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5. Zhejiang Wanliyang Co., Ltd. Business Report FY ended Dec. 2017

Zhejiang Wanliyang Co., Ltd. Business Report FY ended Dec. 2017

Joint Ventures

-On February 24, 2018, the Company announced that it had obtained a business license for Fuyuan Feiyang Automotive Components Co., Ltd., a joint venture established with Jinfei Holding Group Co., Ltd. The new joint venture was set up with a joint investment of CNY 100 million by the two companies. It will manufacture and sell aluminum automotive components. (From a corporate announcement on February 24, 2018)

-On January 11, 2018, the Company signed a contract with Jinfei Holding Group Co., Ltd. regarding an establishment of a joint company. The two companies will co-invest CNY 100 million to set up a joint venture, Fuyuan Feiyang Automotive Components Co., Ltd. Each firm will invest CNY 50 million to hold a 50% stake in the new joint venture. The joint venture will manufacture and sell aluminum automotive components. (From a corporate announcement on January 12, 2018)

-In February 2017, a wholly owned subsidiary of the Company, Jinxing Automotive Interior Decoration Co., Ltd. and Inteva Products, LLC. signed a letter of intent to form a joint venture. The new joint venture will develop, produce, and sell automotive trims for vehicles manufactured by foreign automaker joint ventures. Investment in this project is expected to reach approximately USD 15 million, of which 51% will be invested by Inteva and 49% will be provided by Jinxing Automotive Interior Decoration. Jinxing Automotive Interior Decoration develops, produces, and sells automotive interior trims. Its major customers include BMW Brilliance, Brilliance Auto, Beijing Hyundai, Changan Automobile, Chery Automobile, Jiangling Motors, the FAW Group, Hawtai Motor, and Zotye Auto. (From an announcement by the company on February 17, 2017)

Recent Developments

-On May 17, 2018, the Company announced that its wholly owned subsidiary, Wuhu Wanliyang Transmission Co., Ltd., completed the procedure to register its subsidiary, Zhejiang Wanliyang New Energy Drive Technology Co., Ltd., to the State Administration for Industry & Commerce (SAIC) of the People’s Republic of China. The new company has a registered capital of CNY 250 million. It manufactures drive systems and transmission systems for new energy vehicles. The new company will build a new plant in Jinhua, Zhejiang, which can produce 1.3 million automatic transmissions and new energy vehicle drive systems a year. (From some releases on May 17, 2018)

Contracts

-The Company recently said that its CVT25 transmissions had passed Geely’s assessments. The CVT25 continuously variable transmission was designed exclusively for Geely. (From some releases on November 17, 2017)

-The Company's automatic transmissions for passenger vehicles passed Geely’s verification tests. Its interiors passed BMW’s VDA6.3 verification. In addition, multiple businesses received the "Annual Quality Improvement Award" from Geely Auto, Dongfeng Motor, and Hanteng Auto.

Awards

-In 2017, multiple Company subsidiaries received “Annual Quality Improvement Awards” from Geely Auto, Dongfeng Motor, and Hanteng Auto.

Outlook

-The Company’s 53211 strategy for the 2017-2021 period consists of the following objectives:

• Reach sales of three million transmissions for passenger vehicles, including two million automatic transmissions
• Double current sales of transmissions for commercial vehicles
• Double current sales of automotive interior trims

R&D Facilities

-The Company’s research center consists of the Wanliyang Transmission Research Institute and a provincial enterprise technology center.

-Shandong Menwo Transmission Co., Ltd., a subsidiary of the Company, has research centers consisting of the following:

• Shandong provincial enterprise technology center
• Industrial design center
• Engineering technology research center
• Engineering laboratory
• Miscellaneous research and development platform.

-The Company announced that its technical center has been designated as a nationally accredited technical center. (From an announcement by the company on January 28, 2016)

R&D Structure

-As of December 31, 2017, the Company has 650 employees working research and development, accounting for 13.28% of all employees.

R&D Activities

-As of the end of 2017, the Company’s main research and development projects are as follows:

• CVT25 transmission, 6MT25 transmission, and 5MF28B transmission: Completed manufacturing of digital sample box; Currently in the production phase of sample box mould.
• 6MF22 transmission: Completed manufacturing of digital sample box; Currently in the production phase of manual sample box.

Technological Alliance

-In April 2017, that one of the Company’s subsidiaries, GIF Automotive Technology (Zhejiang) Co., Ltd., signed a strategic alliance framework agreement with Vector Automotive Technology (Shanghai) Co., Ltd. This alliance in the area of automotive electronics will allow GIF Automotive Technology to upgrade the quality of software it will develop for the Company’s automatic transmissions. GIF Automotive Technology also expects to receive strong technical support for the drive systems for new energy vehicles, which will also be developed for the Company. (From a corporate announcement on April 20, 2017)

Investment in China

-On June 15, 2018, the Company started production of the CVT25 transmission at its facility in Wuhu. The next-generation CVT25 features more compact structures, more flexible power control systems, and a wider speed ratio. It is suitable for multiple vehicle classes including sedans, MPV, SUV and hybrid vehicles. The CVT25 has a maximum torque of 250 Nm. The Company’s Wuhu plant have sold more than 8 million transmissions for passenger vehicles, including more than 600,000 CVTs. (From a corporate announcement on June 16, 2018)

-On April 3, 2018, the Company signed an agreement with Jinhua Economic Development Zone regarding the construction of new automatic transmission and new energy vehicle drive system production facilities with an annual output of 1.3 million units. The total investment in the project is CNY 6 billion. There will be two construction phases. The first phase will require CNY 2.55 billion to build a new plant with an annual output of 300,000 automatic transmission units. The construction will start in 2018 and end in 2019. The second phase will require CNY 3.45 billion in building a plant will annually produce 600,000 automatic transmission units, 300,000 sets of electric power axles and 100,000 sets of PHEV drive systems. The construction will start in 2019 and end in 2022. Upon completion of the first phase, the plant is expected to generate sales of at least CNY 2.1 billion. The plant is expected to generate sales of CNY 10 billion or more at full capacity upon completion of the second phase of construction. (From a corporate announcement on April 4, 2018)

-The Company started construction for Yuyuan Plant in Qujing, Yunnan. The plant will have an annual production capacity of 3 million units of transmission components. With an investment of CNY 2 billion, the plant will cover 200,000 square meters and achieve an annual sales of approximately CNY 3 billion. (From a corporate announcement on November 22, 2017)

-On April 27, 2017, the Company and Fuyuan County of Yunnan province signed a strategic alliance framework agreement. According to the agreement, the Company will invest CNY 2 billion in the construction of a new transmission case plant with an annual production capacity of 3 million units in the Jinhua Industrial Zone in Fuyuan Industrial Park. (From a corporate announcement on May 3, 2017)