Good day, and welcome to the China Automotive First Quarter 2019 Conference Call hosted by Kevin Theiss. My name is Julie, and I'm your event manager. [Operator Instructions] And now I'd like to hand the call over to Kevin. Please go ahead.

Thank you, everyone, for joining us today. Welcome to China Automotive Systems' 2019 First Quarter Conference Call. Joining us today are Mr. Qizhou Wu, Chief Executive Officer; and Mr. Jie Li, Chief Financial Officer of China Automotive Systems. They will be available to answer questions later in the conference call with the assistance of translation. Before we begin, I will remind all listeners that throughout this call, we will make statements that may contain forward-looking statements. Forward-looking statements represent the company's estimates and assumptions only as of the date of this call. As a result, the company's actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those described under the heading Risk Factors in the company's Form 10-K annual report for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on March 28, 2019, and in other documents filed by the company from time to time with the Securities and Exchange Commission. The company expressly disclaims any duty to provide updates to any forward-looking statements made in this call or whether as a result of new information, future events or otherwise. On this call, I will provide a brief overview and summary of financial results for the 2019 first quarter. Management will then conduct a question-and-answer session. The following 2019 first quarter financial results are unaudited and are reported in U.S. GAAP. For the purposes of our call today, I'll review the financial results in U.S. dollars. We will begin with a review of recent dynamics of the automobile industry and China Automotive's market position. China's GDP growth in the first quarter of 2019 grew at 6.4%, the same rate as in the fourth quarter of 2018, which had slowed from 6.5% in the third…

[Operator Instructions] We do have one question and it comes from the line from [ Robert ].

I was wondering about the joint venture with Hyoseong Electric Motors. When do you expect that production facility to be initially operational? When do you expect, I guess, the product to be utilized in your electric power steering systems?

[Foreign Language]

[Foreign Language]

Okay. [Interpreted] We formed a joint venture with our Korean partner, Hyoseong, in -- earlier this year and we are in the process of putting things together, preparation mode, and also facilitating all the document and the other planning, market planning. In terms of trial production, we won't [ achieve it ], it's going to start in the fourth quarter of this year and then we'll go into the market production in 2020 first quarter.

I have got another question. As it relates... [Technical Difficulty]

We seem to have lost our caller. [Operator Instructions] We've got [ Robert ] back on again.

Now these electric motors that you're going to be joint venture-building, will they be used in automated steering systems, some of them, and will that enhance your capabilities? And I guess the other question would be margin improvement. I mean I know you are outsourcing these motors currently. Do you see any meaningful reduction allowing for margin improvement in the joint venture?

Okay. [Foreign Language]

[Foreign Language]

Okay. [Foreign Language] [Interpreted] So first part of the question -- answer to your first part of the question, yes, this motor will be used on the electric power steering EPS products and also it will be used in the high-end EPS product. This particular joint venture will produce, I mean, the brushless motor. And brushless motor, it's a high-end product for high-end EPS systems. The cost is high if we -- in the past we had to procure them. And also, the autonomous driving of driverless vehicles or any other ADAS system, where the trend is going on right now. So all these can be used our -- can install our EPS system powered by this type of brushless motors. [Foreign Language]

[Foreign Language]

Okay. [Interpreted] On the cost side, definitely it's going to change for better for us because the -- in terms of supply and demand, the demand is higher, much higher than supplier -- supply for this type of motor for the scaling systems globally, and that's why the cost is -- remain at a high level for a while. This is the very reason we've decided to go into, as you mentioned, with the technology partner who specialize in motor. So that will help us to bring the cost down, hence improve the margin.

Okay. I have another question.

Sure.

The -- you know about the trade issues that we face today. I guess we'll know more about that tonight. But I was wondering, as it relates to the revised NAFTA deal, how will that -- how do you think that's going to impact potential for the future for China Automotive in the United States? I was thinking it might not be that significant because steering is more of a critical item. But I was wondering, what are your thoughts? And my second question actually has to do with sales in China. Do we feel that we're at a point now where sales, monthly sales, year-over-year comparisons will probably get easier going forward? I mean that's my guess at this point, based upon what I'm looking at. And maybe we've leveled out from here and maybe there's a good chance that we could possibly resume growth as we get into later in the year or early next year.

