limited trading volume on some days, the market price of the Company’s common stock can be
volatile, and relatively small changes in the demand for or supply of the Company’s common stock can have a disproportionate effect
on the market price for its common stock. This stock price volatility could prevent a security holder seeking to sell the Company’s
common stock or derivative securities from being able to sell them at or above the price at which the stock or derivative securities were
bought, or at a price which a fully liquid market would report.
The Company is subject to penny stock regulations and restrictions.
The SEC has adopted regulations which generally define so-called “penny stock” as an equity security that has a market price less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. As of December 31, 2022, the closing
price for the Company’s common stock was $5.80. If the Company’s stock is a “penny stock”, it may become subject to Rule 15g-9
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the “Penny Stock Rule.” This rule imposes additional
sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited
investors,” generally, individuals with a net worth in excess of $1.0 million or annual incomes exceeding $0.2 million, or $0.3 million
together with their spouses. For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for
the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the
ability of broker-dealers to sell the Company’s securities and may affect the ability of purchasers to sell any of the Company’s securities
in the secondary market.
For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure also is required to be made about sales
commissions payable to both the broker-dealer and the registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stock.
There can be no assurance that the Company’s common stock will qualify for exemption from the Penny Stock Rule. In any event, even
if the Company’s common stock were exempt from the Penny Stock Rule, the Company would remain subject to Section 15(b)(6) of
the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock if the SEC
finds that such a restriction would be in the public interest.
Provisions in the Company’s certificate of incorporation and bylaws and the General Corporation Law of Delaware may discourage
a takeover attempt.
Provisions in the Company’s certificate of incorporation and bylaws and the General Corporation Law of Delaware, the state in which
it is organized, could make it difficult for a third party to acquire the Company, even if doing so might be beneficial to the Company’s
stockholders. Provisions of the Company’s certificate of incorporation and bylaws impose various procedural and other requirements,
which could make it difficult for stockholders to effect certain corporate actions and possibly prevent transactions that would maximize
stockholders’ value.
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FY 2022 ANNUAL REPORT
Failure to maintain effective internal control over financial reporting could have a material adverse effect on the Company’s
business, results of operations and the trading price of its shares.
The Company is subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, the “SEC,”
as required by Section 404 of the Sarbanes-Oxley Act of 2002, has adopted rules requiring public companies to include a report of
management in its annual report that contains an assessment by management of the effectiveness of such company’s internal control
over financial reporting.
If the Company fails to maintain the adequacy of its internal controls in the future, it will not be able to ensure that it can conclude on
an ongoing basis that it has effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover,
effective internal controls are necessary for the Company to produce reliable financial reports and are important to help prevent fraud.
Any failure to maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability
of the Company’s financial statements, which in turn could harm its business and negatively impact the trading price of its common
stock. Furthermore, the Company may need to incur additional costs and use additional management and other resources in an effort to
comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.
The Company generally does not pay cash dividends on its common stock.
Although the Company announced a special cash dividend of $0.18 per common share to the Company’s shareholders of record as of
the close of business on June 26, 2014, it does not anticipate paying any other cash dividends in the foreseeable future. The Company
currently intends to retain future earnings, if any, to finance operations and the expansion of its business. Any future determination to
pay cash dividends will be at the discretion of the Company’s board of directors and will be based upon the Company’s financial
condition, operating results, capital requirements, plans for expansion, restrictions imposed by any financing arrangements and any other
factors that the Company’s board of directors deems relevant.
Techniques employed by short sellers may drive down the market price of the Company’s common stock.
Short selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention
of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of
the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects to pay
less in that purchase than it received in the sale. As it is in the short seller’s best interests for the price of the stock to decline, many short
sellers publish, or arrange for the publication of, negative opinions regarding the relevant issuer and its business prospects in order to
create negative market momentum and generate profits for themselves after selling a stock short. These short attacks have, in the past,
led to selling of shares in the market.
In the recent past, public companies that have substantially all of their operations in China have been the subject of short selling. Much
of the scrutiny and negative publicity has centered around allegations of a lack of effective internal control over financial reporting
resulting in financial and accounting irregularities and mistakes, inadequate corporate governance policies or a lack of adherence thereto
and, in many cases, allegations of fraud. As a result, many of these companies are now conducting internal and external investigations
into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.
It is not clear what effect such negative publicity would have on the Company, if any. If the Company were to become the subject of
any unfavorable allegations, whether such allegations are proven to be true or untrue, the Company could have to expend a significant
amount of resources to investigate such allegations and/or defend itself. While the Company would strongly defend against any such
short seller attacks, the Company may be constrained in the manner in which it can proceed against the relevant short seller by principles
of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming,
and could distract the Company’s management from growing the Company. Even if such allegations are ultimately proven to be
groundless, allegations against the Company could severely impact its business operations and stockholders’ equity, and any investment
in the Company’s stock could be greatly reduced or rendered worthless.
The Company’s secured credit facilities contain certain financial covenants that it may not satisfy, which, if not satisfied, could result
in the acceleration of the amounts due under the Company’s secured credit facilities and the limitation of the Company’s ability to
borrow additional funds in the future.
The agreements governing the Company’s secured credit facilities subject it to various financial and other restrictive covenants with
which the Company must comply on an ongoing or periodic basis. These covenants include, but are not limited to, restrictions on the
utilization of the funds and the maintenance of certain financial ratios. If the Company violates any of these covenants, the Company’s
outstanding debt under the Company’s secured credit facilities could become immediately due and payable, the Company’s lenders
could proceed against any collateral securing such indebtedness and the Company’s ability to borrow additional funds in the future may
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
be limited. Alternatively, the Company could be forced to refinance or renegotiate the terms and conditions of the Company’s secured
credit facilities, including the interest rates, financial and restrictive covenants and security requirements of the secured credit facilities,
on terms that may be significantly less favorable to the Company.
Our business operations have been and may continue to be materially and adversely affected by the outbreak of the coronavirus
disease (COVID-19).
An outbreak of respiratory illness caused by COVID-19 emerged in Wuhan city, Hubei province, PRC, where the Company’s
headquarters is located, in December 2019 and has been expanding within the PRC and globally. The new strain of COVID-19 is
considered to be highly contagious and poses a serious public health threat. On January 23, 2020, the PRC government announced the
lockdown of Wuhan city in an attempt to quarantine the city. Since then, other measures including travel restrictions have been imposed
in other major cities in the PRC and throughout the world in an effort to contain the COVID-19 outbreak. The World Health Organization
(the “WHO”) is closely monitoring and evaluating the situation. On March 11, 2020, the WHO declared the outbreak of COVID-19 a
pandemic, expanding its assessment of the threat beyond the global health emergency it had announced in January. As our headquarters
are located in Wuhan, we closed our headquarters effective January 23, 2020 and reopened in late March 2020.
Any outbreak of such epidemic illness or other adverse public health developments in the PRC or elsewhere in the world may materially
and adversely affect the global economy, our markets and our business.
We cannot foresee whether the pandemic of COVID-19 will be effectively contained, nor can we predict the severity and duration of its
impact. If the pandemic of COVID-19 is not effectively and timely controlled, our business operations and financial condition may be
materially and adversely affected as a result of the deteriorating market outlook for automobile sales, the slowdown in regional and
national economic growth, weakened liquidity and financial condition of our customers or other factors that we cannot foresee. 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.
RISKS RELATED TO DOING BUSINESS IN CHINA AND OTHER COUNTRIES BESIDES THE UNITED STATES
The Company may face a severe operating environment during times of economic recession.
The sales volume of the Company’s core products is largely influenced by the demand for its customers’ end products which are mostly
sold in the Chinese markets. Future economic crises, either within China or without, may lead to a drastic drop in demand for the
Company’s products.
Inflation in China could negatively affect the Company’s profitability and growth.
China’s economy has experienced rapid growth, much of it due to the issuance of debt over the last few years. This debt-fueled economic
growth has led to growth in the money supply, causing rising inflation. If prices for the Company’s products rise at a rate that is
insufficient to compensate for the rise in the cost of production, it may harm the Company’s profitability. In order to control inflation,
the Chinese government has imposed controls on bank credit, limits on loans and other restrictions on economic activities. Such policies
have led to a slowing of economic growth. Additional measures could further slow economic activity in China, which could, in turn,
materially increase the Company’s costs while also reducing demand for the Company’s products.
The Chinese government’s macroeconomic policies could have a negative effect on the Company’s business and results of
operations.
The Chinese government has implemented various measures from time to time to control the rate of economic growth in the PRC. Some
of these measures may have a negative effect on the Company over the short or long term. Recently, to cope with high inflation and
economic imbalances, the Chinese government has tightened monetary policy and implemented floating exchange rate policy. In
addition, in order to alleviate some of the effects of unbalanced growth and social discontent, the Chinese government has enacted a
series of social programs and anti-inflationary measures. These, in turn, have increased the costs on the financial and manufacturing
sectors, without having alleviated the effects of high inflation and economic imbalances. The Chinese government’s macroeconomic
policies, even if effected properly, may significantly slow down China’s economy or cause great social unrest, all of which would have
a negative effect on the Company’s business and results of operations.
The economic, political and social conditions in China could affect the Company’s business.
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FY 2022 ANNUAL REPORT
Most of the Company’s business, assets and operations are located in China. The economy of China differs from the economies of most
developed countries in many respects, including government involvement, level of development, growth rate, control of foreign
exchange and allocation of resources. The economy of China has been transitioning from a planned economy to a more market-oriented
economy. Although the Chinese government has implemented measures emphasizing the utilization of market forces for economic
reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business
enterprises, a substantial portion of productive assets in China is still owned by the Chinese government.
In addition, the Chinese government continues to play a significant role in regulating industry by imposing industrial policies. It also
exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-
denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Therefore,
the Chinese government’s involvement in the economy could adversely affect the Company’s business operations, results of operations
and/or financial condition.
Because the Company’s operations are mostly located outside of the United States and are subject to Chinese laws, any change of
Chinese laws may adversely affect its business.
Most of the Company’s operations are in the PRC, which exposes it to risks, such as exchange controls and currency restrictions,
currency fluctuations and devaluations, changes in local economic conditions, changes in Chinese laws and regulations, exposure to
possible expropriation or other PRC government actions, and unsettled political conditions. These factors may have a material adverse
effect on the Company’s operations or on its business, results of operations and financial condition.
The Company’s international expansion plans subject it to risks inherent in doing business internationally.
The Company’s long-term business strategy relies on the expansion of its international sales outside China by targeting markets, such
as the United States and Brazil. Risks affecting the Company’s international expansion include challenges caused by distance, language
and cultural differences, conflicting and changing laws and regulations, foreign laws, international import and export legislation, trading
and investment policies, foreign currency fluctuations, the burdens of complying with a wide variety of laws and regulations,
protectionist laws and business practices that favor local businesses in some countries, foreign tax consequences, higher costs associated
with doing business internationally, restrictions on the export or import of technology, difficulties in staffing and managing international
operations, trade and tariff restrictions, and variations in tariffs, quotas, taxes and other market barriers. These risks could harm the
Company’s international expansion efforts, which could in turn materially and adversely affect its business, operating results and
financial condition.
On September 17, 2012, the United States filed a trade case with the World Trade Organization, “WTO,” against the PRC with respect
to the PRC government’s purported provision of subsidies to the automobile and automobile-parts enterprises in the PRC. If the WTO
rules against China in this trade case, the cost of sales of the Company could increase due to the imposition of any tariff and/or the
Company’s ability to export products to the United States could be limited, which could affect the Company’s business and operating
results.
In addition, under Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC has adopted additional
disclosure requirements related to the source of certain “conflict minerals” for issuers for which such “conflict minerals” are necessary
to the functionality or production of a product manufactured, or contracted to be manufactured, by that issuer. The metals covered by
the rules include tin, tantalum, tungsten and gold, commonly referred to as “3TG.” If these materials are necessary to the functionality
or production of a product manufactured, or contracted to be manufactured, the rules require a reasonable country of origin inquiry be
conducted to determine if an issuer knows, or has reason to believe, that any of the minerals used in the production process may have
originated from the Democratic Republic of the Congo or an adjoining country. In such a case, if an issuer were not able to determine
that the minerals did not originate from a covered country or conclude that there is no reason to believe that the minerals used in the
production process may have originated in a covered country, that issuer could be required to perform supply chain due diligence on
members of its supply chain. Global supply chains can have multiple layers, thus the costs of complying with these new requirements
could be substantial. These new requirements may also reduce the number of suppliers that provide conflict-free metals and may also
affect a company’s ability to obtain products in sufficient quantities or at competitive prices. If the Company was to source such 3TG
minerals that are necessary to the functionality or production of a product manufactured, or contracted to be manufactured, compliance
costs with these rules and/or the unavailability of raw materials could have a material adverse effect on the Company’s results of
operations.
The Company faces risks associated with currency exchange rate fluctuations; any adverse fluctuation may adversely affect its
operating margins.
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FY 2022 ANNUAL REPORT
Although the Company is incorporated in the State of Delaware, in the United States, the majority of its current revenues are in Chinese
currency. Conducting business in currencies other than U.S. dollars subjects the Company to fluctuations in currency exchange rates
that could have a negative impact on its reported operating results. Fluctuations in the value of the U.S. dollar relative to other currencies
impact the Company’s revenues, cost of revenues and operating margins and result in foreign currency translation gains and losses.
Historically, the Company has not engaged in exchange rate hedging activities. Although the Company may implement hedging
strategies to mitigate this risk, these strategies may not eliminate its exposure to foreign exchange rate fluctuations and involve costs
and risks of their own, such as ongoing management time and expertise requirements, external costs to implement the strategy and
potential accounting implications.
If relations between the United States and China worsen, the Company’s stock price may decrease and the Company may have
difficulty accessing the U.S. capital markets.
At various times during recent years, the United States and China have had disagreements over political and economic issues.
Controversies may arise in the future between these two countries. Any political or trade controversies between the United States and
China could adversely affect the market price of the Company’s common stock and its ability to access U.S. capital markets. Political
events, international trade disputes and other business interruptions could harm or disrupt international commerce and the global
economy, and could have a material adverse effect on the Company, its customers and its other business partners.
The Chinese government could change its policies toward private enterprise, which could adversely affect the Company’s business.
The Company’s business is subject to political and economic uncertainties in China and may be adversely affected by China’s political,
economic and social developments. Over the past several years, the Chinese government has pursued economic reform policies including
the encouragement of private economic activity and greater economic decentralization. The Chinese government may not continue to
pursue these policies or may alter them to the Company’s detriment from time to time. Changes in policies, laws and regulations, or in
their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend
payments to stockholders, devaluations of currency or the nationalization or other expropriation of private enterprises could have a
material adverse effect on the Company’s business. Nationalization or expropriation could result in the total loss of the Company’s
investment in China.
Government control of currency conversion and future movements in exchange rates may adversely affect the Company’s operations
and financial results.
The Company receives most of its revenues in Chinese Renminbi, “RMB”. A portion of such revenues will be converted into other
currencies to meet the Company’s foreign currency obligations. Foreign exchange transactions under the Company’s capital account,
including principal payments in respect of foreign currency-denominated obligations, continue to be subject to significant foreign
exchange controls and require the approval of the State Administration of Foreign Exchange in China. These limitations could affect
the Company’s ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange for capital
expenditures.
The Chinese government controls its foreign currency reserves through restrictions on imports and conversion of RMB into foreign
currency. In July 2005, the Chinese government has adjusted its exchange rate policy from “Fixed Rate” to “Floating Rate”. From
July 2005 to December 2022, the exchange rate between the RMB and the U.S. dollar appreciated from RMB 1.00 to $0.1205 to RMB
1.00 to $0.1436. Any significant appreciation of the RMB is likely to decrease the income of export products and the cash flow of the
Company.
Because the Chinese legal system is not fully developed, the Company and its security holders’ legal protections may be limited.
The Chinese legal system is based on written statutes and their interpretation by the Supreme People’s Court. Although the Chinese
government introduced new laws and regulations to modernize its business, securities and tax systems on January 1, 1994, China does
not yet possess a comprehensive body of business law. Because Chinese laws and regulations are relatively new, interpretation,
implementation and enforcement of these laws and regulations involve uncertainties and inconsistencies and it may be difficult to enforce
contracts. In addition, as the Chinese legal system develops, changes in such laws and regulations, their interpretation or their
enforcement may have a material adverse effect on the Company’s business operations. Moreover, interpretative case law does not have
the same precedential value in China as in the United States, so legal compliance in China may be more difficult or expensive.
The Company may be subject to fines and legal sanctions imposed by State Administration of Foreign Exchange, “SAFE”, or other
Chinese government authorities if it or its Chinese directors or employees fail to comply with recent Chinese regulations relating to
employee share options or shares granted by offshore listed companies to Chinese domestic individuals.
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FY 2022 ANNUAL REPORT
On December 25, 2006, the People’s Bank of China, or PBOC, issued the Administration Measures on Individual Foreign Exchange
Control, and the corresponding Implementation Rules were issued by SAFE on January 5, 2007. Both of these regulations became
effective on February 1, 2007. According to these regulations, all foreign exchange matters relating to employee stock holding plans,
share option plans or similar plans with Chinese domestic individuals’ participation require approval from the SAFE or its authorized
branch. On March 28, 2007, the SAFE issued the Application Procedure of Foreign Exchange Administration for Domestic Individuals
Participating in Employee Stock Holding Plan or Stock Option Plan of Overseas-Listed Company, or the Stock Option Rule. Under the
Stock Option Rule, Chinese domestic individuals who are granted share options or shares by an offshore listed company are required,
through a Chinese agent or Chinese subsidiary of the offshore listed company, to register with the SAFE and complete certain other
procedures. As the Company is an offshore listed company, its Chinese domestic directors and employees who may be granted share
options or shares shall become subject to the Stock Option Rule. Under the Stock Option Rule, employees stock holding plans, share
option plans or similar plans of offshore listed companies with Chinese domestic individuals’ participation must be filed with the SAFE.
After the Chinese domestic directors or employees exercise their options, they must apply for the amendment to the registration with
the SAFE. As of December 31, 2022, the Company has completed such SAFE registration and other related procedures according to
PRC law. If the Company or its Chinese domestic directors or employees fail to comply with these regulations in the future, the Company
or its Chinese domestic directors or employees may be subject to fines or other legal sanctions imposed by the SAFE or other Chinese
government authorities.
Capital outflow policies in China may hamper the Company’s ability to declare and pay dividends to its stockholders.
China has adopted currency and capital transfer regulations. These regulations may require the Company to comply with complex
regulations for the movement of capital. Although the Company’s management believes that it will be in compliance with these
regulations, should these regulations or the interpretation of them by courts or regulatory agencies change, the Company may not be
able to pay dividends to its stockholders outside of China. In addition, under current Chinese law, the Company’s joint-ventures and
wholly-owned enterprise in China must retain a reserve equal to 10% of its net income after taxes, not to exceed 50% of its registered
capital. Accordingly, this reserve will not be available to be distributed as dividends to the Company’s stockholders. The Company
presently does not intend to pay dividends for the foreseeable future. The Company’s board of directors intends to follow a policy of
retaining all of the Company’s earnings to finance the development and execution of its strategy and the expansion of the Company’s
business.
The recent state government interference into business activities of U.S.-listed Chinese companies may negatively impact our
operations.
Recently, the Chinese government announced that it would step up supervision of Chinese companies listed on foreign exchanges. China
intends to improve regulation of cross-border data flows and security, crack down on illegal activity in the securities market and punish
fraudulent securities issuance, market manipulation and insider trading. China will also check sources of funding for securities
investment and control leverage ratios. The Cyberspace Administration of China has also opened a cybersecurity probe into several
U.S.-listed tech companies focusing on anti-monopoly, financial technology regulation and more recently, with the passage of the Data
Security Law, how companies collect, store, process and transfer data. If the Chinese government’s interference expands, our operations
may be negatively impacted in a significant way, although, presently, there is no discernible immediate impact.
The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements
and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such
inspections.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as
an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the
United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional
standards. The auditor is located in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and
investigations completely before 2022. As a result, we and investors in our shares were deprived of the benefits of such PCAOB
inspections. The inability of the PCAOB to conduct inspections of auditors in China in the past has made it more difficult to evaluate
the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to
auditors outside of China that are subject to the PCAOB inspections. On December 16, 2021, the PCAOB issued the HFCAA
Determination Report, according to which our auditor is subject to the determinations that the PCAOB is unable to inspect or investigate
completely. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed
mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public
accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely
accounting firms in mainland China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue
an audit report on our financial statements filed with the Securities and Exchange Commission, we and investors in our shares would be
deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in our shares to lose
confidence in our audit procedures and reported financial information and the quality of our financial statements.
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Our shares may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect
or investigate completely auditors located in China. The delisting of the shares, or the threat of being delisted, may materially and
adversely affect the value of your investment
Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has
not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares from being traded on a
national securities exchange or in the over-the-counter trading market in the United States.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or
investigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was subject
to that determination. In April 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the
filing of our annual report on Form 10-K for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed
mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public
accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file
this annual report on Form 10-K for the fiscal year ended December 31, 2022.
Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong,
among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely
accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue
an audit report on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-
Identified Issuer following the filing of the annual report on Form 10-K for the relevant fiscal year. In accordance with the HFCAA, our
securities would be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the
United States if we are identified as a Commission-Identified Issuer for two consecutive years in the future. If our shares are prohibited
from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a market for our shares
will develop outside of the United States. A prohibition of being able to trade in the United States would substantially impair your ability
to sell or purchase our shares when you wish to do so, and the risk and uncertainty associated with delisting would have a negative
impact on the price of our shares. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to
us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.
In the case that the bill becomes the law, it will reduce the time period before our shares could be delisted from the exchange and
prohibited from over-the-counter trading in the U.S. from 2024 to 2023.
Proceedings instituted by the SEC against PRC affiliates of the “big four” accounting firms, including the Company’s independent
registered public accounting firm, could result in the Company’s financial statements being determined to not be in compliance with
the requirements of the Exchange Act.
Starting in 2011, the Chinese affiliates of the “big four” accounting firms, including the Company’s independent registered public
accounting firm, were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S.-listed companies operating
and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese firms access to their audit work papers and
related documents. However, the firms were advised and directed that under Chinese law, they could not respond directly to the U.S.
regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through the
CSRC.
In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under
the Sarbanes-Oxley Act of 2002 against the Chinese accounting firms, including the Company’s independent registered public
accounting firm. A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse
judgment against the firms. The administrative law judge proposed penalties on the firms including a temporary suspension of their right
to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On
February 6, 2015, before a review by the Commissioners had taken place, the firms reached a settlement with the SEC. Under the
settlement, the SEC accepted that future requests by the SEC for the production of documents will normally be made to the CSRC. The
firms were to receive matching Section 106 requests, and were required to abide by a detailed set of procedures with respect to such
requests, which in substance required them to facilitate production via the CSRC. If they failed to meet specified criteria, the SEC
retained authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure.
Under the terms of the settlement, the underlying proceeding against the four China-based accounting firms was deemed dismissed with
prejudice four years after entry of the settlement. The four-year mark occurred on February 6, 2019. The Company cannot predict
whether the SEC will further challenge the four China-based accounting firms’ compliance with U.S. law in connection with U.S.
regulatory requests for audit work papers or if the results of such a challenge would result in the SEC imposing penalties such as
suspensions. If additional remedial measures are imposed on the Chinese affiliates of the “big four” accounting firms, including the
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Company’s independent registered public accounting firm, the Company could be unable to timely file future financial statements in
compliance with the requirements of the Exchange Act.
If the Company’s independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC
and the Company were unable to timely find another registered public accounting firm to audit and issue an opinion on the Company’s
financial statements, the Company’s financial statements could be determined not to be in compliance with the requirements of the
Exchange Act. Such a determination could ultimately lead to the delisting of the Company’s common stock from the Nasdaq Capital
Market or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of the Company’s
common stock in the United States.
The non-U.S. activities of the Company’s non-U.S. subsidiaries may be subject to U.S. taxation.
The majority of the Company’s subsidiaries are based in China and are subject to income taxes in the PRC. These China-based
subsidiaries conduct substantially all of the Company’s operations, and generate most of the Company’s income in China. The Company
is a Delaware corporation and is subject to income tax in the United States. New U.S. federal tax legislation, commonly referred to as
the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law on December 22, 2017. The U.S. Tax Reform significantly
modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate income tax rate from
35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business deductions; migrating the
U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of previously deferred foreign earnings
of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S. corporate income tax on dividends from foreign
subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight
years, or in a single lump-sum payment.
Certain activities conducted in the PRC or other jurisdictions outside of the U.S. may give rise to U.S. corporate income tax. These taxes
would be imposed on the Company when its subsidiaries that are controlled foreign corporations (“CFCs”) generate income that is
subject to Subpart F of the U.S. Internal Revenue Code, or “Subpart F”. Passive income, such as rents, royalties, interest, dividends, and
gain from disposal of the Company’s investments is among the types of income subject to taxation under Subpart F. Any income taxable
under Subpart F is taxable in the U.S. at federal corporate income tax rates of up to 21% for taxable years beginning after December 31,
2017. Subpart F income is taxable to the Company, even if it is not distributed to the Company.
The U.S. Tax Reform also includes provisions for a new tax on global intangible low-taxed income (“GILTI”) effective for tax years of
non-U.S. corporations beginning after December 31, 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed
return on tangible assets of CFCs, subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the
income tax liability, subject to some limitations.
