China Automotive Systems, Inc. Business Report FY ended Dec. 2017

Financial Overview

(in millions USD)

	FY ended Dec. 31, 2017	FY ended Dec. 31, 2016	Rate of Change	Factors
Sales	499.06	462.05	8.01%	-
Operating Income	19.27	23.02	(16.29)	-
Ordinary Income	20.38	24.90	(18.15)	-
Net Income	(18.64)	22.98	-	-Decrease of pre-tax income; increase of tax amount.

Divestiture

-The Company announced its main subsidiary, Hubei Henglong Automotive System Group Co., Ltd., has sold its 51% equity control position in Fujian Qiaolong Special Purpose Vehicle Co., Ltd. to Longyan Huanyu Emergency Equipment Technology Co., Ltd. Terms of the transaction include a cash payment of RMB 20 million and the repayment of a RMB 34 million loan by Fujian Qiaolong to CAAS. After transaction, CAAS doesn’t hold any share of Fujian Qiaolong Special Purpose Vehicle Co., Ltd. (From an announcement by the company on April 22, 2016)

Contract

-The Company began mass production of steering gears for the electric steering system for Fiat Chrysler 2017 new C-SUV models.

Award

-In April 2016, Hubei Henglong Automotive System Group Co., Ltd., the Company's subsidiary, received the highest award from Chinese government for product quality. (From news releases issued by multiple sources on April 6, 2016)

R&D Expenditure

	FY ended Dec. 31, 2017 (in millions USD)	FY ended Dec. 31, 2016 (in millions USD)	FY ended Dec. 31, 2015 (in millions USD)
R&D Expenditure	33.5	27.7	22.3
Ratio of R&D expenses to sales	6.72%	6.00%	5.03%

R&D Structure

-The Company owns a Hubei Provincial-Level technical center, called the Jingzhou Henglong Automotive Technology (Testing) Center, which has been approved by the Hubei Economic Commission. As of December 31, 2016, the center has a staff of about 522 employees that primarily focus on steering system R&D, testing, improvements in production processes, and new applications for various materials and production methodologies.

-The Company has partnered with Tsinghua University to establish a steering system research center, called Tsinghua Henglong Automobile Steering Research Institute, for the purposes of R&D and electric power steering experimentation.

-In Jan. 2015, the Group formed Hubei Henglong Group Shanghai Automotive Electronics Research and Development Ltd., which mainly engaged in design and sale of automotive electronics.

Technological Alliance

-The Company had or currently has the following technological agreements:

Bishop Steering: From 2006 to 2012, the Company had a licensing agreement with Bishop Steering Technology Limited, a leader in automotive steering gear technology innovation which offers advanced technology for steering valves. The agreement was not renewed in 2013 as the Company had the capabilities to develop its own steering valves.
Nanyang Ind. Co. Ltd.: The Company signed a technology transfer agreement with Nanyang Ind. Co. Ltd., a leading steering column maker, for the technology necessary to develop electronic power steering systems.
Korea Delphi Automotive: The Company signed a technology licensing agreement with Korea Delphi Automotive Systems Co., Ltd.

Patents

-As of Dec. 31, 2017, the Company has over 85 Chinese patents.

Capital Expenditure

(in millions USD)

Company Name	FY ended Dec. 31, 2017	FY ended Dec. 31, 2016	FY ended Dec. 31, 2015
Jingzhou Henglong Automotive Parts	4.18	2.01	6.42
Shashi Jiulong Power Steering Gears	3.84	2.38	1.09
Shenyang Jinbei Henglong Automotive Steering System	1.27	0.33	0.15
Wuhu Henglong Automotive Steering Systems	0.08	2.19	1.35
Hubei Henglong Automotive System Group (Formerly Jingzhou Hengsheng Automotive System)	21.31	16.99	11.50
Other Sectors (1)	3.60	8.83	9.38
Corporate	-	0.001	0.002
Eliminations	-	-	0.67
Total	33.92	32.72	29.22

Notes:
(1) The companies in the Other Sectors category include Wuhan Jielong Electric Power Steering Co., Ltd.; Universal Sensor Application, Inc.; Chongqing Henglong Hongyan Automotive Systems Co. Ltd.; Beijing Hainachuan Henglong Automotive Steering System Co., Ltd.; Henglong USA Corporation; and CAAS Brazil's Imports & Trade in Automotive Parts Ltd.