Greetings, welcome to China Automotive Systems Second Quarter 2019 conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I will now turn the conference over to your host Kevin Theiss. Thank you, you may begin.

Thank you, everyone for joining us today. Welcome to China Automotive Systems 2019 second quarter conference call. Joining us today are Mr. Qizhou Wu, Chief Executive Officer and Mr. Jie Li, Chief Financial Officer from China Automotive Systems. They will be available to answer questions later on the conference call with the assistance of translation. Before we begin, I 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 second quarter. Management will then conduct a question-and-answer session. The following 2019 second quarter financial results are unaudited and are reported in US GAAP. For the purposes of our call today, I'll review the financial results in US dollars. We'll begin with review of recent dynamics of the automobile industry in China Automotive's market position. China's GDP growth in the second quarter of 2019 grew 6.2%, down from 6.4% in the first quarter of 2019 and lower than 6.7% in the second quarter of 2018. Railroads represented the…

Thank you. [Operator Instructions] Our first question is from William Gregozeski with Greenridge Global. Please proceed.

Hi guys. Sales to the North American customers fell in the quarter. What are you expecting for the remainder of 2019 and into 2020 from these customers?

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[Interpreted] Okay, the first – in the first half of 2019 our export to North America was around $55 million and we anticipate the second half sales to the North America customer will have a slight increase due to a new model of product coming out, i-RCB product that's coming out for the second half of 2019. So that will increase total sales in the second half. 2020, we see total sales in North America will be equivalent to 2019, so it's going to be similar or flat.

Okay. So we should not expect really any growth going forward on this market?

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[Interpreted] Okay. Yes. The short answer is yes, in terms of North America sales in 2020, but we would not expect increase. It will be flat compared to 2019. When you see – in terms of international sales we see the growth will be coming from other markets such as South America. We have a contract with Chrysler, sorry, with Fiat. That's a 300,000 unit shipment for 2020. Also we have a – also with the Fiat in Europe, that's another 125,000 in 2020. So these are the growth area we see internationally. Domestically in China, we see our joint venture with KYB will boost our sales. That joint venture would take off in a significant way. So we have a number of product upgrade. And so we think the EPS product in 2020 is going to be much stronger in terms of growth.

Okay, can you talk a little more about the KYB? How is the customer reaction bent to that and when will we see that business turn profitable?

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[Interpreted] Okay, so in terms of customer feedback after six – more than six months of fine tuning in our KYB joint venture, our quality – product quality has increased significantly. To give you some examples, we use some of the higher grade materials, we also did some fine tuning on the engineering and so now, in terms of quality, we have reached Japanese standard the same level of product quality standard KYB is selling in Japanese market. So with that we already received overwhelming positive feedback from our domestic Chinese customers. On the cost side also we make measures right during this period. We have made some of the cost reductions on the production side, fine-tuned to production procedures. Now, our gross margin increased from previous 13%, but we are producing to now 18%. So that's a significant improvement in terms of cost structure because of volume right now in 2019 still hasn't reached the level we invested and so we are seeing 2019 KYB joint venture is going to be a slight loss. However, we expect that will turn around to 2020 to turn profit. So that will be a boost in 2020s business.

Okay, alright. And last question is, with the overall sales falling, why are we still seeing the inventory increase?

Say the quick question again?

The sales are falling and obviously the guidance is for lower sales in the near future, but the inventory is still increasing from previous levels. Why is that?

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[Interpreted] Okay to answer your question, it's mainly due to – the inventory increase is mainly due to the product mix, shift and product – our sales structure or our product mix has changed during the quarter. However, we don't see this inventory increase as significant. We increased from 88 million at end of the year to 90 million now in terms of inventory. These are mainly shifting from some of the components we used to use for hydraulic products and now we're moving to other kinds of products. And we believe this is a natural change because we are – in response to the market, we are shifting our sales mix to adapt to the market trend. So I will not worry about the inventory at the moment.