Information technology dependency and cyber security vulnerabilities could lead to reduced revenue, liability claims, or competitive
harm.
The Company is dependent on information technology systems and infrastructure (“IT systems”) to conduct its business. The Company’s
IT systems may be vulnerable to disruptions from human error, outdated applications, computer viruses, natural disasters, unauthorized
access, cyber-attack and other similar disruptions. Any significant disruption, breakdown, intrusion, interruption or corruption of these
systems or data breaches could cause the loss of data or intellectual property, equipment damage, downtime, and/or safety related issues
and could have a material adverse effect on the Company’s business. The Company has, from time to time, experienced incidents related
to its IT systems, and expect that such incidents will continue, including malware and computer virus outbreaks, unauthorized access,
systems failures and disruptions. The Company has measures and defenses in place against such events, but the Company may not be
able to prevent, immediately detect, or remediate all instances of such events. A material security breach or disruption of the Company’s
IT systems could result in theft, unauthorized use, or publication of the Company’s intellectual property and/or confidential business
information, harm the Company’s competitive position, disrupt the Company’s manufacturing, reduce the value of the Company’s
investment in research and development and other strategic initiatives, impair the Company’s ability to access vendors and suppliers or
otherwise adversely affect the Company’s business.
Additionally, the Company believes that utilities and other operators of critical infrastructure that serve the Company’s facilities face
heightened security risks, including cyber-attack. In the event of such an attack, disruption in service from the Company’s utility
providers could disrupt the Company’s manufacturing operations which rely on a continuous source of power (electrical, gas, etc.).
The Company’s business is subject to natural disasters, health epidemics and other catastrophic incidents.
In addition to COVID-19, China has in the past experienced significant natural disasters, including earthquakes, extreme weather
conditions, as well as health scares related to epidemic diseases, and any similar event could materially impact the Company’s business
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in the future. If a disaster or other disruption were to occur in the future that affects the regions where the Company operates its business,
the Company’s operations could be materially and adversely affected due to loss of personnel and damage to property. Even if the
Company is not directly affected, such a disaster or disruption could affect the operations or financial conditions of the Company’s
customers, which could harm the Company’s results of operations.
The recent government interference into business activities of U.S.-listed Chinese companies may negatively impact our operations.
Recently, certain PRC regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities, which were
available to the public on July 6, 2021, which further emphasized their goal to strengthen the cross-border regulatory collaboration, to
improve relevant laws and regulations on data security, cross-border data transmission, and confidential information management, and
provided that efforts will be made to revise the regulations on strengthening the confidentiality and file management relating to the
offering and listing of securities overseas, to implement the responsibility on information security of overseas listed companies, and to
strengthen the standardized management of cross-border information provision mechanisms and procedures. However, these opinions
are newly issued, and there were no further explanations or detailed rules or regulations with respect to such opinions, and there are still
uncertainties regarding the interpretation and implementation of these opinions. China intends to improve regulation of cross-border
data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market
manipulation and insider trading. China will also check sources of funding for securities investment and control leverage ratios. The
Cyberspace Administration of China has also opened a cyber security probe into several U.S.-listed tech companies focusing on anti-
monopoly, financial technology regulation and more recently, with the passage of the Data Security Law, how companies collect, store,
process and transfer data. If the Chinese government’s interference expands, our operations may be negatively impacted in a significant
way, although, presently, there is no discernible immediate impact.
If the Company becomes directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese
companies, we may have to expend significant resources to investigate and resolve the matters. Any unfavorable results from the
investigations could harm our business operations and our reputation.
Recently, U.S. public companies that have substantially all of their operations in China have been subjects of intense scrutiny, criticism
and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism
and negative publicity has centered on financial and accounting irregularities, lack of effective internal control over financial reporting,
inadequate corporate governance and ineffective implementation thereof and, in many cases, allegations of fraud. As a result of enhanced
scrutiny, criticism and negative publicity, the publicly traded stocks of many U.S.-listed Chinese companies have sharply decreased in
value and, in some cases, have become virtually worthless or illiquid. Many of these companies are now subject to shareholder lawsuits
and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effects the
sector-wide investigations will have on the Company. If the Company becomes a subject of any unfavorable allegations, whether such
allegations are proven to be true or untrue, the Company will have to expend significant resources to investigate such allegations and
defend the Company. If such allegations were not proven to be baseless, the Company would be severely hampered and the price of the
stock of the Company could decline substantially. If such allegations were proven to be groundless, the investigation might have
significantly distracted the attention of the Company’s management.
Because a majority of our operations are in China, our business is subject to the complex and rapidly evolving laws and regulations
there. The Chinese government may exercise significant oversight and discretion over the conduct of our business and may intervene
in or influence our operations at any time, which could result in a material change in our operations and/or the value of our
securities.
As a business operating in China, we are subject to the laws and regulations of the PRC, which can be complex and which evolve rapidly.
The PRC government has the power to exercise significant oversight and discretion over the conduct of our business, and the regulations
to which we are subject may change rapidly and with little notice to us or our shareholders. As a result, there remain uncertainties
regarding the application, interpretation, and enforcement of new and existing laws and regulations in the PRC. Compliance with the
complex and evolving PRC laws, regulations, and regulatory statements may be costly, and such compliance or any associated inquiries
or investigations or any other government actions may:
Delay or impede our development,
Result in negative publicity or increase our operating costs,
Require significant management time and attention, and
Subject us to remedies, administrative penalties and even criminal liabilities that may harm our business, including fines
assessed for our current or historical operations, or demands or orders that we modify or even cease our business practices.
The promulgation of new laws or regulations, or the new interpretation of existing laws and regulations, that restrict or otherwise
unfavorably impact the ability or manner in which we conduct our business and could require us to change certain aspects of our business
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
to ensure compliance, could decrease demand for our products, reduce revenues, increase costs, require us to obtain more licenses,
permits, approvals or certificates, or subject us to additional liabilities. To the extent any new or more stringent measures are required
to be implemented, our business, financial condition and results of operations could be adversely affected as well as materially decrease
the value of our securities.
The PRC government has significant oversight over the conduct of the business of our PRC subsidiaries; such oversight could result
in a material change in our operations and/or the value of our securities or could significantly limit our ability to offer or continue
to offer securities and/or other securities to investors and cause the value of such securities to significantly decline.
The PRC government has significant oversight over the conduct of the business of our PRC subsidiaries and may intervene or influence
our operations in mainland China, which may potentially result in a material adverse effect on our operations. The PRC government has
recently published new policies that significantly affect certain industries such as the education and internet industries, and we cannot
rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our
business, financial condition and results of operations.
Recently, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council
jointly issued the Opinions on Intensifying Crack Down on Illegal Securities Activities, which call for strengthened regulation over
illegal securities activities and supervision on overseas listings by China-based companies and propose to take effective measures, such
as promoting the development of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed
companies. The PRC government has indicated that it may exert more control or influence over offerings of securities conducted
overseas. If the PRC authorities attempt to exercise such control or influence through regulation over our PRC subsidiaries, we could
be required to restructure our operations to comply with such regulations or potentially cease operations in the PRC entirely, which
could adversely affect our business, results of operations and financial condition. Moreover, any such action could significantly limit
our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline.
Currently, these statements and regulatory actions have had no impact on our daily business operations, the ability to accept foreign
investments and list our securities on a U.S. or other foreign exchange. Since these statements and regulatory actions are new, it is highly
uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or
detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new
laws and regulations will have on our daily business operations, the ability to accept foreign investments and list our securities on a
U.S., Hong Kong, or other stock exchange.
The approval of, or filing or other procedures with, the CSRC or other Chinese regulatory authorities may be required in connection
with issuing our equity securities to foreign investors under Chinese law, and, if required, we cannot predict whether we will be able,
or how long it will take us, to obtain such approval or complete such filing or other procedures. We are also required to obtain
business licenses from Chinese authorities in connection with our general business activities currently conducted in China.
On July 6, 2021, the General Office of the Communist Party of China Central Committee and the State Council jointly promulgated the
Opinions on Intensifying Crack Down on Illegal Securities Activities, pursuant to which Chinese regulators are required to accelerate
rulemaking related to the overseas issuance and listing of securities, and update the existing laws and regulations related to data security,
cross-border data flow, and administration of classified information. As there are still uncertainties regarding the interpretation and
implementation of such regulatory guidance, we cannot assure investors that we will be able to comply with new regulatory requirements
relating to our future overseas capital-raising activities and we may become subject to more stringent requirements with respect to
matters including data privacy and cross-border investigation and enforcement of legal claims.
On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by
Domestic Companies, or the Trial Measures, which will come into effect on March 31, 2023. On the same day, the CSRC also published
a series of guidelines and Q&As in connection with the implementation of the Trial Measures. The Trial Measures established (i) a list
outlining the circumstances where a PRC domestic company is prohibited from offering and listing securities overseas (the “Trial
Measures Negative List”) and (ii) a new filing-based regime to regulate overseas offerings and listings by PRC domestic companies.
According to the Trial Measures, in connection with an overseas offering of securities (including shares, depository receipts, corporate
bonds convertible into shares and other equity securities) and listing by a PRC domestic company, either in a direct or indirect manner,
the issuer must file certain documents with the CSRC (the “Trial Measures Filing Obligations”). An indirect offering and listing is
determined by a set of quantifiable standards. For example, any overseas offering and listing by an issuer that meets both of the following
standards will be deemed to be indirect: (i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as
documented in its audited consolidated financial statements for the most recent accounting year is accounted for by PRC domestic
companies, and (ii) the main parts of the issuer’s business activities are conducted in mainland China, or its main places of business are
located in mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or
domiciled in mainland China.
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The Trial Measures provide the CSRC with the authority to warn, fine, and issue injunctions against PRC domestic companies, their
controlling shareholders, and their advisors in connection with a listing or offering securities (collectively, the “Subject Entities”), as
well as individuals directly responsible for these Subject Entities (the “Subject Individuals”). For failure to comply with the Trial
Measures Negative List or the Trial Measures Filing Obligations, or materially false or misleading statements in the filing and reporting
required by the Trial Measures, PRC domestic companies and their controlling shareholders, if the controlling shareholders induced the
PRC domestic companies’ failure to comply, severally, may face warnings, injunctions to comply, and fines between RMB 1.0 million
and 10.0 million. The Subject Individuals in these entities may severally, face warnings and fines between RMB 0.5 million and 5.0
million. Advisors in listings or offerings of securities that failed to dutifully advise the PRC domestic companies and their controlling
shareholders in complying with the Trial Measures and caused such failures to comply can face warnings and fines between RMB 0.5
million and 5.0 million. The Subject Individuals of these advisor entities may, severally, face warnings and fines between RMB 0.2
million and 2.0 million.
Because our shares are already listed on Nasdaq, we believe will be deemed as an “Existing Issuer” pursuant to the Trial Measures and,
accordingly, are not required to complete the filing procedures with the CSRC for our previous securities offerings. Nevertheless, in the
event that we conduct any securities issuance or offering in the future that would be captured by the Trial Measures after they come into
effect, we will have to complete the filing procedures with the CSRC within three (3) business days following the closing of such
securities issuance or offering.
Therefore, in connection with our business operations and the issuance or offering of securities to foreign investors, under currently
effective PRC laws, regulations, and rules and taking the Trial Measures into account, as of the date of this annual report, we, our PRC
subsidiaries, (i) are not required to obtain permissions from or complete the filing procedures with the CSRC for our historical issuance
or offering of securities to foreign investors which has been completed before the date of implementation of the Trial Measures, but are
required to go through filing procedures with CSRC for our future issuance or offering of securities (including shares, depository
receipts, corporate bonds convertible into shares and other equity securities) to foreign investors if we meet certain conditions set forth
in the Trial Measures to be considered as an indirect overseas offering and listing by a PRC domestic company, (ii) are not required to
go through cybersecurity review by the CAC for our issuance or offering of securities to foreign investors, and (iii) are not required to
obtain any prior permission or approval from any other PRC government authorities for our issuance or offering of securities to foreign
investors. If we and our subsidiaries are deemed to be a critical information infrastructure operator, or CIIO, or a network platform
operator, whose network product or service purchasing or data processing activities affect or may affect national security, we would be
required to go through a cybersecurity review by the CAC.
As of the date of this annual report, neither we nor any of our subsidiaries has been identified as a CIIO by any government authority,
involved in any investigations or become subject to a cybersecurity review by the CAC based on the Cybersecurity Review Measures.
However, there might remain some uncertainty as to how relevant rules published by the PRC government authorities will be interpreted
or implemented, and our opinions summarized above are subject to any new laws, rules, and regulations or detailed implementations
and interpretations in any form. We cannot assure you that relevant PRC government authorities, including the CSRC and the CAC,
would reach the same conclusion and hence, we may face regulatory actions or other sanctions from them.
The PRC government has significant oversight and discretion over the conduct of the business operations of our PRC subsidiaries
or to exert control over any offering of securities conducted overseas and/or foreign investment in China-based issuers, and may
intervene with or influence our operations, may limit or completely hinder our ability to offer or continue to offer securities to
investors, and may cause the value of such securities to significantly decline or be worthless, as the government deems appropriate
to further regulatory, political and societal goals.
The PRC government may intervene or influence the operations of our PRC subsidiaries at any time with little to no advanced notice,
which could result in a material change in our operations and/or the value of our securities. For example, the PRC government recently
published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out
the possibility that it will in the future release regulations or policies regarding any industry that could adversely affect the business,
financial condition and results of operations of our company. For example, on December 28, 2021, the Cyberspace Administration of
China (“CAC”) adopted rules mandating that an issuer who is a “critical information infrastructure operator” or a “data processing
operator” as defined therein and who possesses personal information of more than one million users, and intends to have its securities
listed for trading in a foreign country must complete a cybersecurity review by the CAC. Alternatively, relevant governmental authorities
in the PRC may initiate cyber security review if such governmental authorities determine an operator’s cyber products or services, data
processing or potential listing in a foreign country affect or may affect national security. The rules became effective on February 15,
2022. Moreover, on July 7, 2022, the CAC promulgated the Measures for the Security Assessment of Cross-border Data Transmission,
which will come into effect on September 1, 2022, and will regulate the security assessment on the cross-border data transfer by data
processor of important data and personal information collected and generated during operations within the PRC. According to these
measures, personal data processors will be subject to security assessment conducted by the Cyberspace Administration of China prior
to any cross-border transfer of data if the transfer involves (i) important data; (ii) personal information transferred overseas by operators
of critical information infrastructure or a data processor that has processed personal data of more than one million persons; (iii) personal
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
information transferred overseas by a data processor that has already provided personal data of 100,000 persons or sensitive personal
data of 10,000 persons overseas since January 1 of the prior year; or (iv) other circumstances as requested by the Cyberspace
Administration of China.
The new CAC rules do not appear to apply to the Company or its subsidiaries at this time. As advised by our PRC counsel, Zhong Lun
Law Firm, as of the date of this report, (i) the Company does not hold personal information of over one million users; (ii) the Company
and its subsidiaries have not been informed by any PRC governmental authority of any requirement that it file for a cybersecurity review;
(iii) data processed in the Company’s business does not have a bearing on national security and may not be classified as core or important
data by the PRC governmental authorities; and (iv) none of the Company and its subsidiaries provides any important data, personal
information or sensitive personal data outside the territory of PRC, therefore, the Company believes it is not required to pass
cybersecurity review of CAC. If the Chinese government’s interference expands, our operations may be negatively impacted in a
significant way, although, presently, there is no discernible immediate impact.
Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or
unexpected changes in policies, laws and regulations in China could adversely affect us.
Our operations in China are governed by the PRC laws and regulations. We may be adversely affected by the complexity, uncertainties
and changes in PRC laws and regulations regarding foreign investment and manufacturing, which could have a material adverse effect
on our business and our ability to operate our business in China.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and
court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since
PRC administrative and court authorities have some discretion in interpreting and implementing statutory provisions and contractual
terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we
enjoy, than in more developed legal systems. These uncertainties may impede our ability to enforce contracts in China and could
materially and adversely affect our business and results of operations.
Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a
timely basis, or at all, and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and
rules until sometime after the violation. Such unpredictability towards our contractual, property and procedural rights could adversely
affect our business, and impede our ability to continue our operations and proceed with our future business plans.
It may be difficult to serve the Company with legal process or enforce judgments against the Company or its management.
Most of the Company’s assets are located in China, nine of its directors and officers are non-residents of the United States, and all or
substantial portions of the assets of such non-residents are located outside the United States. As a result, it may not be possible to effect
service of process within the United States upon such persons to originate an action in the United States. Moreover, there is uncertainty
that the courts of China would enforce judgments of U.S. courts against the Company, its directors or officers based on the civil liability
provisions of the securities laws of the United States or any state, or an original action brought in China based upon the securities laws
of the United States or any state.
The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize
and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between
China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties
or other forms of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments.
In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our director
and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest.
As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not Applicable.
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FY 2022 ANNUAL REPORT
ITEM 2. PROPERTIES.
The Company’s headquarters are located at No. 1 Henglong Road, Yu Qiao Development Zone, Shashi District, Jing Zhou City Hubei
Province, the PRC. Set forth below are the manufacturing facilities operated by each joint venture. The Company has forty-five to
fifty years long-term rights to use the lands and buildings (in thousands of USD, except for references to area in square meters).
Name of Entity
Henglong
Product
Automotive Parts
Power Steering Gear
Automotive Steering Gear
Power Steering Gear
Electric Power Steering
Jiulong
Shenyang
Chongqing
Jielong (1)
Wuhan
Chuguanjie
Henglong KYB
(1)
Automotive Steering Gear
Hubei Henglong Automotive Steering Gear
Wuhu
Automotive Steering Gear
Wuhu Hongrun(1) High Polymer Materials
Total
Electric Power Steering
Total Area Building Area Original Cost of
(sq.m.)
Equipment
(sq.m.)
Site
97,818
13,393
39,478
35,354
57,849
—
20,226 $
13,707 $
24,734 $
18,041 $
22,812 $
— $
61,254 Jingzhou City, Hubei Province
— Wuhan City, Hubei Province
42,274 Jingzhou City, Hubei Province
7,449 Shenyang City, Liaoning Province
3,428 Chongqing City
7,971 Jingzhou City, Hubei Province
53,675
44,054 $
5,076 Wuhan City, Hubei Province
—
277,269
83,705
—
658,541
— $
78,833 $
27,288 $
— $
249,695 $
19,763 Jingzhou City, Hubei Province
75,629 Jingzhou City, Hubei Province
4,497 Wuhu City, Anhui Province
1,052 Wuhu City, Anhui Province
228,393
(1) Jielong, Henglong KYB and Wuhu Hongrun do not own land use rights or buildings by themselves. They rent buildings from
Jiulong, Hubei Henglong and Wuhu, respectively.
The Company is not involved in investments in real estate or interests in real estate, real estate mortgages, and securities of or interests
in persons primarily engaged in real estate activities, as all of its land rights are used for production purposes.
ITEM 3. 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.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
The Company’s common stock is traded on the Nasdaq Capital Market under the symbol “CAAS”.
ISSUER PURCHASES OF EQUITY SECURITIES
On December 5, 2018, 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 markets prices or in
privately negotiated transactions through December 4, 2019. The Company has extended the program to December 4, 2020. During
the year ended December 31, 2019, under the repurchase program, the Company repurchased 452,559 shares of the Company’s common
CHINA AUTOMOTIVE SYSTEMS, INC.
26
FY 2022 ANNUAL REPORT
stock for cash consideration of $1.0 million on the open market. During the year ended December 31, 2020, there were no shares of
common stock repurchased under such program.
On August 13, 2020, the Board of Directors of the Company approved a share repurchase program under which the Company is
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 $3.50 per share through August 12, 2021. During the year ended December 31, 2021, the Company repurchased 322,269 of the
shares that were authorized to be repurchased under the program. 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 markets prices not to exceed $4.00 per share through March 30, 2023. During the year ended
December 31, 2022, the Company repurchased 666,074 shares of common stock under such program.
STOCKHOLDERS
The Company’s common shares are issued in registered form. Securities Transfer Corporation in Frisco, Texas is the registrar and
transfer agent for the Company’s common stock. As of December 31, 2022, there were 32,338,302 shares of the Company’s common
stock (including 2,152,600 shares of the Company’s treasury stock) issued and the Company had approximately 54 stockholders of
record.
DIVIDENDS
The Company does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain future
earnings, if any, to finance operations and the expansion of its business. Any future determination to pay cash dividends will be at the
discretion of the Company’s board of directors and will be based upon the Company’s financial condition, operating results, capital
requirements, plans for expansion, restrictions imposed by any financing arrangements and any other factors that the Company’s board
of directors deems relevant.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The securities authorized for issuance under equity compensation plans on December 31, 2022 are as follows:
Plan category
Equity compensation plans approved by security
holders
Number of securities to be Weighted average Number of securities
issued upon exercise of
outstanding options
exercise price of
outstanding options
remaining available for
future issuance
2,200,000 $
5.24
1,563,650
The stock option plan was approved at the Annual Meeting of Stockholders held on June 28, 2005 and extended for ten years at the
Annual Meeting of Stockholders held on September 16, 2014. The maximum common shares for issuance under the plan are 2,200,000.
The term of the plan was extended to June 27, 2025.
ITEM 6. RESERVED
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and the
related notes thereto and other financial information contained elsewhere in this report.
GENERAL OVERVIEW
China Automotive Systems, Inc., including, when the context so requires, its subsidiaries and the subsidiaries’ interests in the Sino-
foreign joint ventures described below, is referred to herein as the “Company.” The Company, through its Sino-foreign joint ventures,
engages in the manufacture and sales of automotive systems and components in the People’s Republic of China, the “PRC,” or “China.”
Genesis, a company incorporated on January 3, 2003 under the Companies Ordinance of Hong Kong as a limited liability company, 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,
CHINA AUTOMOTIVE SYSTEMS, INC.
27
FY 2022 ANNUAL REPORT
and provides after sales service and research and development support. Furthermore, the Company owns the following aggregate net
interests in the subsidiaries incorporated in the PRC and Brazil as of December 31, 2022 and 2021.
Name of Entity
Aggregate Net Interest
December 31,
2022
December 31,
2021
Henglong
Jiulong
Shenyang
Wuhu
Jielong
Hubei Henglong
Testing Center
Chongqing Henglong
Brazil Henglong
Wuhan Chuguanjie
Shanghai Henglong
Jingzhou Qingyan
Henglong KYB
Wuhan Hyoseong
Wuhu Hongrun
Changchun Hualong
RESULTS OF OPERATIONS
Selected highlights from our operations (in thousands of U.S. dollars):
Net product sales
Cost of products sold
Net gain on other sales
Selling expenses
General and administrative expenses
Research and development expenses
Other income, net
Interest expense
Financial (income)/expense, net
Income taxes
Net income
Net income/(loss) attributable to non-controlling interest
Net income attributable to parent company’s common shareholders
Net Product Sales and Cost of Products Sold
100.00 %
100.00 %
70.00 %
100.00 %
85.00 %
100.00 %
100.00 %
70.00 %
95.84 %
85.00 %
100.00 %
- %
66.60 %
51.00 %
62.00 %
100.00 %
100.00 %
100.00 %
70.00 %
100.00 %
85.00 %
100.00 %
100.00 %
70.00 %
95.84 %
85.00 %
100.00 %
60.00 %
66.60 %
51.00 %
62.00 %
100.00 %
2021
2022
$ 529,551 $ 497,993 $ 31,558
20,243
425,914
(672)
4,368
(1,368)
18,278
1,697
24,423
7,881
28,228
(886)
6,668
13
1,437
(13,103)
2,350
(922)
4,004
11,617
10,726
1,484
(352)
10,131
11,050
Change Change%
6.3 %
4.8
(15.4)
(7.5)
6.9
27.9
(13.3)
0.9
(557.6)
(23.0)
108.3
(421.6)
446,157
3,696
16,910
26,120
36,109
5,782
1,450
(10,753)
3,082
22,343
1,132
21,181
91.7 %
For the years ended December 31, 2022 and 2021, net sales and cost of sales are summarized as follows (figures are in thousands of
USD):
Henglong
Jiulong
Shenyang
Wuhu
Hubei Henglong
Henglong KYB
Brazil Henglong
Other Entities
Total segment
Eliminations
Total
Net Sales
2022
2021
Change
2022
Cost of sales
2021
Change
$ 246,594 $ 202,612 $ 43,982 21.7 % $ 225,682 $ 188,973 $ 36,709 19.4 %
70,113
11,942
42,243
126,652
121,139
39,280
80,971
738,934
(209,383)
529,551
94,510
16,510
27,227
128,142
80,683
25,513
70,884
646,081
(148,088)
497,993
(24,397) (25.8)
(4,568) (27.7)
55.2
15,016
(1.2)
(1,490)
50.1
40,456
54.0
13,767
14.2
10,087
14.4
92,853
(61,295)
41.4
31,558
61,924
10,404
39,069
109,842
106,621
34,265
63,178
650,985
(204,828)
6.3 % 446,157
85,025
13,084
25,708
105,969
75,277
22,001
54,799
570,836
(144,922)
425,914
(23,101) (27.2)
(2,680) (20.5)
52.0
3.7
41.6
55.7
15.3
14.0
41.3
13,361
3,873
31,344
12,264
8,379
80,149
(59,906)
20,243
4.8 %
CHINA AUTOMOTIVE SYSTEMS, INC.
