Greetings and welcome to the China Automotive Systems Third Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kevin Theiss, Investor Relations. Thank you, Mr. Theiss. You may begin.

Thank you, everyone, for joining us today. Welcome to China Automotive Systems 2018 third quarter conference call. Joining us today is Mr. Jie Li, Chief Financial Officer of China Automotive Systems. He will be available to answer questions later in the conference call with the assistance of translation. Before we begin, I would 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, 2016 as filed with the Securities and Exchange Commission, and in other documents filed by the company from time-to-time with the Securities Exchange Commission. The company expressly disclaims any duty to provide updates to any forward-looking statements made in this call 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 2018 third quarter and nine month period. Management will then conduct a question-and-answer session. The following 2018 third quarter financial results are unaudited and the fiscal year results are audited. These results are reported under U.S. GAAP, and for the purposes of our call today, I will review the financial results in U.S. dollars. We will begin with a review of the recent dynamics of the automobile industry and China Automotive's market position. For the third quarter 2018, China's GDP grew slow to 6.5% from 6.7% in the second quarter and 6.8% in the first quarter of 2018. This number represents the weakest…

Thank you. We will now start to get Q&A, our question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of [Robert Polawich] [ph] a private investor. Please proceed with your question.

Oh, yes. Good morning. Thanks for taking the call. I have a couple of questions here. And, of course, with your - the gross margins really have come down and, I guess, that's - as you indicated, higher cost of raw materials. I'm just wondering, what's the timeframe for getting price increases on new contracts to cover the cost of raw materials? Do you think that's something that can be passed on without too much difficulty? And will that be the plan as we move into 2019?

Okay. Thank you. [Foreign Language]

[Interpreted] Okay. Basically, raw material cost increase is only one of the factors affecting the gross margin depreciation - gross margin decline. The other two factors are basically the product mix. During the third quarter 2018, we were increasing the sales of lower margin mechanic steering products. So due to the increase of those products are affecting our blended gross margin. And also, the last factor is the increase of warranty expenses. And so, combining raw material and product mix and warranty expenses, those three factors are - and then we see a pressure of the gross margin. In the past, we were able - for instance, the gross margin, the raw material challenges, increase is not the first time. In the past, we were able to pass some of the pressure to our suppliers. Some of the raw material suppliers, we're able to negotiate with them. This year, because they're going through some challenges as well, so we're not able to do it during this quarter. But in the longer run, we believe we are able to renegotiate with them of the raw material procurement cost as we are a large volume buyer.

Okay.

[Interpreted] Go ahead, Robert.

Okay. Thanks, let's see. I see that the joint venture, I guess, is signing - the startup was in September. And I was looking at KYB's reports and it looks like the startup volume is about US$175 million combined. And as we move into 2020, the projection is for about US$307 million from the combined joint venture, which is an increase of about US$130 million. I'm assuming that the ramp up of this new business will - is happening now. And what can you say about the projections for growth over the next year to two years?

Okay. [Foreign Language]

[Interpreted] So Robert, the projection you mentioned for joint venture is the - after the discussion on both sides we've come to those numbers. We think it's achievable given the size of Chinese market. And also as you can tell the EPS products are really catching up in China market. Our - at the moment, our EPS products - our market share for the EPS product in China is still relatively modest. We believe with the partnership with KYB, we're able to build out a major force and we can expand from there. So from that point on, we can grow 10% to 15% a year and increase our market share.

Okay. I also see now to that - it looks like Brazil is picking up, they had their vehicle sales, I think, were up 25%, last month. Do you think that will help the situation with what China Automotive is doing in Brazil?

[Foreign Language]

[Interpreted] Yes. You are right, Robert. In the first nine months of 2018, our sales in Brazil also experienced a very strong growth. On a year-over-year basis, we grew 30% in Brazil.

Okay. I guess, I have, I can say, a last quick question or two. As minority shareholders regarding status of China Automotive, we know that for about 1.5 year almost we were dealing with the potential for a buyout from Chairman Chen, and I know that that's been canceled. Are we now at a point, where we can feel confident that China Automotive will remain a public company, traded I guess in the U.S. markets? And in light of everything that's transpired, is there any possibility that we could see even some level of the share buyback in light of the share price now being as low as it is, as a vote of confidence for existing shareholders as well as potential new shareholders. I mean, personally, I've owned China Automotive stock for a long time. And we held it in good faith, but it sure would be nice to see some vote of confidence that we could feel comfortable continuing to hold the shares. Thank you.