Okay. Sure. [Foreign Language]

[Foreign Language]

Okay. [Interpreted] Yes. Regarding your question on the trade war, it's a very complex. As we all know, it's a very complex situation. It's a very complex question. The -- our understanding is -- the challenge we are facing during the negotiation between U.S. and China, 2 countries, our main -- is due to Trump administration's general agenda to bring the manufacturing back to America. That being said is -- so because the supply chain and many other reasons, the complexity is beyond our analysis. We can't see that yet because that sector has changed dramatically in the last 15 years. On the steering product side, yes, you're right, it's a critical component or it's a critical system for the vehicles and it's safety-related also. And that gives us an opportunity to discuss with our main customers in North America. And we are currently undergoing friendly negotiation with our customers in North America to -- looking for a resolution. And hopefully, both party can -- hopefully, we will have a better solution to solve the tariff or potential tariff issue. And on the other hand, we are also, since we have a factory in Brazil, we may also use the resource over there to help out some of the North America business. And lastly, we never go into details in terms of which particular geographic location are moving our product in North America. Today, we're happy to discuss that. We do have one of our main U.S. American customer, they have a facility in Mexico. And so some of our product, not all, some of our product are actually being shipped to their Mexico factory. So we believe that's a bit -- that's a very different situation scenario with them shipping directly to, for instance, a production line in Detroit. So -- and again, we have to wait and see what could be the impact moving forward.

[Foreign Language]

Okay. [Interpreted] So on your question regarding the Chinese domestic market, we have to say the last few quarters and the overall 2018 was disappointing for Chinese auto industry as a whole. And 2019 first quarter was weak as well. However, we remain cautiously optimistic. Reason being, one, on the long-term side, if you look at the current ownership, vehicle ownership versus the total population, China is still at about 15%. So every 100 people, we have 15 vehicles. In Europe and U.S., that number is significantly higher, running at 70%. So we're not saying we're going to get to that level of ownership, but if we want to move it to 20% to 30% versus the population, it's a very -- still very reasonable range and target. And that give us -- that give Chinese auto industry still a lot of room to grow. So that's why long term, we feel pretty optimistic. In short term, we also are optimistic. Reason being, one, government is doing a lot of -- rolling out a lot of policies to support the industry. For instance, there are policies for -- different policies, for instance, the old vehicle, if you are replace them, you get subsidies that will help you to buy a new vehicle. And also, the government is loosening the credit side, so auto loan will be a lot easier to get now. So with different kind of policy and also the -- or we'll see some of the new policy coming in very soon and help vehicle owners to choose their second vehicle or replace their vehicle and buy an economy or fuel efficiency -- fuel-efficient vehicles. So all that considered, we think the next few months, things should turn around and we will see somewhat stabilizing and even growth in 2019.

Okay. Would you take one more question from me?

Sure.

KYB, I know you guys did the joint venture and that's set up. The transfer, I guess both companies are going to transfer the business into the joint venture. And I was wondering, as it relates to KYB, have you seen all of that business transfer into the joint venture? Or is that like an ongoing process? And how are things going? I mean if -- with the joint venture operation, did you reach your, I guess production objectives in the first quarter? How does it look?

Okay. [Foreign Language]

[Foreign Language]

Okay. [Interpreted] So on your question on the joint venture of KYB, it -- we started trial production in October 2018. Ever since then, things are moving very smoothly. We now -- both -- we now have transferred 100% of the EPS, electric power steering product, production into this joint venture. And on the KYB side, they are transferring some of their customers, mostly our Japanese customers in China. They're transferring those customer to the joint ventures as they agreed. And those are domestic customers. And they have established those -- KYB has established relationship with those customers over the decades. Their relationship they carry with them for a long time. And however, we just want to clarify one thing, the business KYB with the Japanese customer in Japan are not part of this joint venture. This joint venture only handles with their China business. So, so far, so good. In terms of production of the joint venture, we definitely see things are moving into the right direction as we planned. First, is the production management, we're very pleased of our Japanese partner and our Chinese team working very well together. And the production [ management ] has been running at very high efficiency as well as quality improvement. And in terms of our technology, we're even more excited working with our partner. Now we're seeing a upgrade on the technology as well as the quality. And now, in terms of our evaluation, whether it's meeting our milestones or our target, we have to say it was -- trading was a bit below our expectations. Main reason is the market demand is a bit soft, as you know. Since the second half of 2018, the auto sales in China has been consistently having decline month after month, quarter after quarter. And so with this type of environment, we're not meeting our target. But not by a lot, it's only fairly below. But overall, we see the second half of the year, even the second quarter, starting second quarter, things will heat up and we are booking some new contracts. And so we believe we are going to meet those targets and even exceed them.