28
FY 2022 ANNUAL REPORT
Net Product Sales
Net product sales were $529.6 million for the year ended December 31, 2022, as compared to $498.0 million for the year ended
December 31, 2021, representing an increase of $31.6 million, or 6.3%, mainly due to the Company’s increased sales of electric power
steering (“EPS”) systems and parts.
Net sales of traditional steering products were $373.3 million for the year ended December 31, 2022, which is generally consistent with
$382.7 million for 2021. Net sales of EPS were $156.3 million for the year ended December 31, 2022, compared to $115.3 million for
2021, representing an increase of $41.0 million, or 35.6%. As a percentage of net sales, the sales of EPS were 29.5% for the year ended
December 31, 2022, compared to 23.2% for 2021.
The increase in net product sales was mainly due to the offsetting effects of the increase in sales volume of passenger vehicles and
decline in demand of commercial vehicles.
Further analysis is as follows:
— Henglong mainly engages in providing passenger vehicle steering systems. Net sales for Henglong were $246.6 million for the
year ended December 31, 2022, compared with $202.6 million for the year ended December 31, 2021, representing an increase
of $44.0 million, or 21.7%. The increase was mainly due to the increase in sales volume of products used in passenger vehicles.
— Jiulong mainly engages in providing commercial vehicle steering systems. Net sales for Jiulong were $70.1 million for the year
ended December 31, 2022, compared with $94.5 million for the year ended December 31, 2021, representing a decrease of
$24.4 million, or 25.8%. The decrease was mainly due to the decline in demand of commercial vehicles.
— Shenyang mainly engages in providing vehicle steering systems to Shenyang Brilliance Jinbei Automobile Co., LTD., “Jinbei”,
one of the major automotive manufacturers in China. Net sales for Shenyang were $11.9 million for the year ended December
31, 2022, compared with $16.5 million for the year ended December 31, 2021, representing a decrease of $4.6 million, or
27.9%. The decrease was mainly due to the decline in demand from Jinbei.
— Wuhu mainly engages in providing vehicle steering systems to Chery Automobile Co., Ltd., “Chery”, one of the major
automotive manufacturers in China. Net sales for Wuhu were $42.2 million for the year ended December 31, 2022, compared
with $27.2 million for the year ended December 31, 2021, representing an increase of $15.0 million, or 55.1%. The increase
was mainly due to the increase in sales volume of products used in passenger vehicles from Chery.
— Hubei Henglong mainly engages in providing vehicle steering systems to Chrysler and Ford. Net sales for Hubei Henglong
were $126.7 million for the year ended December 31, 2022, which is consistent with $128.1 million for the year ended
December 31, 2021.
— Henglong KYB mainly engages in providing passenger EPS products. Net sales for Henglong KYB were $121.1 million for
the year ended December 31, 2022, compared with $80.7 million for the year ended December 31, 2021, representing an
increase of $40.4 million, or 50.1%. The increase was mainly due to the increase in sales volume of EPS products used in
passenger vehicles.
— Brazil Henglong mainly provides steering systems to Fiat in Brazil. Net product sales for Brazil Henglong were $39.3 million
for the year ended December 31, 2022, compared to $25.5 million for the year ended December 31, 2021, representing an
increase of $13.8 million, or 54.1%. The increase was mainly due to the increase in demand of Fiat in Brazil.
— Net product sales for other entities were $81.0 million for the year ended December 31, 2022, compared with $70.9 million for
the year ended December 31, 2021, representing an increase of $10.1 million, or 14.2%. The increase was mainly due to the
increases in sales volume from Wuhan Hyoseong.
Cost of Products Sold
For the year ended December 31, 2022, the cost of sales was $446.1 million, compared with $425.9 million for the year ended December
31, 2021, representing an increase of $20.2 million, or 4.7%. The increase in cost of sales was mainly due to the increase in sales volume
and increase in unit cost. Further analysis is as follows:
— Cost of sales for Henglong was $225.7 million for the year ended December 31, 2022, compared to $189.0 million for the year
ended December 31, 2021, representing an increase of $36.7 million, or 19.4%. The increase was mainly due to the increase in
sales volumes and the increase in unit cost.
— Cost of sales for Jiulong was $61.9 million for the year ended December 31, 2022, compared to $85.0 million for the year
ended December 31, 2021, representing a decrease of $23.1 million, or 27.2%. The decrease was mainly due to the decrease in
sales volumes and the offsetting of the increase in unit cost.
— Cost of sales for Shenyang was $10.4 million for the year ended December 31, 2022, compared with $13.1 million for the year
ended December 31, 2021, representing a decrease of $2.7 million, or 20.6%. The decrease was mainly due to the decrease in
sales volumes and the offsetting of the increase in unit cost.
CHINA AUTOMOTIVE SYSTEMS, INC.
29
FY 2022 ANNUAL REPORT
— Cost of sales for Wuhu was $39.1 million for the year ended December 31, 2022, compared to $25.7 million for the year ended
December 31, 2021, representing an increase of $13.4 million, or 52.1%. The increase was mainly due to the increase in sales
volumes and the increase in unit cost.
— Cost of sales for Hubei Henglong was $109.8 million for the year ended December 31, 2022, compared with $106.0 million
for the year ended December 31, 2021, representing an increase of $3.8 million, or 3.6%. The increase was mainly due to the
increase in unit cost.
— Cost of sales for Henglong KYB was $106.6 million for the year ended December 31, 2022, compared to $75.3 million for the
year ended December 31, 2021, representing an increase of $31.3 million, or 41.6%. The increase was mainly due to the
increase in sales volumes and the increase in unit cost.
— Cost of products sold for Brazil Henglong was $34.3 million for the year ended December 31, 2022, compared to $22.0 million
for the year ended December 31, 2021, representing an increase of $12.3 million, or 55.9%. The increase was mainly due to
the increase in sales volumes.
— Cost of products sold for other entities was $63.2 million for the year ended December 31, 2022, compared to $54.8 million
for the year ended December 31, 2021, representing an increase of $8.4 million, or 15.3%.
Gross margin was 15.7% for the year ended December 31, 2022, compared to 14.5% for the year ended December 31, 2021, representing
an increase of 1.2%. The increase was mainly due to a change in our product mix for the year ended December 31, 2022.
Net Gain on Other Sales
Gain on other sales mainly consisted of rental income, gain on disposal of property, plant and equipment and R&D revenue. For the
year ended December 31, 2022, gain on other sales amounted to $3.7 million, which is stable compared to $4.4 million for the year
ended December 31, 2021.
Selling Expenses
For the years ended December 31, 2022 and 2021, selling expenses are summarized as follows (figures are in thousands of USD):
Year Ended December 31,
Transportation expense
Marketing and office expense
Salaries and wages
Warehousing and inventory handling expenses
Other expense
Total
$
$
6,523 $
3,679
3,582
2,495
631
16,910 $
2022
2021
Increase/(Decrease) Percentage
(33.9) %
(3,347)
30.4 %
857
9.2 %
302
16.3 %
349
294.4 %
471
(7.5) %
(1,368)
9,870 $
2,822
3,280
2,146
160
18,278 $
Selling expenses were $16.9 million for the year ended December 31, 2022, compared to $18.3 million for the year ended December
31, 2021, representing a decrease of $1.4 million, or 7.7%, which was mainly due to a decrease in transportation expenses as a result of
decreased air freight, with an offsetting impact of increased marketing and office expense caused by the increased sales in 2022.
General and Administrative Expenses
For the years ended December 31, 2022 and 2021, general and administrative expenses are summarized as follows (figures are in
thousands of USD):
Year Ended December 31,
Salaries and wages
Allowances for credit losses
Office expense
Labor insurance expense
Depreciation and amortization expense
Listing expenses (1)
Property and other taxes
Maintenance and repair expenses
Other expense
Total
2022
10,141 $
4,456
3,118
2,128
1,798
1,464
1,238
1,183
594
26,120 $
$
$
2021
Increase/(Decrease) Percentage
4.6 %
448
62.7 %
1,718
(7.2) %
(243)
(4.2) %
(93)
(19.5) %
(435)
1.3 %
19
(16.0) %
(236)
24.9 %
236
91.0 %
283
6.9 %
1,697
9,693 $
2,738
3,361
2,221
2,233
1,445
1,474
947
311
24,423 $
(1) Listing expenses consisted of the costs associated with legal, accounting and auditing fees for operating a public company.
CHINA AUTOMOTIVE SYSTEMS, INC.
30
FY 2022 ANNUAL REPORT
General and administrative expenses were $26.1 million for the year ended December 31, 2022, as compared to $24.4 million for the
year ended December 31, 2021, representing an increase of $1.7 million, or 7.0%, which was mainly due to the increase of provision of
allowance for doubtful accounts.
Research and Development Expenses
Research and development expenses, “R&D” expenses, were $36.1 million for the year ended December 31, 2022 as compared to $28.2
million for the year ended December 31, 2021, representing an increase of $7.9 million, or 28.0%, which was mainly due to the increase
of expenditures on R&D activities for new projects.
Other Income, Net
Other income, net was $5.8 million for the year ended December 31, 2022, as compared to $6.7 million for the year ended December
31, 2021, representing a decrease of $0.9 million, which was primarily due to the provision for impairment of prepayment for the
investment in Hefei Senye (See Note 10), with an offsetting impact of an increase in the amount of government subsidies from $4.9
million in 2021 to $6.3 million in 2022.
Interest Expense
Interest expense was $1.5 million for the year ended December 31, 2022, which remains stable compared with $1.4 million for the year
ended December 31, 2021.
Financial Income/(Expense), Net
Financial income, net was $10.8 million for the year ended December 31, 2022, as compared to financial expense, net of $2.4 million
for the year ended December 31, 2021, representing an increase in financial income of $13.2 million, which was primarily due to an
increase in the foreign exchange gains due to the sharp fluctuations of the US dollar against the RMB and the Brazilian Real.
Income Taxes
Income tax expense was $3.1 million for the year ended December 31, 2022, as compared to $4.0 million for the year ended December
31, 2021, representing a decrease of $0.9 million, or 22.5%, which was mainly due to the less valuation allowance in the year ended
December 31, 2022 and offsetting by the increase in income before income tax expenses.
Net Income/(loss) Attributable to Non-controlling Interests
Net income attributable to non-controlling interests amounted to $1.1 million for the year ended December 31, 2022, compared to net
loss attributable to non-controlling interests of $0.4 million for the year ended December 31, 2021, representing an increase in net
income attributable to non-controlling interests of $1.5 million.
Net Income Attributable to Parent Company’s Common Shareholders
Net income attributable to parent company’s common shareholders was $21.2 million for the year ended December 31, 2022, compared
to $11.1 million for the year ended December 31, 2021, representing an increase in net income attributable to parent company’s common
shareholders of $10.1 million.
LIQUIDITY AND CAPITAL RESOURCES
Capital Resources and Use of Cash
The Company has historically financed its liquidity requirements from a variety of sources, including short-term borrowings under bank
credit agreements, bankers’ acceptances, issuances of capital stock and notes and internally generated cash. As of December 31, 2022,
the Company had cash and cash equivalents and short-term investments of $134.1 million, compared with $133.5 million as of December
31, 2021, representing an increase of $0.6 million.
The Company had working capital (total current assets less total current liabilities) of $156.5 million as of December 31, 2022, compared
with $149.6 million as of December 31, 2021, representing an increase of $6.9 million, or 4.6%.
CHINA AUTOMOTIVE SYSTEMS, INC.
31
FY 2022 ANNUAL REPORT
Except for the expected distribution of dividends from the Company’s PRC subsidiaries to the Company in order to fund the payment
of the one-time transition tax due to the U.S. Tax Reform, the Company intends to indefinitely reinvest the funds in subsidiaries
established in the PRC.
The pandemic of COVID-19 has had certain impacts on our cash flow for the year of 2022 with potential continuing impacts on
subsequent periods. However, based on our liquidity assessment, we believe that our current cash position, cash flow from operations
and proceeds from our financing activities will be sufficient to meet our anticipated cash needs, including our cash needs for working
capital and capital expenditures, for the foreseeable future and for at least 12 months subsequent to the filing of this annual report.
Capital Source
The Company’s capital source is multifaceted, such as bank loans and banks’ acceptance facilities. In financing activities and operating
activities, the Company’s banks require the Company to sign line of credit agreements and repay such facilities within one to two years.
On the condition that the Company can provide adequate mortgage security and has not violated the terms of the line of credit agreement,
such facilities can be extended for another one to two years.
The Company had short-term loans of $45.7 million, long-term loans of $0.5 million (See Note 11) and bankers’ acceptance notes
payable of $91.7 million as of December 31, 2022.
The Company currently expects to be able to obtain similar bank loans, i.e., RMB loans, and bankers’ acceptance facilities in the future
if it can provide adequate mortgage security following the termination of the above-mentioned agreements, see the table under “Bank
Arrangements” below for more information. If the Company is not able to do so, it will have to refinance such debt as it becomes due
or repay that debt to the extent it has cash available from operations or from the proceeds of additional issuances of capital stock. Due
to a depreciation of assets, the value of the mortgages securing the above-mentioned bank loans and banker’s acceptances is expected
to be reduced by approximately $17.0 million over the next 12 months. If the Company wishes to maintain the same amount of bank
loans and banker’s acceptances in the future, it may be required by the banks to provide additional mortgages of $17.0 million as of the
maturity date of such line of credit agreements, see the table under “Bank Arrangements” below for more information. The Company
can still obtain lines of credit with a reduction of $10.9 million, which is 64.0%, the mortgage ratio, of $17.0 million, if it cannot provide
additional mortgages. The Company expects that the reduction in bank loans will not have a material adverse effect on its liquidity.
Bank Facilities
As of December 31, 2022, the principal outstanding under the Company’s credit facilities and lines of credit was as follows (figures are
in thousands of USD).
1. Comprehensive credit facilities
Bank
China CITIC Bank (2)
Due
Date
Aug-2024
Assessed
Amount
Amount Mortgage
Available (3) Used (4) Value (5)
27,447
47,411
69,638
2. Comprehensive credit facilities Shanghai Pudong Development Bank (1) (2) Jan-2023
18,666
12,743
16,729
3. Comprehensive credit facilities
Hubei Bank(2)
Mar-2024
24,409
774
74,377
4. Comprehensive credit facilities
Chongqing Bank
Mar-2025
1,005
571
1,833
5. Comprehensive credit facilities
China Constitution Bank
Sep-2025
2,872
2,297
6,516
6. Comprehensive credit facilities
China Merchants Bank(1)
Jun-2024
14,358
5,529
7. Comprehensive credit facilities
Bank of China (1)
Aug-2023
13,066
5,743
—
—
8. Comprehensive credit facilities
Total
China Everbright Bank
Dec-2025
$
4,307
9,020
148,321 $ 75,068 $ 135,922
—
(1) The facility has expired. The Company is currently in the process of negotiating with the bank to renew the credit facility.
(2) The comprehensive credit facilities with China CITIC Bank are guaranteed by Henglong and Hubei Henglong in addition to the
above pledged assets. The comprehensive credit facilities with Shanghai Pudong Development Bank are guaranteed by Henglong
in addition to the above pledged assets. The comprehensive credit facilities with Hubei Bank are guaranteed by Chen Hanlin in
CHINA AUTOMOTIVE SYSTEMS, INC.
32
FY 2022 ANNUAL REPORT
addition to the above pledged assets. The comprehensive credit facilities with Merchants Bank are guaranteed by Hubei Henglong,
Chen Hanlin and certain account receivables in addition to the above pledged assets. The comprehensive credit facilities with Bank
of China are guaranteed by Hubei Henglong in addition to the above pledged assets.
(3) “Amount available” is used for the drawdown of bank loans and issuance of bank notes at the Company’s discretion. If the Company
elects to utilize the facility by issuance of bank notes, additional collateral is requested to be pledged to the bank.
(4) “Amount used” represents the credit facilities used by the Company for the purpose of bank loans or notes payable during the
facility contract period. The loans or notes payable under the credit facilities will remain outstanding regardless of the expiration of
the relevant credit facilities until the separate loans or notes payable expire. The amount used includes bank loans of $35.5 million
and notes payable of $39.6 million as of December 31, 2022.
(5) In order to obtain lines of credit, the Company needs to pledge certain assets to banks. As of December 31, 2022, the pledged assets
included property, plant and equipment and land use rights with an aggregate assessed value of $135.9 million.
The Company may request the banks to issue notes payable or bank loans within its credit line using a 365-day revolving line.
The Company renewed its existing short-term loans and borrowed new loans during 2022 at annual interest rates ranging from 1.60%
to 3.90%, and the Company’s loan terms range from 3 months to 35 months. The large spread in interest rates was due to the different
lenders. Pursuant to the comprehensive credit line arrangement, the Company pledged and guaranteed:
1. Land use rights and buildings with an assessed value of approximately $27.4 million as security for its comprehensive credit facility
with China CITIC Bank Wuhan Branch.
2. Land use rights and buildings with an assessed value of approximately $16.7 million as security for its revolving comprehensive
credit facility with Shanghai Pudong Development Bank.
3. Equipment with an assessed value of approximately $74.4 million as security for its revolving comprehensive credit facility with
Hubei Bank.
4. Buildings with an assessed value of approximately $1.8 million as security for its comprehensive credit facility with Chongqing
Bank
5. Land use rights and buildings with an assessed value of approximately $6.5 million as security for its revolving comprehensive
credit facility with China Constitution Bank.
6. Land use rights and buildings with an assessed value of approximately $9.0 million as security for its revolving comprehensive
credit facility with China Everbright Bank.
Cash Requirements
The following table summarizes the Company’s expected cash outflows resulting from financial contracts and commitments. The
Company has not included information on its recurring purchases of materials for use in its manufacturing operations. These amounts
are generally consistent from year to year, closely reflecting the Company’s levels of production, and are not long-term in nature (being
less than three months in length).
(in thousands of USD)
Loans including interest payable
Notes payable (1)
Taxes payable and withholding tax liabilities due to U.S. Tax
Reform (See Note 22)
Obligation for investment contract (2)
Other contractual purchase commitments, including service
agreements
Total
Total
$ 46,695 $
91,693
Less than 1
year
46,121 $
91,693
1-3 years 3-5 years Years
More than 5
574 $
—
— $
—
21,075
6,350
5,270
6,350
15,805
—
—
—
28,612
23,962
4,650
$ 194,425 $ 173,396 $ 21,029 $
—
— $
—
—
—
—
—
—
(1) Notes payable do not bear interest.
(2) In June 2021, Hubei Henglong entered into a share purchase agreement with Jingzhou WiseDawn Electric Car Co., Ltd., “Jingzhou
WiseDawn”, a related party controlled by the Company’s controlling shareholder, Mr. Chen Hanlin. In accordance with the
agreement, CAAS would purchase 200 shares, representing 40% of Sentient AB’s share capital, from Jingzhou WiseDawn for total
consideration of RMB 155.2 million, equivalent to approximately $24.5 million. The transaction was completed in March 2022.
Pursuant to the share purchase agreement, the Company has the right to appoint two directors to the board of directors, so it can
exercise significant influence over Sentient AB. Therefore, the investment is accounted for using the equity method. As of December
31, 2022, the Company has paid RMB 141.0 million, equivalent to approximately $21.6 million, with the remaining consideration
of RMB 14.2 million, equivalent to approximately $2.0 million, to be paid in 2023.
CHINA AUTOMOTIVE SYSTEMS, INC.
33
FY 2022 ANNUAL REPORT
In January 2022, Hubei Henglong entered into an agreement with other parties and committed to purchase 27.78% of the shares of
Suzhou Qingshan for total consideration of RMB 60.0 million, equivalent to approximately $9.5 million at the prevailing rate. As
of December 31, 2022, Hubei Henglong has paid RMB 30.0 million, equivalent to approximately $4.7 million. According to the
agreement, the remaining consideration of RMB 30.0 million, equivalent to approximately $4.3 million, will be paid in 2023.
Short-term Loans and Long-term Loans
The following table summarizes the contract information of short-term borrowings between the banks and the Company as of December
31, 2022 (figures are in thousands of USD).
Bank
Government
Bank of China
Purpose
Borrowing
Date
Borrowing
Term
Annual
Interest
(Months) Principal Rate
Date of
Interest
Payment
Due Date
Working Capital October 28, 2022
Bank of China
Working Capital September 28, 2022
China CITIC Bank(1)
Working Capital
April 27, 2022
China CITIC Bank(1)
Working Capital
May 20, 2022
China CITIC Bank
Working Capital September 26, 2022
China CITIC Bank
Working Capital September 26, 2022
China Constitution Bank
Working Capital September 28, 2022
Chongqing Bank
Working Capital
April 14, 2022
Chongqing Bank
Working Capital
April 14, 2022
Chongqing Bank
Working Capital
April 14, 2022
Chongqing Bank
Working Capital
April 27, 2022
Chongqing Bank
Working Capital
May 12, 2022
Chongqing Bank
Working Capital
May 24, 2022
Chongqing Bank
Working Capital
June 16, 2022
Chongqing Bank
Working Capital
June 29, 2022
Chongqing Bank
Working Capital
July 28, 2022
China CITIC Bank
Working Capital
June 16, 2022
China CITIC Bank(1)
Working Capital March 21, 2022
China CITIC Bank(1)
Working Capital March 23, 2022
China CITIC Bank
Working Capital
June 16, 2022
Hankou Bank(1)
Working Capital March 18, 2022
China CITIC Bank(1)
Working Capital March 21, 2022
China CITIC Bank(1)
Working Capital September 5, 2022
China CITIC Bank(1)
Working Capital September 21, 2022
China CITIC Bank(1)
Working Capital September 21, 2022
China CITIC Bank(1)
Working Capital September 21, 2022
China CITIC Bank(1)
Working Capital September 21, 2022
China CITIC Bank(1)
Working Capital September 21, 2022
China CITIC Bank(1)
Working Capital September 21, 2022
China CITIC Bank
Working Capital October 20, 2022
China CITIC Bank
Working Capital October 20, 2022
12
12
9
8
12
12
12
12
18
35
35
34
34
33
33
33
12
12
12
12
12
12
6
5
4
4
5
5
5
6
6
2,872
3.80 % Pay monthly
October 28, 2023
2,872
3.00 % Pay monthly
September 27, 2023
1,436
3.90 % Pay monthly
January 27, 2023
1,436
3.90 % Pay quarterly
January 20, 2023
718
3.65 % Pay monthly
September 25, 2023
718
3.65 % Pay monthly
September 25, 2023
1,436
3.50 % Pay monthly
September 26, 2023
14
3.85 % Pay semiannually
April 14, 2023
14
3.85 % Pay semiannually
October 14, 2023
39
3.85 % Pay semiannually March 20, 2025
120
3.85 % Pay semiannually
March 20, 2025
75
3.85 % Pay semiannually March 20, 2025
55
3.85 % Pay semiannually March 20, 2025
43
3.85 % Pay semiannually March 20, 2025
116
3.85 % Pay semiannually
March 20, 2025
80
3.85 % Pay semiannually
April 13, 2025
6,872
2.30 %
Pay in arrear
June 15, 2023
1,392
3.00 % Pay in arrear
March 21, 2023
4,455
3.00 % Pay in arrear
March 23, 2023
4,909
2.30 % Pay in arrear
June 15, 2023
2,817
1.90 % Pay in arrear
March 13, 2023
5,151
3.00 % Pay in arrear
March 21, 2023
504
1.70 % Pay in arrear
February 28, 2023
$
285
1.70 % Pay in arrear
February 20, 2023
143
1.70 %
Pay in arrear
January 18, 2023
143
1.70 %
Pay in arrear
January 18, 2023
338
1.70 %
Pay in arrear
February 9, 2023
285
1.70 %
Pay in arrear
February 13, 2023
285
1.70 %
Pay in arrear
March 2, 2023
71
1.65 %
Pay in arrear
April 8, 2023
427
1.65 %
Pay in arrear
April 11, 2023
CHINA AUTOMOTIVE SYSTEMS, INC.
