The following discussion and analysis should be read in conjunction with the
Company's condensed unaudited consolidated financial statements and the related
notes thereto and the other financial information contained elsewhere in this
Report.
General Overview
China Automotive Systems, Inc. is a leading power steering systems supplier for
the China automobile industry. The Company has business relationships with more
than sixty vehicle manufacturers, including China's top ranking domestic
automobile manufacturers such as JAC motors, Changan Automobile Group, BAIC
Group, Dongfeng Group, Brilliance Jinbei, Chery, BYD and Zhejiang Geely as well
as Sino-foreign or foreign automobile manufacturer such as General Motors,
Citroen, Fiat Chrysler North America and Ford. Starting in 2008, the Company has
supplied power steering gears to the Sino-foreign joint ventures established by
GM, Citroen and Volkswagen in China. The Company has supplied power steering
gear to Fiat Chrysler North America since 2009 and to Ford Motor Company since
2016.
Most of the Company's production and research and development institutes are
located in China. As of September 30, 2022, the Company has approximately 4,288
employees dedicated to design, development, manufacture and sales of its
products. By leveraging its extensive experience, innovative technology and
geographic strengths, the Company aims to grow leading positions in automotive
power steering systems and to further improve overall margins, long-term
operating profitability and cash flows. To achieve these goals and to respond to
industry factors and trends, the Company is continuing its work to improve its
operations and business structure and achieve profitable growth.
In addition, as a result of COVID-19, the Company's businesses, results of
operations, financial position and cash flows had been affected in the first
three quarters of 2022, with the Company commencing its 2022 operations in March
of 2022. However, because of the significant uncertainties surrounding COVID-19,
which are still evolving, the extent of the business disruption, including the
duration and the related financial impact on subsequent periods cannot be
reasonably estimated at this time. See "Item 1A. Risk Factors-Our business
operations have been and may continue to be materially and adversely affected by
the outbreak of the coronavirus disease (COVID-19)" in the Company's Annual
Report on Form 10-K for the year ended December 31, 2021.
Corporate Structure
The Company, through its subsidiaries, engages in the manufacture and sales of
automotive systems and components. Great Genesis Holdings Limited, a company
incorporated in Hong Kong on January 3, 2003 under the Companies Ordinance of
Hong Kong as a limited liability company, "Genesis," is a wholly-owned
subsidiary of the Company and the holding company of the Company's joint
ventures in the PRC. Henglong USA Corporation, "HLUSA," incorporated on January
8, 2007 in Troy, Michigan, is a wholly-owned subsidiary of the Company, and
mainly engages in marketing of automotive parts in North America, and provides
after-sales service and research and development support. CAAS Brazil's Imports
And Trade In Automotive Parts Ltd., "Brazil Henglong," was established by Hubei
Henglong Automotive System Group Co., Ltd., formerly known as Jingzhou Hengsheng
Automotive System Co., Ltd., "Hubei Henglong," as a Sino-foreign joint venture
company with two Brazilian citizens in Brazil in August 2012. In May 2017, the
Company obtained an additional 15.84% equity interest in Brazil Henglong for nil
consideration. The Company retained its controlling interest in Brazil Henglong
and the acquisition of the non-controlling interest was accounted for as an
equity transaction. Fujian Qiaolong was acquired by the Company in the second
quarter of 2014, as a joint venture company that mainly manufactures and
distributes drainage and rescue vehicles with mass flow, drainage vehicles with
vertical downhole operation, crawler-type mobile pump stations,high-altitude
water supply and discharge drainage vehicles, long-range control crawler-type
mobile pump stations and other vehicles, which was disposed of by the Company in
the second quarter of 2016. USAI was established in 2005, and the Company and
Hubei Wanlong owned 83.34% and 16.66%, respectively. In May 2020, USAI merged
with and into Wuhan Chuguanjie, a wholly-owned subsidiary of Wuhan Jielong, and
it deregistered from the local business administration on April 28, 2020.
Following the merger, 85.0% of Wuhan Chuguanjie was owned by the Company and
15.0% was owned by Hubei Wanlong. In April 2020, Hubei Henglong acquired 100.00%
of the shares of Changchun Hualong Automotive Technology Co., Ltd., "Changchun
Hualong", for total consideration of RMB 1.20 million, equivalent to
approximately $0.2 million. Changchun Hualong mainly engages in design and R&D
of automotive parts. Wuhu Hongrun New Material Co., Ltd., "Wuhu Hongrun" was
formed in December 2019, which mainly engages in the development, manufacturing
and sale of high polymer materials. In April 2021, the Company obtained an
additional 22.67% equity interest in Wuhu, for total consideration of RMB 6.9
million, equivalent to approximately $1.1 million, from the other shareholder.
Following the acquisition, the Company owned 100% of the equity interests of
Wuhu Henglong. Jingzhou Qingyan deregistered from the local business
administration on June 22, 2022.
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Table of Contents
Critical Accounting Estimates
The Company prepares its condensed consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires the use of
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amount of revenues and expenses
during the reporting periods. Management periodically evaluates the estimates
and judgments made. Management bases its estimates and judgments on historical
experience and on various factors that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates as a result of
different assumptions or conditions. The following critical accounting policies
affect the more significant judgments and estimates used in the preparation of
the Company's condensed consolidated financial statements.
The Company considers an accounting estimate to be critical if:
? It requires the Company to make assumptions about matters that were uncertain
at the time it was making the estimate, and
Changes in the estimate or different estimates that the Company could have
? selected would have had a material impact on the Company's financial condition
or results of operations.
The table below presents information about the nature and rationale for the
Company's critical accounting estimates:
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