Okay. [Foreign Language]

[Interpreted] Okay. So back to your comment, first comment. In terms of the Chairman's and his party's withdrawing the go-private proposal, that decision is final. And CAS will remain a U.S.-listed or NASDAQ-listed public company into the long run. And so we want you to know, CAS are very committed to maintain a U.S. listing status. In terms of a buyback, and your points are well taken. The challenge right now is the Chinese government implemented a very strict and stringent capital control policies. As you know the U.S. China situation at the moment, and so the capital transfer from China to outside of China has been difficult in getting through the Chinese government's approval. However, we are working out some solutions and trying to be able to achieve that goal.

In terms of a buyback, personally the CFO, Jie Li, he think, it's something worth looking at it. And he's in - he agrees with you that the company is undervalued.

Okay. I appreciate you're answering my questions. I mean, that sounds good to me. I just wanted to say that, I know the joint venture with KYB that is a significant development and I'm familiar with that company. They're over 100 years old. And you will have great success with this joint venture, I have no doubt. Thank you. Thanks a lot for taking the call.

Thank you.

Thank you. Our next question comes from the line of [John Sheehe] [ph], a private investor. Please proceed with your question.

Hello, everybody. Thank you for taking my call, and thank you for the detailed answers you provided to all the questions so far. Can you share some expectations about how much of capital expenditure will be required for the KYB joint venture over the next year?

Okay. [Foreign Language]

[Interpreted] Okay. So the formation of the joint venture is based upon the contribution from CAS side and we'll have - we'll contribute the equipment and the production line, because we have the existing production line equipment and the KYB will contribute the cash to the joint venture. So they were probably putting in about $10 million with our equipment, we're able to increase the production for the EPS product - increase in production capacity for EPS product.

So from the China Automotive Systems side, you will not make a large capital expenditure over the next year for the joint venture. Is that correct?

Correct.

Okay. That's great. And can you comment on the impact of U.S. tariffs on export sales to North America?

[Foreign Language]

[Interpreted] So since the announcement, the State Department's announcement on the increase of the tariff imports, we have gone through a series of evaluations, the potential impact to our business in North America. The short answer is, it's controllable, it's manageable, so yeah. So our projected sales to the North America is about $120 million, one-third of that is currently facing about 10% tariff. And with that potential - we've still not announced and finalized, but it's the U.S. government, who has the potential to increase to 25% at the end of the year. Okay. So after the discussion, after our discussion with our customers in North America, we come to a mutual agreement to share some of the impact on both sides. And also combining - also we'll receive some of the government subsidy and along we're seeing appreciation of US dollars which is in favor to us. And so, these three things together we believe will help us mitigate the impact of the increase of tariff. And so, we believe the potential negative impact to our North America business will be manageable and minimal.

That's great. Thank you very much for that detail. That's all my questions.

Thank you.

Thank you. Our next question comes from the line of Peter Halesworth with Heng Ren. Please proceed with your question.

Yes, so my first question is was there any sense if there was an acceleration of orders, is there pull-through in this quarter in order to avert or mitigate tariff on the part of U.S. customers? That's my first question.

Peter, can you repeat your question? Your voice is low.

Yes, is there any evidence that there was an acceleration of orders from U.S. customers to beat the tariff? Is there any evidence of that? That's my first question.

Okay. [Foreign Language]

[Interpreted] Our order book from the U.S. customer has been relatively stable. So there is no accelerating growth for that chapter, that area.

Okay. And then my second question is, what was the valuation of the company provided by Houlihan Lokey, which was the advisor to the Special Committee that was representing shareholders during the failed buyout from the Chairman? What was the value of the company that Houlihan Lokey arrived at?

[Foreign Language]

[Interpreted] To answer your question, Houlihan Lokey was retained by Special Committee, which is formed by some of the Board members. So the senior management has never - has no access to that report. So the whole evaluation was done by the Special Committee.

Okay. And just my last question relates to what Mr. [Polawich] [ph] mentioned before, this loss of confidence on behalf of shareholders. It's very concerning to not see the Chairman on this call, who we haven't heard from directly for over 15 months. Also the CEO is not on the call. Shareholders want positive change in corporate governance and IR. And the $2 stock price is a high penalty that we're suffering because of this poor corporate governance and IR. And in fact, shareholders have given ideas about how China Automotive can improve their corporate governance and IR, and it's been ignored. And it's a matter of fact that China Automotive is an American corporation in Delaware, listed on NASDAQ and it needs to start to act like it. You need to meet investors. You need to communicate directly and regularly. You have to have a Board that's qualified and represents…

Thank you.

[Foreign Language]

[Interpreted] Okay. So before the earnings conference call, I mean, the Chairman actually called to CFO. His flight was delayed. So at the time of the conference call he was - he's actually up in the air. So he has tried to attend the call. So that's - but he's on his way to meet one of the largest customer of CAS, discussing a 2019 order. I think lot of those shareholders of CAS will appreciate those efforts, especially in a year there have been some difficulties.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for closing comments.

Well, we thank everybody for joining us today. And we look forward to speaking with you in the future.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.