34
FY 2022 ANNUAL REPORT
Bank
Government
China CITIC Bank
Purpose
Borrowing
Date
Borrowing
Term
Annual
Interest
(Months) Principal Rate
Working Capital October 20, 2022
142
1.65 %
Date of
Interest
Payment
Pay in arrear
Due Date
April 8, 2023
China CITIC Bank
Working Capital October 20, 2022
China CITIC Bank(1)
Working Capital October 20, 2022
China CITIC Bank(1)
Working Capital October 20, 2022
China CITIC Bank
Working Capital October 20, 2022
China CITIC Bank
Working Capital October 20, 2022
China CITIC Bank(1)
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital November 21, 2022
China CITIC Bank
Working Capital December 19, 2022
China CITIC Bank
Working Capital December 19, 2022
China CITIC Bank
Working Capital December 19, 2022
China CITIC Bank
Working Capital December 19, 2022
China CITIC Bank
Working Capital December 19, 2022
Bank of China(1)
Working Capital
July 28, 2022
Bank of China(1)
Working Capital
July 28, 2022
Bank of China(1)
Total
Working Capital
July 28, 2022
6
6
3
4
6
6
5
5
5
5
5
5
5
5
5
5
5
5
5
6
5
5
5
5
5
6
6
6
214
1.65 %
Pay in arrear
April 8, 2023
286
1.65 %
Pay in arrear
January 7, 2023
372
1.65 %
Pay in arrear
February 25, 2023
712
1.65 %
Pay in arrear
April 8, 2023
285
1.65 %
Pay in arrear
April 8, 2023
143
1.65 %
Pay in arrear
March 23, 2023
71
1.65 %
Pay in arrear
April 8, 2023
27
1.65 %
Pay in arrear
April 8, 2023
45
1.65 %
Pay in arrear
April 8, 2023
143
1.65 %
Pay in arrear
April 8, 2023
143
1.65 %
Pay in arrear
April 8, 2023
63
1.65 %
Pay in arrear
April 28, 2023
143
1.65 %
Pay in arrear
April 28, 2023
100
1.65 %
Pay in arrear
April 28, 2023
285
1.65 %
Pay in arrear
April 28, 2023
285
1.65 %
Pay in arrear
April 28, 2023
143
1.65 %
Pay in arrear
April 28, 2023
143
1.65 %
Pay in arrear
April 28, 2023
427
1.65 %
Pay in arrear
May 16, 2023
285
1.60 %
Pay in arrear
May 29, 2023
285
1.60 %
Pay in arrear
May 29, 2023
285
1.60 %
Pay in arrear
May 29, 2023
285
1.60 %
Pay in arrear
May 29, 2023
50
1.60 %
Pay in arrear
May 30, 2023
287
1.25 %
Pay in arrear
January 12, 2023
142
1.25 %
Pay in arrear
January 18, 2023
287
46,199
1.25 %
Pay in arrear
January 7, 2023
(1) These bank loans were repaid during the period from January to March 2023 when they became due.
The Company must use the loans for the purpose described and repay the principal outstanding on the specified date in the table. If it
fails to do so, it will be charged additional 30% to 100% penalty interest.
The Company had complied with such financial covenants as of December 31, 2022.
Notes Payable
The following table summarizes the contract information of issuing notes payable between the banks and the Company as of
December 31, 2022 (figures are in thousands of USD):
CHINA AUTOMOTIVE SYSTEMS, INC.
35
FY 2022 ANNUAL REPORT
Working Capital (1)
Working Capital (1)
Working Capital (1)
Working Capital
Working Capital
Working Capital
Total
Purpose
Term (Month) Due Date
Amount Payable on
Due Date
6
6
6
6
6
6
Jan-2023
Feb-2023
Mar-2023
Apr-2023
May-2023
Jun-2023
$
14,454
10,732
14,083
22,587
16,731
13,106
91,693
(1) The notes payable were repaid in full on their respective due dates.
The Company must use notes payable for the purpose described in the table. If it fails to do so, the banks will no longer issue the notes
payable, and it may have an adverse effect on the Company’s liquidity and capital resources. The Company has to deposit a sufficient
amount of cash on the due date of notes payable for payment to the suppliers. If the bank has advanced payment for the Company, it
will be charged an additional 50% penalty interest. The Company complied with such financial covenants as of December 31, 2022, and
management believes it will continue to comply with them.
Cash flows
(a) Operating Activities
Net cash provided by operating activities for the year ended December 31, 2022 was $48.0 million, compared to net cash provided by
operating activities of $28.3 million for the year ended December 31, 2021, representing an increase in net cash inflows by $19.8 million,
which was mainly due to the offsetting impact of (1) the increase in net income excluding non-cash items by $16.0 million, (2) the
decrease in the cash outflows from movements of inventory by $20.3 million, (3) the decrease in the cash inflows from movements of
accounts and notes receivable by $63.5 million, (4) the decrease in the cash outflows from movements of accounts and notes payable
by $30.1 million, and (5) a combination of other factors contributing an increase of cash inflows by $16.9 million, including the decrease
in the cash outflows from movements of taxes payable by $7.4 million.
(b) Investing Activities
Net cash used in investing activities for the year ended December 31, 2022 was $32.7 million, as compared to net cash provided by
investing activities of $3.0 million in 2021, representing an increase in cash outflows by $35.7 million, which was mainly due to the net
effect of (1) an increase in purchase of short-term investments and long-term time deposits of $16.8 million, (2) a decrease in cash
received from long-term investments $16.6 million , (3) a combination of other factors contributing to a decrease of cash inflows by
$2.3 million, including an increase in the payment to acquire property, plant and equipment by $11.0 million, and a decrease in cash
prepaid for investment under equity method by $13.5 million.
(c) Financing Activities
Net cash used in financing activities for the year ended December 31, 2022 was $1.6 million, compared net cash used in financing
activities of $3.1 million for 2021, representing a decrease in outflows by $1.5 million, which was mainly due to the net effect of (1) a
decrease in repayment of the borrowing under sale and leaseback transaction by $3.3 million, and (2) an increase in repurchase of
common share by $2.4 million, (3) a combination of other factors contributed an increase of cash inflows by $0.6 million.
OFF-BALANCE SHEET ARRANGEMENTS
On December 31, 2022 and 2021, the Company did not have any transactions, obligations or relationships that could be considered off-
balance sheet arrangements.
SUBSEQUENT EVENTS
None.
INFLATION AND CURRENCY MATTERS
CHINA AUTOMOTIVE SYSTEMS, INC.
36
FY 2022 ANNUAL REPORT
China’s economy has experienced rapid growth recently, mostly through the issuance of debt. Debt-induced economic growth can lead
to growth in the money supply and rising inflation. If prices for the Company’s products rise at a rate that is insufficient to compensate
for the rise in the cost of supplies, it may harm the Company’s profitability. In order to control inflation, the Chinese government has
imposed controls on bank credit, limits on loans for fixed assets and restrictions on state bank lending. Such policies can lead to a
slowing of economic growth. Rises in interest rates by the central bank would likely slow economic activity in China which could, in
turn, materially increase the Company’s costs and also reduce demand for the Company’s products.
Foreign operations are subject to certain risks inherent in conducting business abroad, including price and currency exchange controls,
and fluctuations in the relative value of currencies. During 2022, the Company mainly supplied products to North America and settled
in cash in U.S. dollars. As a result, appreciation or currency fluctuation of the RMB against the U.S. dollar would increase the cost of
export products, and adversely affect the Company’s financial performance.
In July 2005, the Chinese government adjusted its exchange rate policy from “Fixed Rate” to “Floating Rate.” During December 2021
to December 2022, the exchange rate between RMB and U.S. dollar appreciated from RMB1.00 to $0.1568 to RMB1.00 to $0.1436.
The depreciation of the RMB may continue. Significant depreciation of the RMB is likely to decrease the Company’s income generated
from China.
RECENT ACCOUNTING PRONOUNCEMENTS
Information regarding new accounting pronouncements is included in Note 2 to the Consolidated Financial Statements.
SIGNIFICANT ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES
The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the
reported amount of revenues and expenses during the reporting periods. Management periodically evaluates the estimates and judgments
made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions. The following
critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s consolidated
financial statements.
The Company considers an accounting estimate to be critical if:
it requires the Company to make assumptions about matters that were uncertain at the time it was making the estimate; and
changes in the estimate or different estimates that the Company could have selected would have had a material impact on the
Company’s financial condition or results of operations.
The table below presents information about the nature and rationale for the Company critical accounting estimates:
Balance Sheet
Caption
Accrued liabilities and
other long-term
liabilities
Critical
Estimate
Item
Warranty
obligations
Property, plant and
equipment, intangible
assets and other long-
term assets
Valuation of
long- lived
assets and
investments
Accounts receivable
Allowance for
doubtful
accounts
Nature of Estimates Required
Assumptions / Approaches
Used
Key Factors
Estimating warranty requires the Company to
forecast the resolution of existing claims and
expected future claims on products sold.
OEMs are increasingly seeking to hold
suppliers responsible for product warranties,
which may impact the Company’s exposure
to these costs.
The Company bases its estimate on
historical trends of units sold and payment
amounts, combined with
its current
understanding of the status of existing
claims and discussions with its customers.
OEM sourcing
OEM policy decisions
regarding warranty claims
The Company is required, from time-to-time,
to review the recoverability of certain of its
assets based on projections of anticipated
future
future
profitability assessments of various product
lines.
including
flows,
cash
The Company estimates cash flows using
internal budgets based on recent sales data,
production
automotive
independent
volume
customer
commitments.
estimates
and
Future production
estimates
Customer preferences
and decisions
The Company is required, from time to time,
to review the credit of customers and make
timely provision of allowance for doubtful
accounts.
The Company estimates the collectability
of the receivables based on the future cash
flows using historical experiences.
Customer credit
CHINA AUTOMOTIVE SYSTEMS, INC.
37
FY 2022 ANNUAL REPORT
Inventory
Provision for
inventory
impairment
Deferred income taxes
Recoverability
of deferred tax
assets
The Company is required, from time to time,
to review the turnover of inventory based on
projections of anticipated future cash flows,
including provision of inventory impairment
for over market price and undesirable
inventories.
The Company estimates cash flows using
internal budgets based on recent sales data,
production
independent
automotive
volume
customer
commitments.
estimates
and
Future production
estimates
Customer preferences
and decisions
The Company is required to estimate whether
recoverability of its deferred tax assets is
more likely than not based on forecasts of
tax
in
taxable
jurisdiction.
earnings
related
the
The Company uses historical and
projected future operating results, based
upon approved business plans, including a
the eligible carry-forward
review of
period, tax planning opportunities and
other relevant considerations.
Tax law changes
Variances in future
projected profitability,
including by taxing entity
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates and foreign currency exchange rates. For purposes of specific risk
analysis, the Company uses sensitivity analysis to determine the effects that market risk exposures may have.
FOREIGN CURRENCY RISK
The Company’s reporting currency is the U.S. dollar and the majority of its revenues will be settled in RMB and U.S. dollars. The
Company’s currency exchange rate risks come primarily from the sales of products to international customers. Most of the Company’s
assets are denominated in RMB except for part of cash and accounts receivable. As a result, the Company is exposed to foreign exchange
risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between the U.S. dollar and the RMB.
The value of the RMB fluctuates and is affected by, among other things, changes in China’s political and economic conditions. In
addition, the RMB is not readily convertible into U.S. dollars or other foreign currencies. All foreign exchange transactions continue to
take place either through the Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rate quoted by
the People’s Bank of China. The conversion of RMB into foreign currencies such as the U.S. dollar has been generally based on rates
set by the People’s Bank of China, which are set daily based on the previous day’s interbank foreign exchange market rates and current
exchange rates on the world financial markets. On December 31, 2022 and 2021, the exchange rates of RMB against U.S. dollar were
RMB 1.00 to $0.1436 and RMB 1.00 to $0.1568, respectively. Any significant future depreciation of the RMB is likely to decrease the
Company’s profits generated from overseas.
In order to mitigate the currency exchange rate risk, the Company and its international customers established a price negotiation
mechanism that provides that, if the currency exchange rate fluctuation is more than 8% since the last price negotiation, the Company
and the customers would adjust the prices for future sales. Normally the adjustment to future sales prices would reflect half of the impact
from the change in exchange rate.
CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable.
The Company does not require collateral or other security to support client receivables since most of its customers are large, well-
established companies. The Company’s credit risk is also mitigated because its customers are all selected enterprises supported by the
local government. One customer, Fiat Chrysler North America, accounted for more than 10% (20.2%) of the Company’s consolidated
revenues in 2022. The Company maintains an allowance for doubtful accounts for any potential credit losses related to its trade
receivables. The Company does not use foreign exchange contracts to hedge the risk in receivables denominated in foreign currencies
and the Company does not hold or issue derivative financial instruments for trading or speculative purposes.
INTEREST RATE RISK
The Company’s exposure to changes in interest rates results primarily from its credit facility borrowings. As of December 31, 2022, the
Company had nil of outstanding indebtedness, which is subject to interest rate fluctuations.
The Company’s level of outstanding indebtedness fluctuates from time to time and may result in additional payable.
CHINA AUTOMOTIVE SYSTEMS, INC.
38
FY 2022 ANNUAL REPORT
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) The financial statements required by this item begin on page 49.
(b) Selected quarterly financial data for the past two years are summarized in the following table (figures are in thousands of USD,
except those for items headed “Basic” and “Diluted”):
First
Quarterly Results of Operations
Third
Second
Fourth
2022
2021
2022
2021
2022
2021
2022
2021
Net sales
Gross profit
Income/(loss) from
operations
Net income/(loss)
Net income/(loss)
attributable to non-
controlling interest
Net income/(loss)
attributable to parent
company’s common
shareholders
Net income/(loss)
attributable to parent
company’s common
shareholders per share-
Basic
Diluted
$ 136,396 $ 130,341 $ 127,161 $ 120,604 $ 137,207 $ 108,231 $ 128,787 $ 138,817
19,710
19,748
20,918
16,792
25,031
22,711
14,734
15,829
(1,538)
149
4,160
3,231
7,200
9,935
119
2,928
4,887
8,007
591
(268)
(2,598)
4,252
648
4,835
200
18
500
(279)
529
42
(97)
(133)
(59)
3,206
9,428
3,200
7,470
(317)
4,342
4,961
$
$
— $
— $
0.10 $
0.10 $
0.31 $
0.31 $
0.10 $
0.10 $
0.24 $
0.24 $
(0.01) $
(0.01) $
0.14 $
0.14 $
0.16
0.16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management, under the supervision and with the participation of its chief executive officer and chief financial officer,
Messrs. Wu Qizhou and Li Jie, respectively, evaluated the effectiveness of the Company’s disclosure controls and procedures as of
December 31, 2022, the end of the period covered by this Report. The term “disclosure controls and procedures,” as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other
procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this
Form 10-K, that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed
to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company’s management, including its chief executive officer and chief financial officer, as
appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, Messrs. Wu and Li concluded that the
Company’s disclosure controls and procedures were effective as of December 31, 2022.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, is a process
designed by, or under the supervision of, the chief executive officer and chief financial officer and effected by the board of directors,
management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
the consolidated financial statements for external reporting purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures that:
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
a. pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and dispositions of
the Company’s assets;
b. provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial
statements in accordance with generally accepted accounting principles, and that the Company’s receipts and expenditures are
being made only in accordance with appropriate authorization of the Company’s management and board of directors; and
c. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the
Company’s assets that could have a material effect on the consolidated financial statements.
In making its assessment of internal control over financial reporting, management, under the supervision and with the participation of
the chief executive officer and chief financial officer, used the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in “Internal Control—Integrated Framework (2013).”
Management has assessed the effectiveness of internal control over financial reporting as of December 31, 2022 and determined that
internal control over financial reporting was effective as of December 31, 2022.
This report does not include an auditors’ report on the effectiveness of internal control over financial reporting due to SEC rules that
exempt smaller reporting companies such as CAAS from providing such a report.
INHERENT LIMITATIONS ON EFFECTIVENESS OF CONTROLS
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-
making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or more people or by management override of the controls. Projections of any
evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes
in conditions or deterioration in the degree of compliance with policies or procedures.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting that occurred during the three months ended December 31, 2022
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
We were identified by the SEC pursuant to Section 104(i)(2)(A) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214(i)(2)(A)) as having
retained, for the preparation of the audit report on its financial statements included in its Annual Report on Form 10-K for the year ended
December 31, 2021, a registered public accounting firm that has a branch or office that is located in a foreign jurisdiction and that the
PCAOB had then determined it was unable to inspect or investigate completely because of a position taken by an authority in the foreign
jurisdiction, which determination was vacated by the PCAOB on December 15, 2022. We hereby confirm that we are not owned or
controlled by any governmental entity in such foreign jurisdiction. We are not a party to any material contracts with such a foreign
governmental party, and there is no such foreign government representative on the Company’s board of directors.
Furthermore, in August 2022, the PCAOB signed a Statement of Protocol with the CSRC and the Ministry of Finance of the People’s
Republic of China, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting
firms headquartered in mainland China and Hong Kong. PCAOB staff members conducted on-site inspections and investigations from
September to November 2022, and in December 2022, the PCAOB announced that it has secured complete access to inspect and
investigate registered public accounting firms headquartered in mainland China and Hong Kong and confirmed that until such time as
the PCAOB issues any new determination, there are no Commission-Identified Issuers at risk of having their securities subject to a
trading prohibition under the HFCAA.
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
For further information, see Item 1. Business and Item 1A. Risk Factors - Risks Related To Doing Business In China And Other
Countries Besides The United States.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
PART III
The following table and text set forth the names and ages of all directors and executive officers of the Company as of December 31,
2022. The Board of Directors is comprised of only one class. All of the directors will serve until the next annual meeting of stockholders
and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Also provided herein
are brief descriptions of the business experience of each director and executive officer during the past five years and an indication of
directorships held by each director in other companies subject to the reporting requirements under the federal securities laws.
Name
Age
Position(s)
Hanlin Chen
Tong Kooi Teo
Guangxun Xu
Heng Henry Lu
Qizhou Wu
Jie Li
Andy Tse
Haimian Cai
Henry Chen
65
66
72
57
58
53
52
59
32
Chairman of the Board
Director
Director
Director
Chief Executive Officer and Director
Chief Financial Officer
Senior Vice President
Vice President
Vice President
BIOGRAPHIES OF DIRECTORS AND EXECUTIVE OFFICERS
Directors
Hanlin Chen has served as the chairman of the board of directors and an executive officer since March 2003. From 1993 to 1997, Mr.
Chen was the general manager of Shashi Jiulong Power Steering Gears Co., Ltd. Since 1997, he has been the chairman of the Board of
Henglong Automotive Parts, Ltd. Mr. Hanlin Chen is the brother-in-law of the Company’s senior vice president, Mr. Andy Tse.
Qizhou Wu has served as a director since March 2003 and as the chief executive officer of the Company since September 2007. He
served as chief operating officer from 2003 to 2007. He was the executive general manager of Shashi Jiulong Power Steering Gears Co.,
Ltd. from 1993 to 1999 and the general manager of Henglong Automotive Parts Co., Ltd. from 1999 to 2002. Mr. Wu graduated from
Tsinghua University in Beijing with a Master’s degree in automobile engineering.
Heng Henry Lu has served as an independent director of the Company since July 2019. He is a member of the audit committee, the
nominating committee and the compensation committee of the Board of Directors. He has been an adviser to NBS Group since February
2016. Dr. Lu was a partner of SVC China from 2012 to 2014 and Chief Representative of William Blair & Company, L.L.C., Shanghai
Representative Office from 2006 to 2011. Prior to that, Dr. Lu was with McKinsey & Company advising global and domestic companies
on their growth and financial strategies. Dr. Lu received a Doctor of Philosophy from Columbia University in 1997 and a Master of
Business Administration from University of Chicago Business School in 2000.
Tong Kooi Teo has served as an independent director of the Company since July 2019. He is the chairman of the compensation
committee, and a member of the audit committee and the nominating committee of the Board of Directors. He is the Chief Executive
Officer of DPS Corporate Advisory Company Limited, Beijing, China, a member of Head International Group, China since March 2018.
He is a senior and independent non-executive director of Tropicana Corporation Bhd since March 2021, listed on the Kuala Lumpur
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
Stock Exchange. He is also Non-Executive Director of Guocoland (China) Limited since February 2018. He was the Managing Director
of Guoco Investment (China) Ltd., Hong Kong from 2014 to 2018, after serving as the Group Managing Director of Guocoland (China)
Ltd. from 2012 to 2014. Prior to that, Mr. Teo was the Chief Executive Officer (China and Vietnam Operations) of WCT Holdings Bhd,
Malaysia from 2011 to 2012. He was the Chief Executive Officer of Hong Leong Asia Ltd (HLA), which is listed on the Singapore
Stock Exchange from 2004 to 2010. From 2003 to 2004, Mr. Teo was the Managing Director of Tasek Corporation Bhd, Malaysia,
which was listed on the Kuala Lumpur Stock Exchange. From 1994 to 2002, Mr. Teo was General Manager of Corporate Banking
Division and Chief Operating Officer of Hong Leong Bank Malaysia. From 1989 to 1994, Mr. Teo was with Deutsche Bank Malaysia
where his last held position was Head of Corporate Banking.
Guangxun Xu has served as an independent director of the Company since December 2009. He is the chairman of both the audit
committee and the nominating committee, and a member of the compensation committee. Mr. Xu has been the Chief Representative of
NASDAQ in China and a managing director of the NASDAQ Stock Market International, Asia for over ten (10) years. With a
professional career in the finance field spanning over thirty (30) years, Mr. Xu’s practice focuses on providing package services on U.S.
and U.K. listings, advising on and arranging for private placements, PIPEs, IPOs, pre-IPO restructuring, M&A, corporate and project
finance, corporate governance, post-IPO IR compliance and risk control.
Executive Officers
Jie Li has served as the chief financial officer since September 2007. Prior to that position he served as the corporate secretary from
December 2004. Prior to joining the Company in September 2003, Mr. Li was the assistant president of Jingzhou Jiulong Industrial Inc.
from 1999 to 2003 and the general manager of Jingzhou Tianxin Investment Management Co. Ltd. from 2002 to 2003. Mr. Li has a
Bachelor’s degree from the University of Science and Technology of China. He also completed his graduate studies in economics and
business management at the Hubei Administration Institute.
Andy Tse has served as a senior vice president of the Company since March 2003. He has also served as chairman of the board of
Shenyang. He was the vice GM of Jiulong from 1993 to 1997 and the vice GM of Henglong. Mr. Tse has over 10 years of experience
in automotive parts sales and strategic development. Mr. Tse has an MBA from the China People University. He is brother in-law to
Mr. Hanlin Chen.
Haimian Cai was an independent director of the Company from September 2003 to December 2009, and also a member of the
Company’s Audit, Compensation and Nominating Committees. Dr. Cai is a technical specialist in the automotive industry. Prior to that,
Dr. Cai was a staff engineer in ITT Automotive Inc. Dr. Cai has written more than fifteen technical papers and co-authored a technical
book regarding the Powder Metallurgy industry for automotive application. Dr. Cai has more than ten patents including pending patents.
Dr. Cai holds a B.S. Degree in Automotive Engineering from Tsinghua University and a M.S. and Ph. D. in manufacturing engineering
from Worcester Polytechnic Institute. Since December 2009, Mr. Cai has not served as independent director and a member of the
Company’s Audit Committee, Compensation and Nominating Committees, because he was nominated as vice president of the Company.
Henry Chen has served as a vice president of the Company since August 2022. Prior to that position he served in Hubei Henglong
Automotive System Co., Ltd. as the executive vice president from February 2022 to August 2022, the assistant to president from January
2021 to January 2022 and the European regional business director from July 2017 to January 2021. Mr. Chen was the investment
manager of Suzhou Qingyan Captial from June 2016 to June 2017. Mr. Chen holds a B.S. Degree in History and Political Science and
a M.S. in Global History from University of Warwick. He is the son of Mr. Hanlin Chen.
BOARD COMPOSITION AND COMMITTEES
Audit Committee and Independent Directors
The Company has a standing Audit Committee of the Board of Directors established in accordance with Section 3(a)(58)(A) of the
Exchange Act, as amended. The Audit Committee is operated under a written charter. The Audit Committee consists of the following
individuals, all of whom the Company considers to be independent, as defined under the SEC’s rules and regulations and the Nasdaq’s
definition of independence: Mr. Tong Kooi Teo, Mr. Guangxun Xu and Mr. Heng Henry Lu. Mr. Guangxun Xu is the Chairman of the
Audit Committee. The Board has determined that Mr. Guangxun Xu is the audit committee financial expert, as defined in
Item 407(d)(5) of Regulation S-K, serving on the Company’s Audit Committee.
Compensation Committee
The Company has a standing Compensation Committee of the Board of Directors. The Compensation Committee is responsible for
determining compensation for the Company’s executive officers. Three of the Company’s independent directors, as defined under the
SEC’s rules and regulations and the Nasdaq’s definition of independence, Mr. Tong Kooi Teo, Mr. Guangxun Xu and Mr. Heng Henry
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
Lu serve on the Compensation Committee. Mr. Tong Kooi Teo is the Chairman of the Compensation Committee. The Board has
determined that all members of the Compensation Committee are independent directors under the rules of the Nasdaq Stock Market, as
applicable. The Compensation Committee administers the Company’s benefit plans, reviews and administers all compensation
arrangements for executive officers, and establishes and reviews general policies relating to the compensation and benefits of the
Company’s officers and employees. The Compensation Committee operates under a written charter that is made available on the
Company’s website, www.caasauto.com.
The Company’s Compensation Committee is empowered to review and approve the annual compensation and compensation procedures
for the executive officers of the Company. The primary goals of the Compensation Committee of the Company’s Board of Directors
with respect to executive compensation are to attract and retain the most talented and dedicated executives possible and to align
executives’ incentives with stockholder value creation. The Compensation Committee evaluates individual executive performance with
a goal of setting compensation at levels the committee believes are comparable with executives in other companies of similar size and
stage of development operating in similar industry while taking into account the Company’s relative performance and its strategic goals.
The Company has not retained a compensation consultant to review its policies and procedures with respect to executive compensation.
The Company conducts an annual review of the aggregate level of its executive compensation, as well as the mix of elements used to
compensate its executive officers. The Company compares compensation levels with amounts currently being paid to executives in its
industry and most importantly with local practices in China. The Company is satisfied that its compensation levels are competitive with
local conditions.