Okay. I don't know if you'd take another question? I don't know if there's anyone else listening.

Yes.

As it relates to, I guess, the company's public stock and so forth, I know you guys did put in place a share buyback program. And I was wondering, we haven't seen much activity on it. But do we have potential to do more of a share buyback at this point? And has the company pretty much -- can we expect, as shareholders, that the company will remain a public company for the foreseeable future? Because I know we did have a situation where the Chairman did want to buy the company and take it private. And would you say that's kind of left as something that we won't see in the future and we'll remain a public company. And that's -- those are my last questions, I promise.

Thank you. Okay. [Foreign Language]

[Foreign Language]

Okay. [Interpreted] We have -- in terms of share buyback, we have -- since the announcement, we have purchased over 200,000 shares. We may buy more going forward. And in terms of go-private proposal to buy a large shareholder in the past, in the foreseeable future, we don't expect that we will remain a U.S.-listed company. And I think -- yes, that's the -- that will be the answer.

Okay. And I've been a shareholder for a long time and I still have hope and faith in China Automotive Systems. So I appreciate everything.

Thank you.

We do have another question, and it comes from the line of [ John Shi. ]

Thank you for providing detailed answers to the previous questions. Can you comment on the strategic target of 10 million units of sales mentioned on the website? When do you hope to reach those targets? And if you reach it, then how much growth would you see in annual revenues?

[Foreign Language]

[Foreign Language]

Okay. [Interpreted] So yes, we did, some point in the past, talked about our long-term plan to reach 10 million units annual target. And we're actually now running about -- producing and selling about 6 million to 7 million units a year. In the next 3 to 5 years, we are definitely going to reach that goal of 10 million on the annual basis. There are some factors making us remain confident of that target. Domestically, we think the -- like we mentioned earlier, the auto industry still have room to grow since both the ownership increasement -- increased as well as the government level of incentives to help people to increase vehicle purchase. International side, we're seeing a lot of growth opportunities. The world is a large place. For instance, in Europe, we are -- now supply to Fiat and that's going very well. In Brazil, we're experiencing a very strong growth in the shipment. And also on the product side, our electric power steering system, EPS system, after we formed the joint venture with Japanese partner KYB, we are significantly improving our production and quality and technology as well. So we are going to gain market shares. We're going to increase and leverage our relationship, existing relationship with so many OEM customers in China and abroad. And lastly, on the ADAS, the drive system side, we have put a lot of R&D effort in the past and now into this area for research. And we will see some of the progress and the product coming up in the near future. So all in all, we remain optimistic and we are going to meet 10 million units.

And if you reach 10 million units, how much growth would you see in annual revenue? Would it be 50% more? Or would the average selling price also be increasing due to the higher quality and higher specifications of the products?

[Foreign Language]

[Foreign Language]

Okay. [Interpreted] So in terms of volume, the next number of years, we should see 5% to 10% annual growth given those tailwinds we're seeing. On the ASP side, average selling price side because ESP -- EPS product carries a higher ASP. So -- and with the increase of the EPS sales in the sales revenue mix, we should see ASPs going to increase. So we're -- for that reason, we think we are heading to the right direction.

Thank you. There are no further questions on the audio platform. And I'm just going to turn back over to Kevin, please.

Thank you, all, today for your participation in today's conference call, and we look forward to speaking with you again in the future. Have a good day.

Thank you, Kevin. That concludes your conference call for today. You may now disconnect. Thank you for joining, have a great day.