Okay, well, with the lower guidance, I mean, is there any risk then that some of the products you might have on hand, you might need to do like a larger write off later this year?

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[Interpreted] Okay. We do have appraisal evaluation on inventory every quarter and whatever we need to do to make the provision, it's already been done and there's no more provision is needed in terms of inventory at this moment. So to answer your question, we don't see any further write down coming.

Okay. Thanks.

Thank you.

Thank you.

Our next question is from Robert Povich [ph], private investor. Please proceed.

Yes. Good morning. I have a couple of questions. The first is the Hyoseong joint venture for the electric motors. I was wondering where you are in regards to production? I know they were building a plant I think for this product. I guess what stage are we in with that and will these motors ultimately be sold to, I guess, other companies making electric power steering systems? It's just a thought, but I'm thinking that that might be the case.

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[Interpreted] Okay. So the Hyoseong joint venture in terms of status right now, the workshop, it has been completed and construction of the workshop or the production factory has been completed. Now we're doing the interiors at this moment. We believe it will be done by the end of October. At the meantime, the equipment we ordered will be coming in from Korea during that time. And we will start trail production probably at the end of October. And we'll have prototype coming out during that time as well in the fourth quarter and our plan is to launch mass production in March 2020. So that's the general plan in terms of Hyoseong joint venture.

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[Interpreted] To your question on future sales of electric motor from this joint venture to other companies EPS producers. Yeah, the short answer is yes. Our design capacity for the joint venture is 3 million units’ annual production. With the Phase 1, we're aiming at 1 million units. In Phase 1 that 1 million units will be mainly used internally for CAAS EPS product. The remaining of the additional 2 million coming online, we'll decide and a big portion of that will be used for sales to other EPS producers.

Okay, I appreciate those answers. My next question is regarding, I guess the US market, North America and Brazil. I know Brazil you have some operations. You're assembling, I don't know what the extent is products at that location. In light of everything going on with the US and trade issues what would a good strategy be at this point to make sure that you continue to develop and grow in the North American market?

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[Interpreted] Okay. So we – yes, in terms of trade issues, ongoing trade issues, we have extended conversation with our customers in North America in terms of specifically on how we going to tackle the incremental part of it. So we have made some positive progress in terms of our negotiations – our discussion of our customers on how we going to share the increase of tariff. We remain optimistic. We'll have some resolution coming. And in terms of your comment on South America, in particular Brazil market, we have increased our capacity in Brazil. As we mentioned earlier, in 2020, we have already on an order book from Fiat, South America, 300,000 units. That's for 2020. And so we are increasing South America, in particular, Brazil facilities production. And we're hoping that will also help us to become another route to the US market, as most of the product will be produced locally in Brazil. In terms of other locations, we're looking at Canada and possibly Malaysia as well. These countries are not in a crosshair of the trade district. So we are working on some of the markets to develop another solution. So that being said, we think we'll – we are making progress, we are making strategic planning to diversify as well as to maintain our growth prospects in North America and other international markets.

Okay, thank you. And I had another question and it has to do with – back in the fall, I guess there was a go private proposal and that was told for China Automotive to become a privately owned company. Just wondering where are we or where is China Automotive at this point in their position? Are they committed to remaining a public company at this point? And if so, the company did have a share buyback in effect. Is that something that will still be ongoing? And those are my final questions. Thank you.

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[Interpreted] There's no further plan or intention to go private as far as we heard from large shareholders. And we are committed to be a US listed Chinese – a US listed company. In terms of the share buyback, as you may have heard in the past quarters and even a year also, Chinese government has implemented very strong capital control restrictions for capital to leave China. The whole processes become longer in terms of application, but we have – coming to a point, we believe our process of application for capital to come out to do share buyback has reached a point and we should see that our fund will get approved in the near future. And so with that, we will resume our share buyback as we announced in the past. Yeah, so that's part of the plan.

Okay, thank you for answering those questions. I appreciate it.

Thank you

[Operator Instructions] That concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

Thanks for participating in today's conference call. We look forward to speaking with you again.