Nominating Committee
The Company has a standing Nominating Committee of the Board of Directors. Director candidates are nominated by the Nominating
Committee. The Nominating Committee will consider candidates based upon their business and financial experience, personal
characteristics, and expertise that are complementary to the background and experience of other Board members, willingness to devote
the required amount of time to carry out the duties and responsibilities of Board membership, willingness to objectively appraise
management performance, and any such other qualifications the Nominating Committee deems necessary to ascertain the candidates’
ability to serve on the Board. The Nominating Committee will not consider nominee recommendations from security holders, other than
the recommendations received from a security holder or group of security holders that beneficially owned more than 5 percent of the
Company’s outstanding common stock for at least one year as of the date the recommendation is made. Three of the Company’s
independent directors, as defined under the SEC’s rules and regulations and the Nasdaq’s definition of independence, Mr. Tong Kooi
Teo, Mr. Guangxun Xu and Mr. Heng Henry Lu, serve on the Nominating Committee. Mr. Xu is the Chairman of the Nominating
Committee.
Stockholder Communications
Stockholders interested in communicating directly with the Board of Directors, or individual directors, may email the Company’s
independent director Mr. Guangxun Xu at guangxunxu@hotmail.com. Mr. Xu will review all such correspondence and will regularly
forward to the board of directors of the Company copies of all such correspondence that deals with the functions of the Board or
committees thereof or that he otherwise determines requires their attention. Directors may at any time review all of the correspondence
received that is addressed to members of the board of directors of the Company and request copies of such correspondence. Concerns
relating to accounting, internal controls or auditing matters will immediately be brought to the attention of the Audit Committee and
handled in accordance with procedures established by the Audit Committee with respect to such matters.
Family Relationships
Mr. Hanlin Chen and Mr. Andy Tse are brothers-in-law.
Mr. Hanlin Chen and Mr. Henry Chen are father and son.
Code of Ethics and Conduct
The Board of Directors has adopted a Code of Ethics and Conduct which is applicable to all officers, directors and employees. The Code
of Ethics and Conduct was filed as an exhibit to the Form 10-K for the year ended December 31, 2009, which was filed with the
Securities and Exchange Commission on March 25, 2010.
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION DISCUSSION AND ANALYSIS
In 2003, the Board of Directors established a Compensation Committee consisting only of independent Board members, which is
responsible for setting the Company’s policies regarding compensation and benefits and administering the Company’s benefit plans. At
the end of fiscal year 2022, the Compensation Committee consisted of Mr. Tong Kooi Teo, Mr. Guangxun Xu and Mr. Heng Henry Lu.
The members of the Compensation Committee approved the amount and form of compensation paid to executive officers of the
Company and set the Company’s compensation policies and procedures during these periods.
The primary goals of the Company’s compensation committee with respect to executive compensation are to attract and retain highly
talented and dedicated executives and to align executives’ incentives with stockholder value creation.
The Compensation Committee will conduct an annual review of the aggregate level of the Company’s executive compensation, as well
as the mix of elements used to compensate the Company’s executive officers. The Company compares compensation levels with amounts
currently being paid to executives at similar companies in the same area and the same industry. Most importantly, the Company compares
compensation levels with local practices in China. The Company believes that its compensation levels are competitive with local
conditions.
ELEMENTS OF COMPENSATION
The Company’s executive compensation consists of the following elements:
Base Salary
In determining the amount of base salaries for our named executive officers (“Named Executive Officers”), the Compensation
Committee strives to establish base salaries that are similar to those paid by other companies to executives in similar positions and with
similar responsibilities. Base salaries are adjusted from time to time to realign salaries with market levels after considering individual
responsibilities, performance and experience. The Compensation Committee established a salary structure to determine base salaries
and is responsible for initially setting executive officer compensation in employment arrangements with each individual. The base salary
amounts are intended to reflect the Company’s philosophy that the base salary should attract experienced individuals who will contribute
to the success of the Company’s business goals and represent cash compensation that is commensurate with the compensation of
individuals at similarly situated companies.
The Company’s Board of Directors and Compensation Committee have approved the current salaries for executives: RMB 2.2 million
(equivalent to approximately $0.32 million) for the Chairman, RMB 1.4 million (equivalent to approximately $0.21 million) for the
CEO and RMB 0.9 million (equivalent to approximately $0.13 million) individually for each other officer in 2022.
Performance Bonus
a. Grantees: Mr. Hanlin Chen, Mr. Qizhou Wu, Mr. Andy Tse, Mr. Henry Chen and Mr. Jie Li.
b. Conditions: based on the Company’s consolidated financial statements, (i) the year over year growth rate of sales for 2022
must be 5% or higher; or (ii) the year over year growth rate of sales for 2022 must be 10% or higher.
c. Bonus: If condition (i) is satisfied, 25% of each officer’s annual salary in 2022. If condition (ii) is satisfied, 50% of each
officer’s annual salary in 2022.
The Company accrued 25% of the annual salary as performance bonus for each Named Executive Officer in 2022 as the Company
reached the above condition (i).
Stock Option Awards
The stock options plan proposed by management, which aims to incentivize and retain core employees, to meet employees’ benefits,
the Company’s long term operating goals and stockholder benefits, was approved at the Annual Meeting of Stockholders held on
June 28, 2005, and extended for ten years at the Annual Meeting of Stockholders held on September 16, 2014. The maximum common
shares available for issuance under the plan is 2,200,000. The term of the plan was extended to June 27, 2025.
There were no stock options granted to management in 2022.
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
Other Compensation
Other than the base salary for the Company’s Named Executive Officers, the performance bonus and the stock option awards referred
to above, the Company does not have any other benefits and perquisites for its Named Executive Officers. However, the Compensation
Committee in its discretion may provide benefits and perquisites to these executive officers if it deems advisable to do so.
COMPENSATION TABLES
Executive Officers
The compensation that Named Executive Officers received for their services for fiscal years 2022 and 2021 were as follows (figures are
in thousands of USD):
Hanlin Chen (Chairman)
Name and principal position
Qizhou Wu (CEO)
Jie Li (CFO)
Haimian Cai (Vice President)
Year Salary (1) Bonus (2) Option Awards (3) Total
— $ 401
— $ 495
2022 $
2021 $
321 $
330 $
80 $
165 $
2022 $
2021 $
214 $
220 $
53 $
110 $
2022 $
2021 $
128 $
132 $
32 $
66 $
2022 $
2021 $
383 $
356 $
— $
— $
— $ 267
— $ 330
— $ 160
— $ 198
— $ 383
— $ 356
(1) Salary – Please refer to Base Salary disclosed under “Elements of compensation” section above for further details.
(2) Bonus – Please refer to Performance Bonus disclosed under “Elements of compensation” section above for further details.
(3) Option Awards – Please refer to Stock Option Awards disclosed under “Elements of compensation” section above for further details.
Compensation for Directors
Based on the number of the board of directors’ service years, workload and performance, the Company decides on their pay. The
management believes that the pay for the members of the Board of Directors was appropriate as of December 31, 2022. The
compensation that directors received for serving on the Board of Directors for fiscal year 2022 was as follows (figures are in thousands
of USD):
Name
Tong Kooi Teo
Guangxun Xu
Heng Henry Lu
Fees earned or paid in cash Option awards (1) Total
— $ 32
32 $
$
— $ 59
59 $
$
— $ 32
32 $
$
(1) The company did not grant option awards to directors in 2022.
The cost of the above-mentioned compensation paid to directors was measured based on investment, operating, technology, and
consulting services they provided. All other directors did not receive compensation for their service on the Board of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
As used in this section, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange
Act of 1934, as amended, as consisting of sole or shared voting power, including the power to vote or direct the vote, and/or sole or
shared investment power, including the power to dispose of or direct the disposition of, with respect to the security through any contract,
arrangement, understanding, relationship or otherwise, subject to community property laws where applicable. The percentage ownership
is based on 30,185,702 shares of common stock outstanding at December 31, 2022 (exclusive of 2,152,600 shares of treasury stock).
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
Name/Title
Total Number of Shares Percentage Ownership
Hanlin Chen, Chairman (1)
Qizhou Wu, CEO and Director
Guangxun Xu, Director
Tong Kooi Teo, Director
Heng Henry Lu, Director
Haimian Cai, VP
Jie Li, CFO (2)
Tse Andy, Sr. VP
Henry Chen, VP
All Directors and Executive Officers (9 persons)
17,849,014
1,325,136
—
—
—
—
91,031
400,204
—
19,665,385
59.13 %
4.39 %
— %
— %
— %
— %
0.30 %
1.33 %
— %
65.15 %
(1) Includes (i) 13,322,547 shares of common stock beneficially owned by Mr. Hanlin Chen; (ii) 1,502,925 shares of common stock
beneficially owned by Ms. Liping Xie, Mr. Hanlin Chen’s wife; and (iii) 3,023,542 shares of common stock beneficially owned by
Wiselink, a company controlled by Mr. Hanlin Chen.
(2) Includes 50,000 shares held as nominee for Jingzhou Jiulong Machinery and Electronic Manufacturing Co., Ltd. On October 13,
2014, the Company issued 4,078,000 of its common shares in a private placement to nominee holders of Jingzhou Jiulong Machinery
and Electronic Manufacturing Co., Ltd. for the acquisition of the 19.0% and 20.0% equity interest in Jiulong and Henglong held by
Jingzhou Jiulong Machinery and Electronic Manufacturing Co., Ltd., respectively. All of the nominee holders of Jingzhou Jiulong
Machinery and Electronic Manufacturing Co., Ltd. are unrelated parties except for Mr. Jie Li (CFO).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
For the information required by Item 13 please refer to Note 2 (Basis of Presentation and Significant Accounting Policies–Certain
Relationships and Related Transactions) and Note 25 (Related Party Transactions) to the consolidated financial statements in this Report.
The Company’s Audit Committee’s charter provides that one of its responsibilities is to review and approve related party transactions
defined as those transactions required to be disclosed under Item 404 of Regulation S-K of the rules and regulations under the Exchange
Act. The Company has a formal written set of policies and procedures for the review, approval or ratification of related party transactions.
Where a related party transaction is identified, the Audit Committee reviews and, where appropriate, approves the transaction based on
whether it believes that the transaction is at arm’s length and contains terms that are no less favorable than what the Company could
have obtained from an unaffiliated third party.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table sets forth the aggregate fees for professional audit services rendered by PricewaterhouseCoopers Zhong Tian LLP
for the audit of the Company’s annual financial statements and other services provided in the fiscal years 2022 and 2021. The Audit
Committee has approved the following fees (figures are in thousands of USD):
Audit Fees
AUDIT COMMITTEE’S PRE-APPROVAL POLICY
Fiscal Year Ended
2022
2021
$
731 $
768
During the fiscal years ended December 31, 2022 and 2021, the Audit Committee of the Board of Directors adopted policies and
procedures for the pre-approval of all audit and non-audit services to be provided by the Company’s independent auditor and for the
prohibition of certain services from being provided by the independent auditor. The Company may not engage the Company’s
independent auditor to render any audit or non-audit service unless the service is approved in advance by the Audit Committee or the
engagement to render the service is entered into pursuant to the Audit Committee’s pre-approval policies and procedures. On an annual
basis, the Audit Committee may pre-approve services that are expected to be provided to the Company by the independent auditor during
the fiscal year. At the time such pre-approval is granted, the Audit Committee specifies the pre-approved services and establishes a
monetary limit with respect to each particular pre-approved service, which limit may not be exceeded without obtaining further pre-
approval under the policy. For any pre-approval, the Audit Committee considers whether such services are consistent with the rules of
the Securities and Exchange Commission on auditor independence.
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
PART IV
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of China Automotive Systems, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of China Automotive Systems, Inc.
and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income or loss, of
comprehensive income or loss, of changes in stockholders’ equity and of cash flows for the years then ended, including the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole,
and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Assessment of the recoverability of deferred tax assets
As described in Notes 2 and 9 to the consolidated financial statements, as of December 31, 2022, the Company’s deferred tax assets
were $7.7 million. Deferred tax assets and liabilities are recognized for the future tax consequences, which is attributable to operating
loss and tax credit carryforwards and for differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases, by applying enacted statutory rates applicable to future years. A valuation allowance is provided to reduce
the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not
be realized. The valuation allowance is based on management’s estimates of future taxable profits and application of relevant income
tax law.
The principal considerations for our determination that performing procedures relating to the assessment of the recoverability of deferred
tax assets is a critical audit matter are (i) the significant judgment by management when assessing the recoverability of deferred tax
assets and a high degree of estimation uncertainty related to the estimates of future taxable profits; and (ii) a high degree of auditor
judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management’s estimates of future
taxable profits related to the recoverability of deferred tax assets.
CHINA AUTOMOTIVE SYSTEMS, INC.
47
FY 2022 ANNUAL REPORT
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s
assessment of recoverability of deferred tax assets, including controls over the estimates of future taxable profits. These procedures also
included, among others, evaluating the reasonableness of management’s estimates of future taxable profits used to assess the
recoverability of the deferred tax assets by (i) considering the results of a retrospective comparison of the estimates of future taxable
profits in prior year to actual results in the current year; (ii) comparison of revenue growth rate, gross margin and profit margin in the
estimates of future taxable profits to historical results and industry trends; (iii) performing sensitivity analyses of significant assumptions
to evaluate the changes in the estimates of future taxable profits; and (iv) comparing whether the estimates of future taxable profits was
consistent with evidence obtained in other areas of the audit.
/s/PricewaterhouseCoopers Zhong Tian LLP
Shanghai, the People’s Republic of China
March 30, 2023
We have served as the Company's auditor since 2010.
CHINA AUTOMOTIVE SYSTEMS, INC.
48
FY 2022 ANNUAL REPORT
China Automotive Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands of USD, except share and per share amounts)
December 31,
2022
2021
ASSETS
Current assets:
Cash and cash equivalents
Pledged cash
Short-term investments
Accounts and notes receivable, net - unrelated parties (Allowance for credit losses of $14,359 and $11,961, respectively)
Accounts and notes receivable, net - related parties (Allowance for credit losses of $1,763 and $898, respectively)
Advance payments and others, net - unrelated parties (Allowance for credit losses of $115 and $55, respectively)
Advance payments and others - related parties
Inventories
Total current assets
Non-current assets:
Property, plant and equipment, net
Land use rights, net
Intangible assets, net
Operating lease assets
Long-term time deposits
Other receivables, net (Allowance for credit losses of nil and $50, respectively)
Advance payment for property, plant and equipment - unrelated parties
Advance payment for property, plant and equipment - related parties
Long-term investments
Deferred tax assets
Other non-current assets
Total assets
$ 121,216 $ 131,695
27,804
1,756
195,729
14,607
12,696
600
116,493
501,380
37,735
12,861
214,308
10,016
10,907
1,439
112,236
520,718
106,606
9,555
1,273
477
—
46
6,331
1,884
59,810
7,652
—
127,721
10,732
1,812
138
8,135
358
2,284
810
36,966
10,114
16,312
$ 714,352 $ 716,762
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term bank loans
Accounts and notes payable - unrelated parties
Accounts and notes payable - related parties
Customer deposits
Accrued payroll and related costs
Accrued expenses and other payables
Taxes payable
Operating lease liabilities - current portion
Total current liabilities
Long-term liabilities:
Advances payable
Operating lease liabilities - non-current portion
Long-term loans
Deferred tax liabilities
Long-term taxes payable
Total liabilities
Commitments and Contingencies (Note 26)
Mezzanine equity:
Redeemable non-controlling interests
Stockholders’ Equity
Common stock, $0.0001 par value - Authorized - 80,000,000 shares Issued – 32,338,302 and 32,338,302
shares at December 31, 2022 and 2021, respectively
Additional paid-in capital
Retained earnings-
Appropriated
Unappropriated
Accumulated other comprehensive income
$ 45,671 $ 47,592
214,590
13,464
2,400
10,984
50,332
12,326
128
351,816
218,412
16,695
5,654
11,628
48,311
17,598
226
364,195
2,144
255
528
4,010
15,805
2,028
22
—
4,380
21,075
386,937
379,321
582
553
3
63,731
3
63,731
11,851
247,174
(3,413)
11,481
226,363
24,717
CHINA AUTOMOTIVE SYSTEMS, INC.
49
FY 2022 ANNUAL REPORT
Treasury stock – 2,152,600 and 1,486,526 shares at December 31, 2022 and 2021, respectively
Total parent company stockholders’ equity
Non-controlling interests
Total stockholders’ equity
Total liabilities, mezzanine equity and stockholders’ equity
(5,261)
(7,695)
321,034
311,651
15,854
15,182
336,888
326,833
714,352 $ 716,762
The accompanying notes are an integral part of these consolidated financial statements.
China Automotive Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME OR LOSS
(In thousands of USD, except share and per share amounts)
Net product sales ($44,282 and $65,131 sold to related parties for the years ended
December 31, 2022 and 2021)
Cost of products sold ($28,810 and $31,580 purchased from related parties for the years ended
December 31, 2022 and 2021)
Gross profit
Net gain on other sales
Operating expenses:
Selling expenses
General and administrative expenses
Research and development expenses
Total operating expenses
Operating income
Other income, net
Interest expense
Financial income/(expense), net
Income before income tax expenses and equity in earnings of affiliated companies
Less: Income taxes
Add: Equity in earnings of affiliated companies
Net income
Net income/(loss) attributable to non-controlling interest
Accretion to redemption value of redeemable non-controlling interests
Net income attributable to parent company’s common shareholders
Net income attributable to parent company’s common shareholders per share -
Basic
Diluted
Weighted average number of common shares outstanding -
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
Year Ended December 31,
2022
2021
$
529,551
$
497,993
446,157
83,394
3,696
425,914
72,079
4,368
16,910
26,120
36,109
79,139
7,951
5,782
(1,450)
10,753
23,036
3,082
2,389
22,343
1,132
(30)
21,181
18,278
24,423
28,228
70,929
5,518
6,668
(1,437)
(2,350)
8,399
4,004
6,331
10,726
(352)
(28)
11,050
$
0.69
$
0.36
$
0.69
$
0.36
30,639,102
30,641,274
30,851,776
30,855,431
CHINA AUTOMOTIVE SYSTEMS, INC.
50
FY 2022 ANNUAL REPORT
China Automotive Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME OR LOSS
(In thousands of USD unless otherwise indicated)
Net income
Other comprehensive income:
Foreign currency translation (loss)/gain
Comprehensive (loss)/income
Comprehensive (loss)/income attributable to non-controlling interest
Accretion to redemption value of redeemable non-controlling interest
Comprehensive (loss)/income attributable to parent company
The accompanying notes are an integral part of these consolidated financial statements.
Year Ended December 31,
2022
22,343
2021
10,726
(29,934)
(7,591)
(672)
(30)
(6,949)
$
7,784
18,510
128
(28)
18,354
$
China Automotive Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands of USD, except share and per share amounts)
Common Stock
Balance at January 1, 2022 and 2021 - 32,338,302 and 32,338,302 shares, respectively
Balance at December 31, 2022 and 2021 - 32,338,302 and 32,338,302 shares, respectively
Additional Paid-in Capital
Balance at January 1
Share-based compensation
Acquisition of the non-controlling interest in Wuhu
Balance at December 31
Retained Earnings - Appropriated
Balance at January 1
Appropriation of retained earnings
Balance at December 31
Unappropriated
Balance at January 1
Net income attributable to parent company
Accretion of redeemable non-controlling interests
Appropriation of retained earnings
Balance at December 31
Accumulated Other Comprehensive (Loss)/Income
Balance at January 1
Net foreign currency translation adjustment attributable to parent company
Balance at December 31
Treasury Stock
Balance at January 1, 2022 and 2021 – 1,486,526 and 1,486,526 shares, respectively
Repurchase of common stock in 2022 and 2021 – 666,074 and nil shares, respectively
Balance at December 31, 2022 and 2021 – 2,152,600 and 1,486,526 shares, respectively
Total parent company stockholders’ equity
Non-controlling Interest
Balance at January 1
Net foreign currency translation adjustment attributable to non-controlling interest
2022
2021
3
3
63,731
—
—
63,731
11,481
370
11,851
226,363
21,211
(30)
(370)
247,174
24,717
(28,130)
(3,413)
(5,261)
(2,434)
(7,695)
$
$
$
$
$
$
$
$
$
$
$
$
3
3
64,273
88
(630)
63,731
11,303
178
11,481
215,491
11,078
(28)
(178)
226,363
17,413
7,304
24,717
(5,261)
—
(5,261)
311,651
$
321,034
15,854
(1,804)
$
16,170
480
$
$
$
$
$
$
$
$
$
$
$
$
$
$
CHINA AUTOMOTIVE SYSTEMS, INC.
51
FY 2022 ANNUAL REPORT
Net income/(loss) attributable to non-controlling interest
Acquisition of the non-controlling interest in Wuhu
Balance at December 31
Total stockholders’ equity
1,132
—
15,182
$
(352)
(444)
15,854
326,833
$
336,888
$
$
The accompanying notes are an integral part of these consolidated financial statements.
China Automotive Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of USD unless otherwise indicated)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation
Depreciation and amortization
Deferred income taxes
Allowance for credit losses
Impairment loss on prepayment for investment in Hefei Senye(See Note 10)
Equity in earnings of affiliates
Government subsidy reclassified from advances payable
Loss on disposal of fixed assets
(Increase)/decrease in:
Accounts and notes receivable
Advance payments and others
Inventories
Increase/(decrease) in:
Accounts and notes payable
Customer deposits
Accrued payroll and related costs
Accrued expenses and other payables
Taxes payable
Advances payable
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of short-term investments and long-term time deposits
Proceeds from maturities of short-term investments
Decrease/(increase) in demand loans and employee housing loans included in other receivables
Loan to a related party
Repayment of loan from a related party
Cash received from property, plant and equipment sales
Cash paid to acquire property, plant and equipment (including $ 3,445 and $1,965 paid to related
parties for the years ended December 31, 2022 and 2021, respectively)
Cash paid to acquire intangible assets
Cash received from long-term investment
Investment under equity method
Cash prepaid for investment under equity method
Net cash provided by/(used in) investing activities
Cash flows from financing activities:
Proceeds from bank loans
Repayment of bank loans and government loans
Repurchase of common shares
Repayments of the borrowing under sale and leaseback transaction
Acquisition of non-controlling interest
Year Ended December 31,
2022
2021
$
22,343
$
10,726
—
25,173
1,243
4,404
2,676
(2,389)
—
58
(36,935)
(41)
(5,368)
27,271
3,580
1,628
1,158
2,925
297
48,023
(80,244)
75,144
292
(146)
—
1,514
(20,296)
(188)
3,986
(12,802)
—
(32,740)
51,898
(49,917)
(2,434)
(1,130)
—
88
27,113
4,020
2,738
—
(6,331)
(1,253)
389
26,560
1,439
(25,684)
(2,801)
870
(2,721)
(4,081)
(4,501)
1,700
28,271
(63,478)
69,351
(171)
—
154
150
(9,260)
(642)
20,621
(308)
(13,454)
2,963
53,209
(50,803)
—
(4,450)
(1,075)
CHINA AUTOMOTIVE SYSTEMS, INC.
52
FY 2022 ANNUAL REPORT
Net cash used in financing activities
Cash and cash equivalents affected by foreign currency
Net increase in cash and cash equivalents
Cash, cash equivalents and pledged cash at beginning of year
Cash, cash equivalents and pledged cash at end of year
(1,583)
(3,119)
(14,248)
(548)
159,499
158,951
$
3,323
31,438
128,061
159,499
$
The accompanying notes are an integral part of these consolidated financial statements.
China Automotive Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands of USD unless otherwise indicated)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest
Cash paid for income taxes
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Non-cash investing activities:
Year Ended December 31,
2022
$
$
1,492
4,044
$
$
2021
1,843
3,398
Year Ended December 31,
Property, plant and equipment recorded during the year which previously were advance payments
Change in accounts payable for acquiring property, plant and equipment
$
$
2,473
985
$
$
2022
2021
8,543
1,510
Supplemental disclosure of acquisition of operating lease assets
The accompanying notes are an integral part of these consolidated financial statements.
Year Ended December 31,
2022
2021
477
$
—
CHINA AUTOMOTIVE SYSTEMS, INC.
53
FY 2022 ANNUAL REPORT
China Automotive Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
China Automotive Systems, Inc., “China Automotive,” was incorporated in the State of Delaware on June 29, 1999 under the name of
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 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 PRC and Brazil as of December 31, 2022 and 2021.
Name of Entity
Shashi Jiulong Power Steering Gears Co., Ltd., “Jiulong” 1
Jingzhou Henglong Automotive Parts Co., Ltd., “Henglong” 2
Shenyang Jinbei Henglong Automotive Steering System Co., Ltd., “Shenyang” 3
Wuhan Jielong Electric Power Steering Co., Ltd., “Jielong” 4
Wuhu Henglong Automotive Steering System Co., Ltd., “Wuhu”5
Hubei Henglong Automotive System Group Co., Ltd., “Hubei Henglong” 6
Jingzhou Henglong Automotive Technology (Testing) Center, “Testing Center” 7
Chongqing Henglong Hongyan Automotive System Co., Ltd., “Chongqing Henglong” 8
CAAS Brazil’s Imports and Trade In Automotive Parts Ltd., “Brazil Henglong” 9
Wuhan Chuguanjie Automotive Science and Technology Ltd., “Wuhan Chuguanjie” 10
Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd.,
“Shanghai Henglong” 11
Jingzhou Qingyan Intelligent Automotive Technology Research Institute Co., Ltd., “Jingzhou
Qingyan”12
Hubei Henglong & KYB Automobile Electric Steering System Co., Ltd., “Henglong KYB”13
Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., “Wuhan Hyoseong”14
Wuhu Hongrun New Material Co., Ltd., “Wuhu Hongrun”15
Changchun Hualong Automotive Technology Co., Ltd., “Changchun Hualong” 16
Percentage Interest
December 31, December 31,
2022
2021
100.00 %
100.00 %
70.00 %
85.00 %
100.00 %
100.00 %
100.00 %
70.00 %
95.84 %
85.00 %
100.00 %
100.00 %
70.00 %
85.00 %
100.00 %
100.00 %
100.00 %
70.00 %
95.84 %
85.00 %
100.00 %
100.00 %
—
66.60 %
51.00 %
62.00 %
100.00 %
60.00 %
66.60 %
51.00 %
62.00 %
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 automobile steering columns.
