Greetings, and welcome to China Automotive Systems Third Quarter 2020 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kevin Theiss, Investor Relations.

Thank you, everyone, for joining us today. Welcome to China Automotive Systems 2020 Third 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 may 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, 2019, as filed with the Securities and Exchange Commission on May 14, 2020, and in other documents filed by the company from time to time with the Securities and Exchange Commission. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial conditions may be materially and adversely affected as a result of the deteriorating market outlook for automobile sales, 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 certain 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. A prolonged disruption or other further unforeseen delay in our operations of the manufacturing, delivery and assembly process with any of our production facilities…

[Operator Instructions] Our first question today comes from [ Robert Polovich ], a private investor.

I was just wondering, as we move into 2021, well, I guess looking at 2020, we know that the margins are lower than they were a year ago. The outlook for 2021 as far as profit margins, do we see that at some point returning to more normalized levels?

Thank you for your question. Li Jie, [Foreign Language]

Okay. [Foreign Language]

[Interpreted] There are 3 contributing factors to a relatively soft gross margin in this year. First is the obvious -- for obvious reason is the COVID-19 pandemic affected every manufacturers in the world, including China. Secondly, the electric power steering, EPS, product sales has been weak. We are -- we saw in 10% -- first 9 months, we saw a 10% year-over-year decline. So that's the second factor. And the third one is the -- we're facing a higher tariff for our international business. So combining these 2, our gross margin was affected. In terms of 2021 -- and first, COVID has been under -- well under control in China. Life has came -- life has come back to normal and so as our customers and suppliers and our own production as well. So that's nonfactor already. And we already give you some data on the pretty strong rebound of the sales in the auto market. Secondly, on the EPS, we have some issues during the year partly due to the cost control. We made -- recently, we made a management change. As a result of that, we believe in the coming quarter, in the fourth quarter, we'll see some very significant improvement, and we'll continue to see growth in 2021. And that's our plan. And so we believe next year will be a lot better. And with all these, we think gross margin next year will be improved.

Okay. I have another question. As it relates to EPS, how do we see the growth in that category moving into 2021? And also, the chance for better profitability from EPS. I know that you have the joint venture with Hyoseong Motors, and you have production, I guess, is underway at this point. Will that contribute to better profitability as we move into 2021?

[Foreign Language]

[Foreign Language]

[Interpreted] Okay. We are still working on our 2021 projection. The -- we will have better clarity in December. However, the preliminary plan for next year is we will grow -- we plan to grow our EPS business by 20%. We will continue to implement better cost control measures. That will help with margin. The electric motor side, as you just mentioned, our JV is still in trial production in 2022 -- I mean 2020. But next year, we will start full-scale commercial production. And that will help -- that will significantly improve our insourcing capability of electric motor. We plan to have our JV to supply between 50% to 60% of our internal production for EPS. And so that will help with the gross margin in 2021.

Oh, okay. I guess my last question really has to do with contract awards. We know that the automotive industry has been doing better than a lot of us anticipated 6 months ago. But with contract renewals, we would expect, with a better outlook and better production numbers in automotive, that the contracts should renew at improving margins. How do you feel about this?

[Foreign Language]

[Foreign Language]

[Interpreted] As we mentioned earlier, our 2021 planning will be completed sometime in December. However, we are in the preliminary discussion with our OEM customers on volumes, on pricing for next year. As you just mentioned, 2020 has been a pretty remarkable turnaround for auto industry in China. And we also remain optimistic for 2021 for a continued growth for the sector. We recently had the auto -- the power steering industry recently had a conference in Wuhan. We are the hosting company for such a large event, consists of all -- pretty much all major steering producers in China. During the conference, we had a consensus in such an environment where -- and the competition in the past many years have been quite intense. It's not really helping with the players like us and none of the players because of the very intense price competition. So the consensus is, going forward, we're going to come together a more rational pricing strategy among all players. That being said, we are optimistic for 2021 in terms of bargain power with the OEM customers. As the demand for vehicles continue to rise, it will put pressure on the supplier side. In order to maintain top-notch quality and on-time delivery, safe production, we will need to have better margin. That being said, having such a industry leader consensus for the power steering industry is laying a great foundation for 2021. So we are very excited about next year. We think, in many ways, it will be a better year for us.

[Operator Instructions] We have a follow-up question from [ Robert Polovich ], a private investor.

I'm back. I have one more question as it relates to the tariffs, imports into the U.S. and so forth. You think we have a little more optimism now that we're going to have a transition of power in Washington, and maybe some of those import tariffs will come down. What are your thoughts on that situation?

[Foreign Language]

[Foreign Language]

[Interpreted] We are hopeful the new President will be more open-minded in terms of the global trade. It's a win-win for both customers and suppliers and to ensure the product -- end product is top-quality and price competitive. So we have proven we are such a supplier to U.S. industries. And we'd like to see the leadership in Washington to realize there are many things U.S., China can do together. And so in a nutshell, we are -- we look forward to improve the relationship, and tariff can be one of these things, will come to a more reasonable level.

Okay. I had another question while we're doing questions here. I know you have some operation in Brazil. But what about the potential for maybe some assembly operation in Mexico? Do you see anything like that as a potential development that you might consider?

[Foreign Language]

[Foreign Language]

[Interpreted] Mexico is under consideration and partly is our long-term global planning. And the other part is actually, we're getting some suggestions and requests from our customers in North America. So we are doing some research on the possibility of setting up something in Mexico, although it's still preliminary. Our long term, it doesn't change our long-term planning. We want to be a global supplier, which means we have to have presence in all the key markets.

There are no additional questions at this time. I would like to turn the call back to Kevin Theiss for closing remarks.

I want to thank everyone for participating in today's conference call. Please be safe, and we look forward to speaking with you again in the future. Have a good day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]