5. Wuhu was established in 2006 and mainly engages in the production and sales of automobile steering systems. In April 2021, the
Company obtained an additional 22.67% equity interest in Wuhu for total consideration of RMB 6.9 million, equivalent to
approximately $1.1 million, from the other shareholder. The Company retained its controlling interest in Wuhu and the acquisition
of the non-controlling interest was accounted for as an equity transaction.
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.
In December 2009, Henglong, a subsidiary of Genesis, formed the Testing Center, which mainly engages in the research and
development of new products.
7.
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
CHINA AUTOMOTIVE SYSTEMS, INC.
54
FY 2022 ANNUAL REPORT
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 sale of automotive electronics.
12. In November 2017, Hubei Henglong formed Jingzhou Qingyan Intelligent Automotive Technology Research Institute Co., Ltd.,
“Jingzhou Qingyan”, which mainly engages in the research and development of intelligent automotive technology. Jingzhou
Qingyan deregistered from the local business administration on June 22, 2022.
13. 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.
14. 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.
15. 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.
16. 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.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation - For the years ended December 31, 2022 and 2021, the consolidated financial statements include the accounts of
the Company and its subsidiaries, which are described in Note 1. Significant inter-company balances and transactions have been
eliminated upon consolidation. The consolidated financial statements have been prepared in accordance with generally accepted
accounting principles in the United States of America.
Shenyang was formed in 2002, with 70% owned and controlled by the Company, and 30% owned by Shenyang Automotive Industry
Investment Corporation, “JB Investment.” The highest authority of Shenyang is its board of directors, which is comprised of seven
directors, four of whom, 57%, are appointed by the Company, and three of whom, 43%, are appointed by JB Investment. As for day-to-
day operating matters, approval by more than two-thirds of the members of such board of directors, 67%, is required. The chairman of
such board of directors is appointed by the Company. In March 2003, the Company and Jinbei entered into an act-in-concert agreement,
under which the directors appointed by Jinbei agree to act in concert with the directors appointed by the Company. As a result, the
Company obtained control of Shenyang in March 2003. The general manager of Shenyang is appointed by the Company.
Jielong was formed in April 2006. On December 31, 2022, 85% of Jielong was owned by the Company, and 15% of Jielong was owned
by Hubei Wanlong. The highest authority of Jielong is its board of directors, which is comprised of three directors, two of whom, 67%,
are appointed by the Company, and one of whom, 33%, is appointed by Hubei Wanlong. As for day-to-day operating matters, approval
by at least two-thirds of the members of such board of directors is required. Both the chairman of such board of directors and the general
manager of Jielong are appointed by the Company.
Chongqing Henglong was formed in 2012, with 70% owned by the Company and 30% owned by SAIC-IVECO. The highest authority
of the Chongqing Henglong is its board of directors, which is comprised of five directors, three of whom, 60%, are appointed by the
Company, and two of whom, 40%, are appointed by SAIC-IVECO. As for day-to-day operating matters, approval by at least two-thirds
of the members of such board of directors is required. In February 2012, the Company and SAIC-IVECO entered into an “Act in Concert”
agreement. According to the agreement, the directors appointed by SAIC-IVECO agreed to execute the “Act in Concert” agreement
with the directors designated by the Company, resulting in the Company having voting control of Chongqing Henglong. The chairman
of such board of directors and the general manager of Chongqing Henglong are both appointed by the Company.
Brazil Henglong was formed in 2012, with 80% owned by the Company and 20% owned by Mr. Ozias Gaia Da Silva and Mr. Ademir
Dal’ Evedove. 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
CHINA AUTOMOTIVE SYSTEMS, INC.
55
FY 2022 ANNUAL REPORT
equity transaction. After the acquisition, the Company owns 95.84% of Brazil Henglong’s shares. The highest authority of Brazil
Henglong is its board of directors. In making operational decision, approval by voting rights representing at least 3/4 of the capital, 75%,
is required and 95.84% of voting rights were owned by the Company. The chairman of such board of directors is appointed by the
Company. The general manager is Mr. Ozias Gaia Da Silva.
Wuhan Chuguanjie was formed in 2014, with 85% owned by the Company and 15% owned by Hubei Wanlong. The highest authority
of Wuhan Chuguanjie is its board of directors, which is comprised of three directors, two of whom, 67%, are appointed by the Company,
and one of whom, 33%, is appointed by Hubei Wanlong. As for day-to-day operating matters, approval by at least two-thirds of the
members of such board of directors is required. Both of the chairman of such board of directors and the general manager of Chuguanjie
are appointed by the Company.
Henglong KYB was formed in 2018, with 66.60% owned by the Company and 33.40% owned by KYB. The highest authority of
Henglong KYB is its board of directors, which is comprised of five directors, three of whom are appointed by the Company, and two of
whom are appointed by KYB. As for day-to-day operating matters, approval by at least three-fifths of the members of such board of
directors is required. The chairman of such board of directors is appointed by the Company and the general manager is appointed by
KYB.
Wuhan Hyoseong was formed in 2019, with 51% owned by the Company and 49% owned by Hyoseong. The highest authority of Wuhan
Hyoseong is its board of directors, which is comprised of five directors, three of whom are appointed by the Company, and two of whom
are appointed by Hyoseong. As for day-to-day operating matters, approval by at least three-fifths of the members of such board of
directors is required. The chairman of such board of directors is appointed by the Company and the vice chairman is appointed by Wuhan
Hyoseong.
Wuhu Hongrun was formed in 2019, with 62% owned by the Company and 38% owned by the other two parties. The highest authority
of Wuhu Hongrun is its board of directors, which is comprised of five directors. The directors are elected by the general meeting of
shareholders. As for day-to-day operating matters, approval by at least three-fifths of the members of such board of directors is required.
The chairman and the general management are appointed by the board of directors.
Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in
the United States 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. The Company is of the opinion that the significant estimates related to valuation of long term assets and
investment, the realizable value of accounts receivable and inventories, the accrual of warranty obligations and the recoverability of
deferred tax assets. Actual results could differ from those estimates.
Cash and Cash Equivalents - Cash and cash equivalents include all highly-liquid investments with an original maturity of three months
or less at the date of purchase.
Pledged Cash - Pledged as collateral for the Company’s notes payable and restricted to use. The Company regularly pays some of its
suppliers by bank notes. The Company has to deposit a cash deposit, equivalent to 40%-100% of the face value of the relevant bank
note, in order to obtain the bank note.
Short-term Investments - Short-term investments are comprised of time deposits with original terms of three months to one year and
wealth management financial products maturing within one year. The carrying values of time deposits approximate fair value because
of their short-term maturities. The interest earned is recognized in the consolidated statements of income or loss over the contractual
term of the deposits. The wealth management financial products are measured at fair value and classified as Level 3 within the fair value
measurement hierarchy. Changes in the fair value are reflected in other income in the consolidated statements of income or loss.
Current Expected Credit Losses - The company adopted ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments” (“ASC Topic 326”) and other related ASUs. The Company’s accounts and
notes receivable, advance payments and other receivables are within the scope of ASC Topic 326. The Company has identified the
relevant risk characteristics of its customers and the related receivables, and other receivables which include type of the products the
Company provides, nature of the customers or a combination of these characteristics. Receivables with similar risk characteristics have
been grouped into pools. For each pool, the Company considers the historical credit loss experience, current economic conditions,
supportable forecasts of future economic conditions, and any recoveries in assessing the lifetime expected credit losses. Other key factors
that influence the expected credit loss analysis include customer demographics, payment terms offered in the normal course of business
to customers, and industry-specific factors that could impact the Company’s receivables. Additionally, external data and macroeconomic
factors are also considered.
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
For the year ended December 31, 2022 and 2021, the Company recorded $4.5 million and $2.7 million expected credit loss expense in
general and administrative expenses, respectively. As of December 31, 2022, the expected credit loss provision for the current and non-
current assets were $16.2 million and nil, respectively.
Inventories - Inventories are stated at the lower of cost and net realizable value. Cost is calculated on the moving-average basis and
includes all costs to acquire and other costs to bring the inventories to their present location and condition. The Company evaluates the
net realizable value of its inventories on a regular basis and records a provision for loss to reduce the computed moving-average cost if
it exceeds the net realizable value.
Advance Payments - These amounts represent advances to acquire various assets to be utilized in the future in the Company’s normal
business operations, such as machine equipment, raw materials and technology. Such amounts are paid according to their respective
contract terms. Advance payment for machinery and equipment is classified as advance payment for property, plant and equipment in
the consolidated balance sheet and advance payment of raw materials and technology are classified as advance payments and others in
the consolidated balance sheet.
Property, Plant and Equipment - Property, plant and equipment are stated at cost. Major renewals and improvements are capitalized;
minor replacements and maintenance and repairs are charged to operations. Depreciation is calculated on the straight-line method over
the estimated useful lives of the respective assets as follows:
Category
Buildings
Machinery and equipment
Electronic equipment
Motor vehicles
Estimated Useful Life (Years)
25
6
4
8
Land use rights - Land use rights represent acquisition costs to purchase land use rights from the PRC government, which are evidenced
by property certificates. The periods of these purchased land use rights are either 45 years or 50 years. The Company classifies land use
rights as long-term assets on the balance sheet and cash outflows related to acquisition of land use rights as investing activities.
Land use rights are carried at cost less accumulated amortization and impairment losses, if any. Amortization is computed using the
straight-line method over the term specified in the land use right certificate for 45 years or 50 years, as applicable. Amortization expenses
of land use rights were $0.3 million and $0.3 million for the years ended December 31, 2022 and 2021, respectively.
As of December 31, 2022 and 2021, the Company had pledged land use rights with a net book value of approximately $5.1 million and
$5.7 million, respectively, as security for its comprehensive credit facilities with banks in China.
Construction in Progress - Construction in progress, which represents buildings under construction and plant and equipment pending
installation, are stated at cost. Cost includes construction and acquisitions, and interest charges arising from borrowings used to finance
assets during the period of construction or installation and testing. No provision for depreciation is made on assets under construction
until such time as the relevant assets are completed and ready for their intended commercial use.
Gains or losses on disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the
carrying amount of the relevant asset, and are recognized in the consolidated statements of income or loss on the date of disposal.
Interest Costs Capitalized - Interest costs incurred in connection with borrowings for the acquisition, construction or installation of
property, plant and equipment are capitalized and depreciated as part of the asset’s total cost when the respective asset is placed into
service. Interest costs capitalized for the years ended December 31, 2022 and 2021, were $0.2 million and $0.5 million, respectively.
Intangible Assets - Intangible assets, representing patents and technical know-how acquired, are stated at cost less accumulated
amortization and impairment losses. Amortization is calculated on the straight-line method over the estimated useful life of 5 to 15 years.
Long-Lived Assets - The Company has adopted the provisions of ASC Topic 360, “Accounting for the Impairment or Disposal of Long-
Lived Assets.” Property, plant and equipment and definite life intangible assets are reviewed periodically for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If required, an impairment
loss is recognized as the difference between the carrying value and the fair value of the assets.
In assessing long-lived assets for impairment, management considered the Company’s product line portfolio, customers and related
commercial agreements, and other factors in grouping assets and liabilities at the lowest level for which identifiable cash flows are
largely independent. The Company considers projected future undiscounted cash flows, trends and other factors in its assessment of
whether impairment conditions exist. Whilst the Company believes that its estimates of future cash flows are reasonable, different
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
assumptions regarding such factors as future automotive production volumes, customer pricing, economics and productivity and cost
saving initiatives, could significantly affect its estimates. In determining fair value of long-lived assets, management uses appraisals,
management estimates or discounted cash flow calculations.
Long-term Investments - The Company’s long-term investments include investments in corporations and investments in limited
partnerships. Investments in corporations which the Company has the ability to exert significant influence are accounted for using the
equity method. Investments in limited partnerships which the Company has more than virtually no influence are accounted for using the
equity method. The limited partnerships accounted for its investments at fair value that were classified under Level 1, in the fair value
hierarchy , for those whose shares were listed and actively traded on stock exchange. The fair value of the limited partnerships’ Level 2
investments were determined using recent market price or buy-back price. The fair value of the limited partnerships’ Level 3 investments
were determined using valuation techniques based on market approach or income approach with unobservable inputs, which required
significant judgment made by management with respect to the assumptions and estimates. For the investments made close to the period
end, their initial investment amount were deemed approximate to their fair value. As of December 31, 2022, certain investments funds
are approaching the end of their investment term and actively sought for exit with their investees or potential buyers. The investments
in limited partnerships were accounted for substantially under Level 1 or Level 2 as at December 31, 2022.
The Company continually reviews its investment to determine whether a decline in fair value below the carrying value is other than
temporary. The primary factors the Company considers in its determination are the length of time that the fair value of the investment
is below the Company’s carrying value and the financial condition, operating performance and near-term prospects of the investee. In
addition, the Company considers the reason for the decline in fair value, including general market conditions, industry-specific or
investee-specific reasons, changes in valuation subsequent to the balance sheet date and the Company’s intent and ability to hold the
investment for a period of time sufficient to allow for a recovery in fair value. If the decline in fair value is deemed to be other than
temporary, the carrying value of the security is written down to fair value.
Revenue Recognition - The Company has adopted ASC Topic 606 “Revenue from Contracts with Customers”. Products sales to
customers are made pursuant to master agreements entered into between the Company and its customers that provide for transfer of both
title and risk of loss upon the Company’s delivery to the location specified in the contracts. The Company’s sales arrangements generally
do not contain variable considerations and are short-term in nature. A period of credit term is granted to the customers after the delivery
and before making payment. The Company recognizes revenue at a point in time based on management’s evaluation of when the
customer obtains control of the products. Revenue is recognized when all performance obligations under the terms of a contract with
the customer are satisfied and control of the product has been transferred to the customer. Sales of goods do not include multiple product
and/or service elements.
Revenue is measured as the amount of consideration management expects the Company to receive in exchange for transferring goods
pursuant to the contracts. Value-added tax that the Company collects concurrent with revenue-producing activities is excluded from
revenue. Incidental contract costs that are not material in the context of the delivery of goods and services are recognized as expense.
At the time revenue is recognized, allowances are recorded, with the related reduction to revenue, for estimated price discounts based
upon historical experience and related terms of customer arrangements. Where the Company has offered product warranties, the
Company also establishes liabilities for estimated warranty costs based upon historical experience and specific warranty provisions.
Warranty liabilities are adjusted when experience indicates the expected outcome will differ from initial estimates of the liability.
The Company accounts for shipping and handling fees as a fulfillment cost since control of the products is usually transferred to the
customer after the delivery.
Revenue Disaggregation
Revenue disaggregation under the segment reporting standard is measured on the same basis as under the revenue standard. Management
has concluded that the disaggregation level is the same under both the revenue standard and the segment reporting standard, and does
not repeat the disaggregation of revenue under both standards.
Contract Assets and Liabilities
Contract assets, such as costs to obtain or fulfill contracts, are an insignificant component of the Company’s revenue recognition process.
The majority of the Company’s cost of fulfillment as a manufacturer of products is classified as inventory, fixed assets and intangible
assets, which are accounted for under the respective guidance for those asset types. Other costs of contract fulfillment are immaterial
due to the nature of the Company’s products and their respective manufacturing processes.
Contract liabilities are mainly customer deposits.
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
Customer Deposits
As of December 31, 2022 and 2021, the Company has customer deposits of $5.7 million and $2.4 million , respectively. During the year
ended December 31, 2022, $10.2 million was received and $6.9 million (including $2.4 million from the beginning balance of customer
deposits) was recognized as net product sales revenue. During the year ended December 31, 2021, $7.2 million was received and $6.3
million (including $1.5 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.
Practical Expedient and Exemptions
The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of
one year or less.
The Company does not adjust the promised amount of consideration for the effects of a significant financing component since the
Company expects, at contract inception, that the period between when the Company transfers promised goods to the customers and
when the customers pay for the goods will be less than one year.
Government Subsidies - The Company’s PRC based subsidiaries received government subsidies according to related policy from local
government. For the subsidies for which the Chinese government has specified their purpose, such as product development and renewal
of production facilities, the Company recorded specific purpose subsidies as advances payable when received. Upon government
acceptance of the related project development or assets acquisition, the specific purpose subsidies are recognized to reduce related R&D
expenses or cost of acquired assets. The Company recognized the subsidies that do not have specific purpose as other income upon
receipt.
Sales Taxes - The Company is subject to value added tax, “VAT.” The applicable VAT tax rate is 13% for products sold in the PRC.
Products exported overseas are exempted from VAT. The amount of VAT liability is determined by applying the applicable tax rate to
the invoiced amount of goods sold less VAT paid on purchases made with the relevant supporting invoices. VAT is collected from
customers by the Company on behalf of the PRC tax authorities and is therefore not charged to the consolidated statements of income
or loss.
Uncertain Tax Positions - In order to assess uncertain tax positions, the Company applies a more likely than not threshold and a two-
step approach for tax position measurement and financial statement recognition. For the two-step approach, the first step is to evaluate
the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position
will be sustained, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as
the largest amount that is more than 50% likely to be realized upon settlement. As of December 31, 2022 and 2021, the Company has
no uncertain tax positions.
Product Warranties - The Company provides for the estimated cost of product warranties when the products are sold. Such estimates of
product warranties were based on, among other things, historical experience, product changes, material expenses, service and
transportation expenses arising from the manufactured product. Estimates will be adjusted on the basis of actual claims and
circumstances.
For the years ended December 31, 2022 and 2021, the warranties activities were as follows (figures are in thousands of USD):
Balance at the beginning of year
Additions during the year
Settlement within the year
Foreign currency translation loss
Balance at end of year
Year Ended December 31,
2022
36,572
10,941
(11,877)
(3,201)
32,435
2021
36,215
13,917
(14,427)
867
36,572
$
$
$
$
Pension - Most of the operations and employees of the Company are located in China. The Company records pension costs and various
employment benefits in accordance with the relevant Chinese social security laws, which is approximately at a total of 35% and 35% of
base salary for the years ended December 31, 2022 and 2021, respectively. Base salary levels are the average salary determined by the
local governments. For employees in overseas countries (mainly U.S. and Brazil), the Company records pension costs and various
employment benefits in accordance with the relevant overseas social security regulations, which is approximately at a total of 26% and
26% of base salary for the years ended December 31, 2022 and 2021, respectively.
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FY 2022 ANNUAL REPORT
Concentration of Credit Risk - Financial instruments that potentially subject the Company to significant concentrations of credit risk
consist primarily of trade accounts receivable.
In 2022, the Company’s five largest customers accounted for 42.8% of the Company’s consolidated sales, with one customer accounting
for more than 10% of consolidated sales (i.e., 20.2% of consolidated sales, which comprised a total of $106.9 million in sales included
in the Hubei Henglong segment (Note 27)).
In 2021, the Company’s five largest customers accounted for 44.8% of the Company’s consolidated sales, with one customer accounting
for more than 10% of consolidated sales (i.e., 21.2% of consolidated sales, which comprised a total of $105.6 million in sales included
in the Hubei Henglong segment (Note 27)).
At December 31, 2022 and 2021, approximately 8.0% and 7.7% of accounts receivable were from trade transactions with the
aforementioned customer (accounting for more than 10% of consolidated sales).
The Company performs ongoing credit evaluations with respect to the financial condition of its debtors, but does not require collateral.
It records a provision for doubtful accounts to cover probable credit losses. Management reviews and adjusts this allowance periodically
based on historical experience, current economic conditions, supportable forecasts of future economic conditions and other factors for
evaluation of the collectability of outstanding accounts receivable.
Income Taxes - Current income taxes are provided on the basis of net income for financial reporting purposes, adjusted for income and
expense items which are not assessable or deductible for income tax purposes, in accordance with the regulations of the relevant tax
jurisdictions. The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences, which is attributable to operating loss and tax credit carryforwards and for
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, by applying
enacted statutory rates applicable to future years. The tax base of an asset or liability is the amount attributed to that asset or liability for
tax purposes. The effect on deferred taxes of a change in tax rates is recognized in income in the period enacted. A valuation allowance
is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred
tax assets will not be realized. The valuation allowance is based on management’s estimates of future taxable profits and application of
relevant income tax law. The Company applies ASC 740, “Income Taxes”, which clarifies the accounting for uncertainty in income
taxes recognized in the Company’s consolidated financial statements and prescribes a more likely than not threshold for financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on
derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for
interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
If the amount of the Company’s taxable income or income tax liability is a determinant of the amount of a grant, the grant is treated as
a reduction of the income tax provision in the year the grant is realized.
Gain on other sales - Gain on other sales mainly consists of rental income, gain on disposal of intangible assets and property, plant and
equipment and technical services revenue.
Research and Development Costs - Research and development costs are expensed as incurred.
Advertising, Shipping and Handling Costs - Advertising, shipping and handling costs are expensed as incurred and recorded in selling
expenses. Shipping and handling costs relating to sales of $6.5 million and $9.9 million were included in selling expenses for the years
ended December 31, 2022 and 2021, respectively.
Leases – The Company adopted ASU 2016-02, Leases, and other related ASUs (collectively, “ASC 842”). The Company determines if
an arrangement is a lease upon inception. A contract is or contains a lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration. The right to control the use of an asset includes the right to obtain
substantially all of the economic benefits of the underlying asset and the right to direct how and for what purpose the asset is used. The
Company’s major plants and buildings are self-owned and limited temporary small offices were rented. For leases with a term of 12
months or less, the Company makes an accounting policy election by class of underlying asset not to recognize lease assets and lease
liabilities. The Company recognizes lease expenses for such leases on a straight-line basis over the lease term. Operating lease assets
and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate
used to calculate present value is the Company’s incremental borrowing rate or, if available, the rate implicit in the lease. The Company
determines the incremental borrowing rate for each lease based primarily on the lease term and the economic environment of the
applicable country or region. The discount rate used by the Company for its operating lease was 4.75%. As of December 31, 2022, the
weighted average remaining lease term was 2.3 years. The Company did not have finance lease arrangements as of December 31, 2022.
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FY 2022 ANNUAL REPORT
Income Per Share - Basic income per share is computed by dividing net income attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the period using the two-class method. Under the two-class method, net income
is allocated between ordinary shares and other participating securities, including convertible note holders, if any, based on their
participating rights. Diluted income per share is calculated by dividing net income attributable to ordinary shareholders, as adjusted for
the effects on income of participating securities as if they were dilutive ordinary shares, if any, by the weighted average number of
ordinary and dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares consist of ordinary shares
issuable upon the conversion of the convertible notes using the if-converted method, and shares issuable upon the exercise of stock
options and warrants for the purchase of ordinary shares using the treasury stock method. Ordinary equivalent shares are not included
in the denominator of the diluted earnings per share calculation when inclusion of such shares would be antidilutive.
Comprehensive Income - ASC Topic 220 establishes standards for the reporting and display of comprehensive income, its components
and accumulated balances in a full set of general purpose financial statements. ASC Topic 220 defines comprehensive income to include
all changes in equity except those resulting from investments by owners and distributions to owners, including adjustments to minimum
pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on marketable securities.
Fair Value Measurements - For purposes of fair value measurements, the Company applies the applicable provisions of ASC 820 “Fair
Value Measurements and Disclosures.” Accordingly, fair value for the Company’s financial accounting and reporting purposes
represents the estimated price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the designated measurement date. With an objective to increase consistency and comparability in fair value
measurements and related disclosures, the Financial Accounting Standard Board established the fair value hierarchy which prioritizes
the inputs to valuation techniques used to measure fair value into three broad levels.
Level 1 Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability
to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability
occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market
provides the most reliable evidence of fair value and shall be used to measure fair value whenever available. As at December 31, 2022
and 2021, marketable securities with nil and $0.1 million, respectively, were classified as Level 1.
Level 2 Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of
the asset or liability. As at December 31, 2022 and 2021, the Company did not have any fair value assets and liabilities classified as
Level 2.
Level 3 Inputs are unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the extent that
observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability
at the measurement date. However, the fair value measurement objective remains the same, that is, an exit price from the perspective of
a market participant that holds the asset or owes the liability. Therefore, unobservable inputs shall reflect the reporting entity’s own
assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
As at December 31, 2022 and 2021, wealth management financial products with amounts of $12.9 million and $1.7 million, respectively,
were classified as Level 3.
The Company’s financial instruments consist principally of cash and cash equivalents, pledged cash, time deposits, accounts and notes
receivable, accounts and notes payable, advance payment or payable, other receivable or payable, accrued expenses and bank loans. As
of December 31, 2022 and 2021, the respective carrying values of all financial instruments approximated fair value because any changes
in fair value, after considering the discount rate, are immaterial.
Segment Reporting - Based on the criteria established by ASC 280 “Segment Reporting,” the Company currently operates and manages
its business by product sectors and each of them is a reportable segment. The Company’s chief operating decision-maker (“CODM”) is
the chief executive officer. The CODM reviews operating results to make decisions about allocating resources for the Company and
assessing performance of its segments. Since most of the revenue generated of the Company and assets held by the Company are in
PRC while others are generated and held in other countries, information by geographic region is also presented.
Stock-Based Compensation - The Company may issue stock options to employees and stock options or warrants to non-employees in
non-capital raising transactions for services and for financing costs. The Company has adopted ASC Topic 718, “Accounting for Stock-
Based Compensation,” which establishes a fair value based method of accounting for stock-based compensation plans. In accordance
with ASC Topic 718, the cost of stock options and warrants issued to employees and non-employees is measured on the grant date based
on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense
on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.
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FY 2022 ANNUAL REPORT
Foreign Currencies - China Automotive, the parent company, and HLUSA maintain their books and records in United States Dollars,
“USD,” which is their functional currency. The Company’s subsidiaries based in the PRC and Genesis maintain their books and records
in Renminbi, “RMB,” which is their functional currency. The Company’s subsidiary based in Brazil maintains its books and records in
Brazilian reais, “BRL,” which is its functional currency. In accordance with ASC Topic 830, “FASB Accounting Standards
Codification”, 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.
In translating the financial statements of the Company’s China and Brazil subsidiaries and Genesis from their functional currency into
the Company’s reporting currency of United States dollars, balance sheet accounts are translated using the closing exchange rate in
effect at the balance sheet date and income and expense accounts are translated using an average exchange rate prevailing during the
reporting period. Adjustments resulting from the translation, if any, are included in cumulative other comprehensive income (loss) in
stockholders’ equity.
Certain Relationships and Related Transactions
The following are the related parties of the Company. The Company or the major shareholders of the Company directly or indirectly
have interests in these related parties:
Jingzhou Yude Machining Co., Ltd., “ Jingzhou Yude ”
Jingzhou Jiulong Material Co., Ltd., “ Jiulong Material ”
Jingzhou Derun Agricultural S&T Development Co., Ltd., “ Jingzhou Derun ”
Jingzhou Tongying Alloys Materials Co., Ltd., “ Jingzhou Tongying ”
Wiselink Holding Limited, “Wiselink”
Xiamen Joylon Co., Ltd., “ Xiamen Joylon ”
Shanghai Tianxiang Automotive Parts Co., Ltd., “ Shanghai Tianxiang ”
Jiangling Tongchuang Machining Co., Ltd., “ Jiangling Tongchuang ”
Shanghai Hongxi Investment Inc, “ Hongxi ”
Hubei Wiselink Equipment Manufacturing Co., Ltd., “ Hubei Wiselink ”
Wuhan Dida Information S&T Development Co., Ltd., “ Wuhan Dida ”
Hubei Wanlong Investment Co., Ltd., “ Hubei Wanlong ”
Honghu Changrun Automotive Parts Co., Ltd., “ Honghu Changrun ”
Jingzhou Henglong Real Estate Co., Ltd., “ Henglong Real Estate ”
Xiamen Joylon Automotive Parts Co., Ltd., “Xiamen Automotive Parts ”
Wuhan Tongkai Automobile Motor Co., Ltd., “ Wuhan Tongkai ”
Jingzhou Natural Astaxanthin Inc, “Jingzhou Astaxanthin”
Hubei Asta Biotech Inc., “Hubei Asta”
Shanghai Yifu Automotive Electronics Technology Co., Ltd., “Shanghai Yifu”
Suzhou Qingyan Venture Capital Fund L.P., “Suzhou Qingyan”
Chongqing Qingyan Venture Capital Fund L.P., “Chongqing Qingyan”
Chongqing Jinghua Automotive Intelligent Manufacturing Technology Research Co., Ltd., “Chongqing Jinghua”
Hubei Hongrun Intelligent System Co.,Ltd., “Hubei Hongrun”
Jingzhou WiseDawn Electric Car Co., Ltd., “Jingzhou WiseDawn”
Hubei Zhirong Automobile Technology Co., Ltd., “Hubei Zhirong”
Hubei Tongrun Automotive Parts Industry Development Co., Ltd., “Hubei Tongrun”
Hubei Qingyan Venture Capital Fund L.P, “Hubei Qingyan”
Hubei Henglongtianyu Pipe system Co.,Ltd., “Henglong Tianyu”
Wuhan Ewinlink Intelligent System Co., Ltd., “Ewinlink”
Hubei HLTW Automotive Lightweight Co.,Ltd., “Hubei HLTW”
Hubei Jinlv New Energy Battery Technology Co., Ltd., “Hubei Jinlv”
Hubei Yiling Intelligent Technology Co., Ltd., “Hubei Yiling”
Sentient AB
Suzhou Sentient Automotive Technology Co., Ltd., “Suzhou Sentient”
Suzhou Qingshan Zhiyuan Venture Capital Fund L.P., “Suzhou Qingshan”
Beijing Hainachuan HengLong Automotive Steering System Co., Ltd., “ Beijing Henglong ”
Principal policies of the Company in connection with transactions with related parties are as follows:
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FY 2022 ANNUAL REPORT
Products Sold to Related Partie - The Company sold products to related parties at fair market prices and granted them credit of three to
four months. These transactions were consummated under similar terms as the Company’s other customers.
Materials Purchased from Related Parties - The Company purchased materials from related parties at fair market prices, and also
received from them credit of three to four months. These transactions were consummated under similar terms as the Company’s other
suppliers.
Equipment and Production Technology Purchased from Related Parties - The Company purchased equipment and production
technology from related parties at fair market prices, or reasonable cost-plus pricing if fair market prices are not available. The Company
sometimes was required to pay in advance based on the purchase agreement, because equipment manufacturing and technology
development normally requires a long period. These transactions are consummated under similar terms as the Company’s other suppliers.
Short-term Loans Extended to Related Parties - The Company provides short-term loans to related parties and assists the borrowing
entities in addressing certain cash flow needs. In general, the Company charges interest by referencing to the prevailing borrowing
interest rates published by PBOC.
Recent Accounting Pronouncements
In November 2021, the FASB issued Accounting Standards Update (“ASU”) 2021-10 Government Assistance (Topic 832): Disclosures
by Business Entities about Government Assistance, effective for financial statements issued for annual periods beginning after December
15, 2021. ASU 2021-10 requires business entities to disclose information in the notes to the financial statements about certain types of
government assistance. The annual disclosure requirements apply to transactions with a government that are accounted for by
analogizing to either a grant model or a contribution model. The Company adopted this guidance from January 1, 2022. The adoption
of this guidance did not have a material impact on the Company’s consolidated financial statements.
3. Accounts and Notes Receivable
The Company’s accounts receivable on December 31, 2022 and 2021, are summarized as follows (figures are in thousands of USD):
Accounts receivable - unrelated parties
Notes receivable - unrelated parties (1)
Total accounts and notes receivable - unrelated parties
Less: allowance for doubtful accounts - unrelated parties
Accounts and notes receivable, net - unrelated parties
Accounts and notes receivable - related parties
Less: allowance for doubtful accounts - related parties
Accounts and notes receivable, net - related parties
Accounts and notes receivable, net
December 31,
2022
139,533
89,134
228,667
(14,359)
214,308
11,779
(1,763)
10,016
224,324
$
$
2021
146,362
61,328
207,690
(11,961)
195,729
15,505
(898)
14,607
210,336
$
$
(1) Notes receivable represents accounts receivable in the form of bills of exchange whose acceptances and settlements are handled by
banks.
As of December 31, 2022 and 2021, the Company pledged its notes receivable in amounts of $13.7 million and $18.2 million,
respectively, as collateral for banks to endorse the payment of the Company’s notes payable to the noteholder upon maturity (See
Note 12).
The activity in the Company’s allowance for doubtful accounts of accounts receivable during the years ended December 31, 2022 and
2021, is summarized as follows (figures are in thousands of USD):
Balance at beginning of year
Amounts provided during the year
Amounts reversed of collection during the year
Foreign currency translation
Balance at end of year
Year Ended December 31,
2022
12,859
5,371
(967)
(1,141)
16,122
$
$
2021
9,854
2,774
(24)
255
12,859
$
$
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
4. Advance Payments and Others
The Company’s advance payments and others as of December 31, 2022 and 2021, consisted of the following:
Prepayments for purchase of raw materials
Input VAT
Prepayment for share repurchase program
Prepaid income tax
Employee advances
Prepayment for R&D service
Others
Total advance payments and others
Less: Allowance for doubtful accounts
Advance payments and others, net
5.
Inventories
Year Ended December 31,
2022
2021
$
$
3,942
4,283
754
1,287
713
748
734
12,461
(115)
12,346
$
$
6,066
3,433
1,238
1,366
641
—
607
13,351
(55)
13,296
The Company’s inventories at December 31, 2022 and 2021, consisted of the following (figures are in thousands of USD):
Raw materials
Work in process
Finished goods
Cost of R&D service
Balance at end of year
December 31,
2022
24,502
16,001
71,371
362
112,236
$
$
2021
33,583
9,415
73,495
—
116,493
$
$
The Company recorded $4.7 million and $4.7 million of inventory write-down to cost of product sold for the years ended December 31,
2022 and 2021, respectively.
6. Property, Plant and Equipment
The Company’s property, plant and equipment at December 31, 2022 and 2021, are summarized as follows (figures are in thousands of
USD):
December 31,
2022
2021
Costs:
Buildings
Machinery and equipment
Electronic equipment
Motor vehicles
Construction in progress
$
64,928
239,385
6,242
4,308
8,238
323,101
(216,495)
106,606
$
69,554
253,245
6,887
5,121
6,583
341,390
(213,669)
127,721
Less: Accumulated depreciation
Balance at end of year
Depreciation charges for the years ended December 31, 2022 and 2021, were $24.2 million and $26.1 million, respectively.
$
$
As of December 31, 2022 and 2021, the Company pledged property, plant and equipment with net book value of approximately $51.6
million and $54.7 million, respectively, as security for its comprehensive credit facilities with banks in China.
7.
Intangible Assets
The Company’s intangible assets at December 31, 2022 and 2021, are summarized as follows (figures are in thousands of USD):
Costs:
Patent technology
Management software license
December 31,
2022
2021
$
2,266
3,756
$
2,598
3,994
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
Total intangible assets - at cost
Less: Accumulated amortization
Balance at end of year, net
Amortization expenses were $0.6 million and $0.6 million for the years ended December 31, 2022 and 2021, respectively.
6,022
(4,749)
1,273
$
$
6,592
(4,780)
1,812
Amortization expenses
8. Long-term Investments
2023
Estimated Amortization Expenses
2026
2025
2024
2027
$
496
$
319
$
232
$
130
$
88
The Company’s long-term investments on December 31, 2022 and 2021, are summarized as follows (figures are in thousands of USD):
Limited Partnerships:
Chongqing Venture Fund (1)
Hubei Venture Fund (2)
Suzhou Venture Fund (3)
Suzhou Qingshan (4)
Subtotal - Investments in limited partnerships
Corporations:
Sentient AB(5)
Henglong Tianyu
Chongqing Jinghua
Jiangsu Intelligent
Subtotal - Investments in corporations
Total
December 31,
2022
2021
$
$
14,435
11,738
5,473
4,179
35,825
21,831
774
695
685
23,985
59,810
$
$
17,530
9,665
7,413
—
34,608
—
913
642
803
2,358
36,966
(1) In May 2016, Hubei Henglong entered into an agreement with other parties to establish a limited partnership, the “Chongqing
Venture Fund”. As of December 31, 2022, Hubei Henglong owned 18.5% of Chongqing Venture Fund’s equity. As a limited
partner, Hubei Henglong has more than virtually no influence over the Chongqing Venture Fund’s operating and financial policies.
The investment is accounted for using the equity method. The Company’s proportionate share of Chongqing Venture Fund’s net
earnings for the year ended Decemeber 31, 2022 was $0.9 million, recorded as equity in earning of affiliated company, and the
Company also recorded $0.9 million in distributions from the fund. There was no impairment on this investment during the year
ended December 31, 2022.
(2) In March 2018, Hubei Henglong entered into an agreement with other parties to establish a limited partnership, the “Hubei Venture
Fund”. As of December 31, 2022, Hubei Henglong owned 28.5% of Hubei Venture Fund’s equity. As a limited partner, Hubei
Henglong has more than virtually no influence over the Hubei Venture Fund’s operating and financial policies. The investment is
accounted for using the equity method. The Company’s proportionate share of Hubei Venture Fund’s net earnings for the year
ended Decemeber 31, 2022 was $3.9 million, recorded as equity in earning of affiliated company, and the Company also recorded
$1.2 million in distributions from the fund. There was no impairment on this investment during the year ended December 31, 2022.
(3) In September 2014, Hubei Henglong entered into an agreement with other parties to establish a limited partnership, the “Suzhou
Venture Fund”. As of December 31, Hubei Henglong owned 12.5% of the Suzhou Venture Fund’s equity. As a limited partner,
Hubei Henglong has more than virtually no influence over the Suzhou Venture Fund’s operating and financial policies. The
investment is accounted for using the equity method. The Company’s proportionate share of Suzhou Venture Fund’s net earnings
for the year ended Decemeber 31, 2022 was $0.4 million, recorded as equity in earning of affiliated company, and the Company
also recorded $1.8 million in distributions from the fund. There was no impairment on this investment during the year ended
December 31, 2022.
(4) In January 2022, Hubei Henglong entered into an agreement with other parties to establish a limited partnership, Suzhou Qingshan
Zhiyuan Venture Capital Fund L.P., “Suzhou Qingshan”. As of December 31, 2022, Hubei Henglong owned 22.56% of Suzhou
Qingshan’s equity. As a limited partner, Hubei Henglong has more than virtually no influence over Suzhou Qingshan’s operating
and financial policies. The investment is accounted for using the equity method. The Company’s proportionate share of Suzhou
Qingshan Venture Fund’s net loss for the year ended Decemeber 31, 2022 was $0.1 million loss, recorded as equity in earning of
affiliated company. There was no impairment on this investment during the year ended December 31, 2022.
CHINA AUTOMOTIVE SYSTEMS, INC.
65
FY 2022 ANNUAL REPORT
(5) In June 2021, Hubei Henglong entered into a share purchase agreement with Jingzhou WiseDawn Electric Car Co., Ltd., “Jingzhou
WiseDawn”, a related party controlled by the Company’s controlling shareholder, Mr. Chen Hanlin. In accordance with the
agreement, CAAS would purchase 200 shares, representing 40% of Sentient AB’s share capital, from Jingzhou WiseDawn for total
consideration of RMB 155.2 million, equivalent to approximately $24.5 million. The transaction was completed in March 2022.
Pursuant to the share purchase agreement, the Company has the right to appoint two directors to the board of directors, so it can
exercise significant influence over Sentient AB. Therefore, the investment is accounted for using the equity method. As of December
31, 2022, the Company has paid RMB 141.0 million, equivalent to approximately $21.6 million, with the remaining consideration
of RMB 14.2 million, equivalent to approximately $2.0 million, to be paid in 2023. The company’s proportionate share of Sentient
AB’s net loss for the year ended December 31, 2022 was $0.5 million. There was no impairment on this investment during the year
ended December 31, 2022.
The Company summarizes the condensed financial information of the Company’s equity method investments as a group below (figures
are in thousands of USD):
Revenue
Gross profit
Income from continuing operations
Net income
9. Deferred Income Tax Assets and Liabilities
December 31,
2022
2021
$
$
5,628
1,294
6,451
6,430
$
$
88,122
59,561
63,067
61,374
The components of deferred tax assets and liabilities at December 31, 2022 and 2021, were as follows (figures are in thousands of USD):
Losses carryforward (U.S.) (1)
Losses carryforward (Non-U.S.) (1)
Product warranties and other reserves
Property, plant and equipment
Bonus accrual
Other accruals
Deductible temporary difference related to revenue recognition
Others
Total deferred tax assets
Less: Valuation allowance (1) (2)
Total deferred tax assets, net of valuation allowance
Deferred withholding tax for dividend distribution from PRC subsidiaries (Note 22)
Other taxable temporary differences
Total deferred tax liabilities
$
December 31,
2022
349
11,371
8,525
7,506
252
2,163
1,294
2,175
33,635
(23,270)
10,365
$
2021
2,559
13,058
8,679
7,760
106
1,101
879
1,009
35,151
(22,788)
12,363
4,010
2,713
6,723
$
4,380
2,249
6,629
$
(1)
The net operating loss carry -forward for the U.S. entity for income tax purposes are available to reduce future years’ taxable
income. These carry -forwards will not expire if not utilized, and the Company may carry the losses forward indefinitely. Net
operating losses for China entities can be carried forward for 5 years to offset taxable income except for entities that qualify as a
High & New Technology Enterprise, for which the net operating loss can be carried forward for 10 years. However, as of
December 31, 2022, valuation allowance was $23.3 million, including $0.3 million allowance for the Company’s deferred tax
assets in the United States and $23.0 million allowance for the Company’s non-U.S. deferred tax assets primarily in China. Based
on the Company’s current operations, management believes that all deferred tax assets in the United States and certain deferred
tax assets in non-U.S. regions are not likely to be realized in the future.
(2) As of December 31, 2022, the Company had net operating tax loss carry -forwards amounting to $8.4 million and $1.2 million
which will expire from 2023 to 2032 and from 2023 to 2027, respectively, if not used.
The deferred tax assets and liabilities are classified in the consolidated balance sheets as follows (figures are in thousands of USD):
Deferred tax assets
Deferred tax liabilities
December 31,
2022
$
7,652
4,010
$
2021
10,114
4,380
CHINA AUTOMOTIVE SYSTEMS, INC.
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FY 2022 ANNUAL REPORT
The activity in the Company’s valuation allowance for deferred tax assets during the years ended December 31, 2022 and 2021, are
summarized as follows (figures are in thousands of USD):
Balance at beginning of year
Amounts provided for during the year
Amounts used during the year
Foreign currency translation
Balance at end of year
10. Other non-current assets
Year Ended December 31,
2022
22,788
5,058
(2,721)
(1,855)
23,270
2021
18,155
4,468
(247)
412
22,788
$
$
$
$
The Company’s other non-current assets at December 31, 2022 and 2021, are summarized as follows (figures are in thousands of USD):
Year Ended December 31,
Prepayment for investment in Hefei Senye(1)
Prepayment for investment under equity method-Sentient AB (See Note 8)
Less: Allowance for impairment
2022
2,584
—
(2,584)
—
$
$
2021
2,823
13,489
—
16,312
$
$
(1) In November 2019, Hubei Henglong entered into an agreement with other parties and committed to purchase 70% of the shares of
Hefei Senye Light Plastic Technology Co., Ltd. for total consideration of RMB 33.6 million, equivalent to approximately $4.8
million. As of December 31, 2022, Hubei Henglong has paid RMB 18.0 million, equivalent to approximately $2.6 million, which
was reported in other non-current assets as the transaction had not been consummated. The company recognized full provision for
impairment regarding this prepayment of RMB 18.0 million in 2022 as the probability of recoverability of this prepayment became
substantially reduced.
11. Bank Loans
Loans consist of the following as of December 31, 2022 and 2021 (figures are in thousands of USD):
Short-term bank loans (1)(2)
Long-term loans (2)
Total bank loans
December 31,
2022
45,671
528
46,199
$
$
2021
47,592
—
47,592
$
$
(1)
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 $148.3 million and $116.8 million, respectively, as of
December 31, 2022 and 2021. As of December 31, 2022 and 2021, the Company has drawn down loans with an aggregate amount
of $46.2 million and $47.6 million, respectively. The weighted average interest rate was 2.9% and 3.5%, respectively.
(2) The Company borrowed a total of RMB 3.9 million from Chongqing Bank loans from April to July 2022, equivalent to
approximately $0.6 million. These loans are due for repayment from March to April 2025 with an interest rate of 3.85% per
annum. In accordance with the loan agreement, the Company should repay the principal of RMB100,000, equivalent to
approximately $14,358, every six months starting on April 2022. The principal that will be repaid in 2023 is reclassified to short-
term bank loans.
The Company must use the loans for the purpose specified in the borrowing agreement. If it fails to do so, it may be charged penalty
interest or triggered early repayment. The Company complied with such financial covenants as of December 31, 2022.
12. Accounts and Notes Payable
The Company’s accounts and notes payable at December 31, 2022 and 2021, are summarized as follows (figures are in thousands of
USD):
CHINA AUTOMOTIVE SYSTEMS, INC.
67
FY 2022 ANNUAL REPORT
Accounts payable - unrelated parties
Notes payable - unrelated parties (1)
Accounts and notes payable - unrelated parties
Accounts and notes payable - related parties
Balance at end of year
December 31,
2022
133,882
84,530
218,412
16,695
235,107
$
$
2021
132,593
81,997
214,590
13,464
228,054
$
$
(1) Notes payable represent payables in the form of notes issued by the bank. As of December 31, 2022 and 2021, the Company has
pledged cash of $37.6 million and $27.8 million, and also has pledged notes receivable of $13.7 million and $18.2 million,
respectively, as collateral for banks to endorse the payment of the Company’s notes payable to the noteholder 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 December 31, 2022 and 2021, the Company has used $39.6 million and $33.6 million of its credit
facility, respectively, for issuing bank notes.
13. Accrued Expenses and Other Payables
The Company’s accrued expenses and other payables at December 31, 2022 and 2021, are summarized as follows (figures are in
thousands of USD):
Accrued expenses
Warranty reserves (See Note 2)
Payable for the investment in Sentient AB (See Note 8)
Payables for overseas transportation and custom clearance
Dividends payable to holders of non-controlling interests
Current portion of other long-term payable (See Note 15)
Accrued interest
Other payables
Balance at end of year
14. Taxes Payable
December 31,
2022
2021
$
$
9,652
32,435
2,043
294
431
—
465
2,991
48,311
$
$
5,596
36,572
—
4,548
471
1,115
507
1,523
50,332
The Company’s taxes payable on December 31, 2022 and 2021, are summarized as follows (figures are in thousands of USD):
December 31,
Value-added tax payable
Tariffs payable
Long-term taxes payable - current portion (1)
Income tax payable
Other tax payable
Short-term taxes payable
Long-term taxes payable
Less: Long-term taxes payable - current portion (1)
Long-term taxes payable (1)
2022
2021
$
$
3,470
7,061
5,270
680
1,117
17,598
$
$
3,494
5,202
2,809
311
510
12,326
December 31,
2022
2021
$
$
21,075
(5,270)
15,805
$
$
23,884
(2,809)
21,075
(1) A one-time transition tax of $35.6 million was recognized in the three months ended December 31, 2017 that represented
management’s estimate of the amount of U.S. corporate income tax based on the deemed repatriation to the United States of the
CHINA AUTOMOTIVE SYSTEMS, INC.
68
FY 2022 ANNUAL REPORT
Company’s share of previously deferred earnings of certain non-U.S. subsidiaries of the Company mandated by the U.S. Tax
Reform. The Company elected to pay the one-time transition tax over eight years commencing in April 2018. During the years
ended December 31, 2022 and 2021, $2.8 million and $2.8 million, respectively, were paid by the Company. See Note 22 for more
details about the U.S. Tax Reform.
15. Other Long-term Payable
On January 31, 2018, the Company entered into an equipment sales agreement with a third party (the “buyer-lessor”) and simultaneously
entered into a four-year contract to lease back the equipment from the buyer-lessor. The carrying value of the equipment was $13.1
million and the sales price was $14.3 million. Pursuant to the terms of the contract, the Company is required to pay to the buyer-lessor
lease payments over 4 years with a quarterly lease payment of approximately $1.0 million and is entitled to obtain the ownership of this
equipment at a nominal price upon the expiration of the lease. The Company is of the view that the transaction does not qualify as a
sale. Therefore, the transaction was accounted for as a financing transaction by the Company. As of December 31, 2022 and 2021, nil
and $1.1 million, respectively, was recognized as other payable (See Note 13); and nil recognized as other long-term payable to the
buyer-lessor. For the years ended December 31, 2022 and 2021, the Company recorded nil and $0.3 million, respectively, of interest
expense related to the lease back transaction.
16. Redeemable non-controlling interests
In September 2020, one of the Company’s subsidiaries issued shares to Hubei Venture Fund amounting to $0.7 million. The shares will
be transferred to the Company and the other shareholder of the subsidiary on 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% per year. $0.5 million
of the shares are subject to purchase by the Company and are therefore accounted for as redeemable non-controlling interests in
mezzanine equity and are accreted to the redemption value over the period starting from the issuance date.
For the years ended December 31, 2022 and 2021, the Company recognized accretion of $0.030 million and $0.028 million to the
redemption value of the shares over the period starting from the issuance date with a corresponding reduction to retained earnings.
17. Stock Options
The stock option plan was approved at the Annual Meeting of Stockholders held on June 28, 2005 and extended to June 27, 2025 at the
Annual Meeting of Stockholders held on September 16, 2014. The maximum common shares available for issuance under this plan is
2,200,000. The stock incentive plan provides for the issuance, to the Company’s officers, directors, management and employees who
served over three years or have given outstanding performance, of options to purchase shares of the Company’s common stock. The
Company has issued 658,850 stock options under this plan as of December 31, 2022.
Under the aforementioned plan, the stock options granted will have an exercise price equal to the closing price of the Company’s
common stock traded on NASDAQ one day before the date of grant, and will expire two to five years after the grant date. Except for
the 298,850 options granted to management in December 2008, which became exercisable on a ratable basis over the vesting period
(3 years), the options were exercisable immediately on the grant dates. Stock options will be settled in shares of the Company’s common
stock upon exercise and are recorded in the Company’s consolidated balance sheets under the caption “Additional paid-in capital.” As
of December 31, 2022, the Company has sufficient unissued registered common stock for settlement of the stock incentive plan
mentioned above.
The fair value of stock options was determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes
option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free
rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to
be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise
patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury
yield curve in relation to the contractual life of stock-based compensation instruments. The dividend yield assumption is based on
historical patterns and future expectations for the Company dividends.
No stock options were granted in 2022. During the year ended December 31, 2021, the Company granted options to purchase an
aggregate of 225,000 shares to the independent directors. Assumptions used to estimate the fair value of stock options on the grant date
is as follows:
Issuance Date
February 3, 2021
Expected volatility Risk-free rate Expected term (years) Dividend yield
0.00 %
76.91 %
0.46 %
5
CHINA AUTOMOTIVE SYSTEMS, INC.
69
FY 2022 ANNUAL REPORT
The stock options granted during the year ended December 31, 2021 were exercisable immediately and their fair value on the grant date
using the Black-Scholes option pricing model was $0.1 million. For the years ended December 31, 2022 and 2021, the Company
recognized stock-based compensation expenses of nil and $0.1, respectively.
The activities of stock options are summarized as follows, including granted, exercised and forfeited.
Weighted-Average
Weighted-Average
Shares Exercise Price
Contractual
Term (years)
Outstanding - January 1, 2021
Expired
Granted
Outstanding - December 31, 2021
Expired
Outstanding - December 31, 2022
22,500 $
(7,500)
22,500
37,500 $
(7,500)
30,000 $
4.79
6.95
6.26
5.24
5.04
5.29
5
5
5
5
5
5
The following is a summary of the range of exercise prices for stock options that are outstanding and exercisable at December 31, 2022:
Outstanding Stock Weighted Average Weighted Average Number of Stock
Range of Exercise Prices
$2.37 - $6.26
Options
Remaining Life
Exercise Price
30,000
2.55 $
Options Exercisable
30,000
5.29
As of December 31, 2022 and 2021, the total intrinsic value of the Company’s stock options that were exercisable were nil.
During the years ended December 31, 2022 and 2021, no stock options were exercised.
No stock options were granted during the year ended December 31, 2022. During the years ended December 31, 2022, the weighted
average fair value of the Company’s stock options granted was $3.19.
18. Retained Earnings
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 years ended December 31, 2022 and 2021, the subsidiaries in China appropriated statutory reserves of $0.4 million and $0.2 million,
respectively.
19. 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 December 5, 2018, 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 December 4, 2019. The Board of Directors of the Company
approved the extension of such program to December 4, 2020. On August 13, 2020, the Board of Directors of the Company approved a
share repurchase program under which the Company is 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 $3.50 per share through August 12, 2021. On March 29, 2022, the
Board of Directors of the Company approved a share repurchase program under which the Company is 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. For the years ended December 31, 2022 and 2021, the Company repurchased 666,074 and nil shares of the Company
for aggregate cash consideration of $2.4 million and nil, respectively, on the open market.
The repurchased shares are not cancelled and are presented as “treasury stock” on the balance sheet.
20. Other Income, Net
During the years ended December 31, 2022 and 2021, the Company recorded other income which is summarized as follows (figures are
in thousands of USD):
CHINA AUTOMOTIVE SYSTEMS, INC.
70
FY 2022 ANNUAL REPORT
Government subsidy
Investment income
Penalties income
Provision for impairment of prepayment for investment in Hefei Senye (See Note 10)
Total other income, net
21. Financial (Income)/Expense, net
Year Ended December 31,
2022
2021
$
$
6,270 $
1,912
140
(2,540)
5,782
$
4,928
1,670
70
—
6,668
During the years ended December 31, 2022 and 2021, the Company recorded financial expense, net which is summarized as follows
(figures are in thousands of USD):
Interest income
Foreign exchange (income)/loss, net
Bank fees
Total financial (income)/expense, net
22. Income Taxes
PRC Corporate Income Tax
Year Ended December 31,
2022
2021
$
$
(1,247)
(9,833)
327
(10,753)
$
$
(1,242)
3,204
388
2,350
The Company’s subsidiaries registered in the PRC are subject to national and local income taxes within the PRC at the applicable tax
rate of 25% on the taxable income as reported in their PRC statutory financial statements in accordance with the relevant income tax
laws applicable to foreign invested enterprise, unless preferential tax treatment is granted by local tax authorities. If the enterprise meets
certain preferential terms according to the China income tax law, such as assessment as a “High & New Technology Enterprise” by the
government, then, the enterprise will be subject to enterprise income tax at a rate of 15%.
Pursuant to the New China Income Tax Law and the Implementing Rules, “New CIT”, which became effective as of January 1, 2008,
dividends generated after January 1, 2008 and payable by a foreign-invested enterprise to its foreign investors will be subject to a 10%
withholding tax if the foreign investors are considered as non-resident enterprises without any establishment or place within China or if
the dividends payable have no connection with the establishment or place of the foreign investors within China, unless any such foreign
investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.
Genesis, the Company’s wholly-owned subsidiary and the direct holder of the equity interests in the Company’s subsidiaries in China,
is incorporated in Hong Kong. According to the Mainland China and Hong Kong Taxation Arrangement, dividends paid by a foreign-
invested enterprise in China to its direct holding company in Hong Kong would be subject to withholding tax at a rate of 10% if Genesis
could not obtain the Hong Kong tax resident certificate from the Hong Kong Inland Revenue Department. If Genesis obtains the Hong
Kong tax resident certificate, owns directly at least 25% of the shares of the foreign invested enterprise and is qualified as the beneficial
owner, it could benefit from a lower rate of 5%.
According to PRC tax regulation, the Company should withhold income taxes for the profits distributed from the PRC subsidiaries to
Genesis, the subsidiaries’ holding company incorporated in Hong Kong. For the profits that the PRC subsidiaries intended to distribute
to Genesis, the Company accrues the withholding income tax as deferred tax liabilities. As of December 31, 2022 and 2021, the Company
has recognized deferred tax liabilities of $4.0 million and $4.4 million for the undistributed profits of $40.2 million and $43.1 million,
respectively, which are expected to be distributed to Genesis in the future. The Company intended to re-invest the remaining
undistributed profits generated from the PRC subsidiaries in those subsidiaries indefinitely. As of December 31, 2022 and 2021, the
Company still has undistributed earnings of approximately $270.4 million and $265.9 million, respectively, from investment in the PRC
subsidiaries that are considered indefinitely reinvested. Had the undistributed earnings been distributed to Genesis and not indefinitely
reinvested, the tax provision as of December 31, 2022 and 2021, of approximately $27.0 million and $26.6 million, respectively, would
have been recorded. Such undistributed profits will be reinvested in Genesis and not further distributed to the parent company
incorporated in the United States going forward.
In 2020, Henglong, Jiulong and Hubei Henglong were granted the title of “High & New Technology Enterprise”, and based on the PRC
income tax law, they were subject to enterprise income tax at a rate of 15% from 2020 to 2022. The Company estimated the applied tax
rate in 2023 to be 15% as it is probable that it will pass reassessment in 2023 and continue to qualify as “High & New Technology
Enterprise”.
CHINA AUTOMOTIVE SYSTEMS, INC.
71
FY 2022 ANNUAL REPORT
In 2020, Chuguanjie and Wuhu were granted the title of “High & New Technology Enterprise”, and based on the PRC income tax law,
they are subject to enterprise income tax at a rate of 15% from 2020 to 2023.
In 2022, Shenyang and Jielong were granted the title of “High & New Technology Enterprise”, and based on the PRC income tax law,
they are subject to enterprise income tax at a rate of 15% from 2022 to 2024.
In 2021, Henglong KYB was granted the title of “High & New Technology Enterprise” and based on the PRC income tax law, it is
subject to enterprise income tax at a rate of 15% from 2021 to 2023.
According to the New CIT, Shanghai Henglong, Testing Center, Wuhan Hyoseong, Changchun Hualong, Chongqing and Wuhu
Hongrun are subject to income tax at a rate of 25%.
Brazil Corporate Income Tax
Based on Brazilian income tax laws, Brazil Henglong is subject to income tax at a uniform rate of 24%, and a resident legal person is
subject to additional tax at a rate of 10% for the part of taxable income over BRL 0.24 million, equivalent to approximately $ 0.05
million. The Company recognized income tax expenses of $0.7 million in Brazil for the year ended December 31, 2022 and $0.5 million
for the year ended December 31, 2021.
Hong Kong Corporate Income Tax
The profits tax rate of Hong Kong is 16.5%. No provision for Hong Kong tax is made as Genesis is an investment holding company,
and had no assessable income in Hong Kong for the years ended December 31, 2022 and 2021.
U.S. Corporate Income Tax
The Company is a Delaware corporation that is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for
taxable years beginning after December 31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax years.
Recent U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “U.S. Tax Reform”), was signed into law
on December 22, 2017. The U.S. Tax Reform significantly modified the U.S. Internal Revenue Code by, among other things, reducing
the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting
and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory
deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally
eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings.
Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump sum.
The U.S. Tax Reform also includes provisions for a new tax on GILTI effective for tax years of foreign corporations beginning after
December 31, 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled
foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income
tax liability, subject to some limitations.
To the extent that portions of the Company’s U.S. taxable income, such as Subpart F income or GILTI, are determined to be from
sources outside of the U.S., subject to certain limitations, the Company may be able to claim foreign tax credits to offset its U.S. income
tax liabilities. If dividends that the Company receives from its subsidiaries are determined to be from sources outside of the U.S., subject
to certain limitations, the Company will generally not be required to pay U.S. corporate income tax on those dividends. Any liabilities
for U.S. corporate income tax will be accrued in the Company’s consolidated statements of comprehensive income and estimated tax
payments will be made when required by U.S. law.
One-Time Transition Tax Related to U.S. Tax Reform
In 2017, the Company recognized a one-time transition tax of $35.6 million that represented management’s estimate of the amount of
U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s share of previously deferred earnings
of certain non-U.S. subsidiaries of the Company mandated by the U.S. Tax Reform. The Company elected to pay the one-time transition
tax over eight years commencing in April 2018. According to the 2017 U.S. federal income tax return of the Company filed in October
2018, the one-time transition tax was updated to $35.1 million. The Company made a true-up adjustment of $0.5 million in 2018.
The provision for income taxes was calculated as follows (figures are in thousands of USD):
CHINA AUTOMOTIVE SYSTEMS, INC.
72
FY 2022 ANNUAL REPORT
Tax rate
Income before income taxes
Income tax at federal statutory tax rate
Tax benefit of super deduction of R&D expense (1)
Effect of differences in foreign tax rate
Change in provision on valuation allowance for deferred income tax - U.S.
Change in provision on valuation allowance for deferred income tax - Non-U.S.
Effect of changes in tax rate
Other differences
Total income tax expense
Year Ended December 31,
2022
2021
21 %
21 %
$
$
23,036
4,838
(7,089)
599
(2,458)
4,595
—
2,597
3,082
$
$
8,399
1,764
(5,212)
504
(34)
4,667
2,081
234
4,004
(1) According to a new tax incentives policy promulgated by the State Tax Bureau of the PRC and effective from March 2021 onwards,
enterprises engaged in research and development activities are entitled to claim an additional tax deduction amounting to 100% of
their research and development expenses in determining their taxable income for the year.
The Company is subject to tax examination in the United States and China. The Company’s tax years for 2018 through 2022 are still
open for examination in China. The Company’s tax years for 2013 through 2022 are still open for examination in the United States.
Uncertain Tax Positions
The Company did not have any uncertain tax positions for the years ended December 31, 2022 and 2021.
23. Income Per Share
Basic net income per share is computed using the weighted average number of the common shares outstanding during the year.
For diluted income per share, the Company uses the treasury stock method for options, assuming the issuance of common shares, if
dilutive, resulting from the exercise of options.
The calculations of basic and diluted income per share attributable to the parent company were (figures are in thousands of USD):
Numerator:
Net income attributable to the parent company’s common shareholders - Basic and Diluted
Denominator:
Weighted average ordinary shares outstanding - Basic
Dilutive effects of stock options
Denominator for dilutive income per share - Diluted
Net income per share attributable to the parent company’s common shareholders
Basic
Diluted
Year Ended December 31,
2022
2021
$
21,181
11,050
30,639,102
2,172
30,641,274
30,851,776
3,655
30,855,431
0.69
0.69
0.36
0.36
As of December 31, 2022, the exercise prices for 22,500 outstanding stock options were above the weighted average market price of the
Company’s common stock during the year ended December 31, 2022. Therefore, these stock options were excluded from the calculation
of the diluted income per share for the corresponding periods presented.
As of December 31, 2021, the exercise prices for 30,000 outstanding stock options were above the weighted average market price of the
Company’s common stock during the year ended December 31, 2021. Therefore, these stock options were excluded from the calculation
of the diluted income per share for the corresponding periods presented.
24. Significant Concentrations
A significant portion of the Company’s business is conducted in China 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
CHINA AUTOMOTIVE SYSTEMS, INC.
73
FY 2022 ANNUAL REPORT
includes trade related receipts and payments, interest and dividends. Accordingly, the Company’s Chinese subsidiaries may use RMB
to purchase foreign exchange for settlement of such “current account” transactions without pre-approval.
China Automotive, the parent company, may depend on Genesis and HLUSA dividend payments, 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 and
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 Chinese 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.
25. Related Party Transactions
Related party transactions during the years ended December 31, 2022 and 2021, are as shown below (figures are in thousands of USD):
Merchandise Sold to Related Parties
Hubei Hongrun
Jingzhou Yude
Xiamen Automotive Parts
Beijing Henglong
Other related parties
Total
Rental Income Obtained from Related Parties
Wuhan Tongkai
Jingzhou Tongying
Hubei Hongrun
Hubei ASTA
Other related parties
Total
Materials Sold to Related Parties
Year Ended December 31,
2022
32,489
8,778
2,468
—
547
44,282
2021
25,229
10,784
3,864
24,604
650
65,131
$
$
$
$
Year Ended December 31,
2022
2021
$
$
166
152
137
—
4
459
$
$
180
170
112
23
8
493
CHINA AUTOMOTIVE SYSTEMS, INC.
74
FY 2022 ANNUAL REPORT
Honghu Changrun
Jingzhou Yude
Jiangling Tongchuang
Jingzhou Tongying
Hubei Hongrun
Beijing Henglong
Other related parties
Total
Materials Purchased from Related Parties
Jingzhou Tongying
Wuhan Tongkai
Jiangling Tongchuang
Honghu Changrun
Henglong Tianyu
Hubei Wiselink
Hubei Yiling
Other related parties
Total
Technology and Services Provided by Related Parties (Recorded in R&D Expenses)
Suzhou Sentient
Sentient AB
Hubei Yiling
Total
Property, Plant and Equipment Purchased from Related Parties
Hubei Wiselink
Hubei Yiling
Total
Equity Interest Purchase from Related Parties
Jingzhou Wisedawn
Loan Transaction to a Related Party
Hubei Zhirong
Year Ended December 31,
2022
2021
$
$
749
728
603
547
20
—
137
2,784
$
$
1,000
278
626
580
12
32
25
2,553
Year Ended December 31,
2022
12,152
9,974
3,238
2,467
611
310
30
28
28,810
$
$
2021
10,702
9,718
7,009
2,358
1,014
481
286
12
31,580
$
$
Year Ended December 31,
2022
2021
$
$
607
462
234
1,303
$
$
—
935
—
935
Year Ended December 31,
2022
2021
$
$
2,336
48
2,384
$
$
1,200
—
1,200
Year Ended December 31,
2022
23,618
$
2021
—
Year Ended December 31,
2022
$
146
2021
—
As of December 31, 2022 and 2021, accounts receivable, accounts payable and advance payments between the Company and related
parties are as shown below (figures are in thousands of USD):
Accounts and Notes Receivable from Related Parties
CHINA AUTOMOTIVE SYSTEMS, INC.
75
FY 2022 ANNUAL REPORT
Hubei Hongrun
Jingzhou Yude
Xiamen Automotive Parts
Xiamen Joylon
Other related parties
Total accounts and notes receivable - related parties
Less: allowance for doubtful accounts - related parties
Accounts and notes receivable, net - related parties
Accounts and Notes Payable to Related Parties
Wuhan Tongkai
Jingzhou Tongying
Hubei Wiselink
Henglong Tianyu
Honghu Changrun
Jiangling Tongchuang
Other related parties
Total
Advance Payments for Property, Plant and Equipment to Related Parties
Hubei Wiselink
Henglong Real Estate
Hubei Hongrun
Total
Advance Payments and Others to Related Parties
Sentient AB
Jiangling Tongchuang
Hubei Zhirong
Hubei Wiselink
Other related parties
Total
December 31,
2022
2021
6,192
3,094
1,311
815
367
11,779
(1,763)
10,016
$
$
6,918
5,740
1,533
890
424
15,505
(898)
14,607
December 31,
2022
2021
7,173
3,827
3,687
1,209
692
45
62
16,695
$
$
4,812
3,195
2,984
1,602
484
240
147
13,464
December 31,
2022
2021
1,618
224
42
1,884
$
$
565
245
—
810
December 31,
2022
2021
632
401
146
54
206
1,439
$
$
—
324
—
—
276
600
$
$
$
$
$
$
$
$
As of December 31, 2022, Hanlin Chen, our chairman, owns 59.13% 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.
26. Commitments and Contingencies
a. 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.
b. Commitments
In addition to bank loans, notes payables, the related interest and other payables, the following table summarizes the Company’s non-
cancelable commitments and contingencies as of December 31, 2022 (figures are in thousands of USD):
CHINA AUTOMOTIVE SYSTEMS, INC.
76
FY 2022 ANNUAL REPORT
Obligations for investment contracts (1)
Obligations for purchasing and services
Total
$
$
4,307
23,962
28,269
$
$
—
4,650
4,650
$
$
$
—
—
—
—
—
—
$
$
2023
Payment Obligations by Period
2025
2024
Thereafter
Total
4,307
28,612
32,919
(1) In January 2022, Hubei Henglong entered into an agreement with other parties and committed to purchase 27.78% of shares of
Suzhou Qingshan Zhiyuan for total consideration of RMB 60.0 million, equivalent to approximately $8.6 million at the prevailing
rate. As of December 31, 2022, Hubei Henglong has paid RMB 30.0 million, equivalent to approximately $4.3 million. According
to the agreement, the remaining consideration RMB 30.0 million, equivalent to approximately $4.3 million, will be paid in 2023.
27. Segment Reporting
The accounting policies of the product sectors are the same as those described in the summary of significant accounting policies 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.
As of December 31, 2022, the Company had 15 product sectors, seven of which were principal profit makers and were reported as
separate sectors and engaged in the production and sales of power steering (Henglong, Jiulong, Shenyang, Wuhu, Henglong KYB, Hubei
Henglong and Brazil Henglong), and one holding company (Genesis). The other eight sectors were engaged in the development,
manufacturing and sale of high polymer materials (Wuhu Hongrun), 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).
As of December 31, 2021, 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, Shenyang, Wuhu, Henglong KYB and Hubei
Henglong), and one holding company (Genesis). The other nine sectors were engaged in the development, manufacturing and sale of
high polymer materials (Wuhu Hongrun), 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), trade (Brazil 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).
The Company’s product sector information is as follows (figures are in thousands of USD):
Net Sales
Net Income/(Loss)
Henglong
Jiulong
Shenyang
Wuhu
Hubei Henglong
Henglong KYB
Brazil Henglong
Other Entities
Total Segments
Corporate
Eliminations
Total consolidated
Year Ended December 31, Year Ended December 31,
2022
246,594 $
2021
202,612 $
$
70,113
11,942
42,243
126,652
121,139
39,280
80,971
738,934
—
(209,383)
529,551
94,510
16,510
27,227
128,142
80,683
25,513
70,884
646,081
—
(148,088)
497,993 $
$
2022
2021
785 $
227
(1,083)
(215)
9,588
4,564
3,390
6,538
23,794
(534)
(917)
22,343 $
(526)
971
560
(385)
11,162
248
1,467
(959)
12,538
(1,628)
(184)
10,726
CHINA AUTOMOTIVE SYSTEMS, INC.
77
FY 2022 ANNUAL REPORT
Henglong
Jiulong
Shenyang
Wuhu
Hubei Henglong
Henglong KYB
Brazil Henglong
Other Entities
Total Segments
Corporate
Eliminations
Total consolidated
Henglong
Jiulong
Shenyang
Wuhu
Hubei Henglong
Henglong KYB
Brazil Henglong
Other Entities
Total Segments
Corporate
Eliminations
Total consolidated
Depreciation and Amortization
Year Ended December 31,
Capital Expenditures
Year Ended December 31,
2022
2021
2022
2021
$
$
7,285
2,156
590
713
9,542
1,867
196
2,785
25,134
39
—
25,173
$
$
6,691 $
2,742
649
943
11,237
1,427
205
3,172
27,066
47
—
27,113 $
5,908 $
1,102
146
203
5,635
6,133
869
3,262
23,258
—
(2,774)
20,484 $
1,613
1,863
267
48
2,515
4,804
(185)
731
11,656
—
(1,754)
9,902
Total Assets
December 31,
2022
248,927
62,075
20,146
38,579
392,482
107,045
20,326
102,644
992,224
58,767
(336,639)
714,352
$
$
2021
241,958
74,816
24,141
26,314
431,529
77,598
16,291
100,458
993,105
69,705
(346,048)
716,762
$
$
Financial information segregated by geographic region is as follows (figures are in thousands of USD):
Geographic region:
China
United States
Other foreign countries
Total consolidated
Net Sales (1)
Year Ended December 31,
2022
2021
Long-term assets
December 31,
2022
2021
$
$
331,589
135,149
62,813
529,551
$
$
324,979
134,662
38,352
497,993
$
$
$
123,062
726
1,111
124,899 (2) $
165,264
755
471
166,490 (2)
(1) Revenue is attributed to each country based on location of customers.
(2) Pursuant to ASC 280-10-50-41, the deferred tax assets of $7.7 million and $10.1 million and the intangible assets of $1.3 million
and $1.8 million were excluded from long-term assets as of December 31, 2022 and 2021, respectively.
CHINA AUTOMOTIVE SYSTEMS, INC.
78
FY 2022 ANNUAL REPORT
Investor Information
Corporate Headquarters
CHINA AUTOMOTIVE SYSTEMS, INC.
D8 Henglong Building
Optics Valley Software Park
No. 1 Guanshan Avenue, Wuhan City
No. 1 Henglong Road
Yu Qiao Development Zone
Shashi District, Jingzhou City
Hubei Province
People’s Republic of China
www.caasauto.com
Board of Directors
HANLIN CHEN
Chairman
QIZHOU WU
Director, Chief Executive Officer
GUANGXUN XU
Independent Non-executive Director
HENG HENRY LU
Independent Non-executive Director
TONG KOOI TEO
Independent Non-executive Director
Executive Officers
QIZHOU WU
Chief Executive Officer
JIE LI
Chief Financial Officer
ANDY YIU WONG TSE
Senior Vice President
HENRY CHEN
Vice President
HAIMIAN CAI
Vice President
Annual Meeting
The Annual Meeting of China Automotive Systems
stockholders will be held on August 30, 2023
(Wednesday) at 9 am local time at the Second
Floor Meeting Room, D8 Henglong Building in
Optics Valley Software Park, Guanshan First Road,
Wuhan City, Hubei Province, PRC, and
the
Company will set up a conference room on August
29, 2023 at 9 pm at Henglong USA Corporation,
2546 Elliott Drive, Troy, Michigan, U.S. for the
Company’s US shareholders to participate via
WebEx connection.
Independent Public Accountant
PRICEWATERHOUSECOOPERS ZHONG TIAN LLP
42/F New Bund Center, 588 Dongyu Rd
Pudong New Area, Shanghai, PRC
www.pwccn.com
Transfer Agent and Registrar
SECURITIES TRANSFER CORPORATION
2901 N. Dallas Parkway, Suite 380
Plano, Texas 75093, USA
Phone: +1-469-633-0101
www.stctransfer.com
Investor Relations
AWAKEN ADVISORS LLP
220 Riverside Blvd, Suite 10C, NY 10069
Phone: +1-212-510-8922
kevin@awakenlab.com
Legal Counsel
WINSTON & STRAWN LLP
42nd Floor, Bank of China Tower
1 Garden Road, Central, Hong Kong
www.winston.com
CHINA AUTOMOTIVE SYSTEMS, INC.
Henglong Building, D8 Optics Valley Software Park
No.1 Guanshan Avenue, East Lake Hi-tech Zone
Wuhan City, Hubei Province, 430073, PR of China
Tel: +86(27) 8757 0027
http://www.caasauto.com