China Automotive Systems Reports 2008 Third Quarter Results

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Net Sales Reached US$36.9 Million; Representing 18.4% Year-Over-Year Growth

WUHAN, Hubei, China, November 12, 2008: China Automotive Systems, Inc. ("CAAS" or the "Company"), a leading power steering components and systems supplier in China, today announced financial results for the third quarter and nine months ended September 30, 2008.

2008 third Quarter Highlights:

Net sales increased to US$36.9 million, reflecting 18.4% year-over-year

Net sales from steering components for passenger and light-duty
vehicles increased to US$ 24.6 million, reflecting 22% year-over-year

Net sales from steering components for commercial vehicles increased to
US$8.8 million, reflecting an 8.8% increase year-over-year;

Net income was US$2.8 million, reflecting 7.2% year-over-year growth;

Diluted earnings per share were US$0.09, reflecting a decline of
US$0.02 per diluted share due to a greater number of weighted average
common shares outstanding;

Net cash flow provided by operations was US$4.4 million for the nine
month period

China Automotive Systems reported net sales of US$36.9 million for the third quarter ended September 30, 2008, compared with US$31.2 million in the same quarter in 2007, and US$46.5 million for the second quarter of 2008, reflecting an 18.4% year-over-year growth. Net income for the third quarter of 2008 was US$2.8 million, or US$0.09 per fully diluted share, versus US$2.6 million, or US$0.11 per fully diluted share in the same period a year ago, reflecting 7.2% year-over-year growth, and compared with US$4.7 million, or US$0.18 per fully diluted share for the second quarter of 2008.

Third quarter net sales for 2008 from steering products for passenger and light-duty vehicles increased by 22% year-over-year to US$24.6 million as compared with US$20.2 million reported in the same period for 2007. Net sales from steering products for commercial vehicles for the third quarter of 2008 increased to US$8.8 million, an 8.8% year-over-year gain compared with the US$8.1 million reported in the same period for 2007. Net sales from oil pumps and sensors for the 2008 third quarter increased to US$3.4 million as compared with US$2.9 million in the same period for 2007, reflecting 18.1% year-over- year growth.

"Our third quarter results were negatively impacted by the normal seasonality and Beijing Olympics. Many OEMs reduced the production and held off orders for components this summer. However, we continued to manage to generate growth in a slow market, as we continue to win new customers and expand our market share in China," said Mr. Qizhou Wu, Chief Executive Officer of China Automotive Systems.

Gross profit for the third quarter of 2008 was US$9.9 million compared with US$11.4 million in the same quarter in 2007, and US$14.5 million for the second quarter of 2008. Gross margin was 26.7% in the third quarter compared with 31.1% in the second quarter of 2008. Operating income for the third quarter of 2008 was US$3.7 million as compared with US$6.6 million reported in the same quarter of 2007 and compared with US$5.5 million for the second quarter of 2008. Lower operating income was partially due to lower gross profit resulting from higher raw material prices as well as higher labor and transportation costs related to rising sales. CAAS also invested more into Research & Development resources as more personnel were added to design new products. Further, greater operating expenses were reflected in higher depreciation and amortization expenses from additions to property, plant and equipment as well as increased supplies for continuing construction to build the Company's production capacity.

Net income was US$2.8 million compared with US$2.6 million in the third quarter of 2007, reflecting a 7.2% year-over-year increase. Earnings per share on a fully diluted basis in the third quarter of 2008 were US$0.09 as compared to US$0.11 in the same period of 2007. Total shares outstanding on a fully diluted basis were 31.4 million shares, as compared to 24 million in the 2007 third quarter. The share-count increase was mainly related to the US$ 35 million convertible note financing and the Henglong acquisition in early 2008. The conversion price of the convertible notes, which was US$8.8527 initially, was reset to a bottom of US$7.0822 on August 15, 2008. There will be no more conversion price reset thereafter.

Total cash and cash equivalents as of September 30, 2008 were US$27.2 million as compared with US$19.5 million as of December 31, 2007. Also, there was a US$9.2 million of pledged cash deposits, part of which is expected to turn into free cash in the fourth quarter. Total account and notes receivables were US$100.9 million reflecting higher sales. Notes receivables, which are guaranteed bank payments from customers, were US$40.5 million as of September 30, 2008. Stockholder's equity increased to US$80.8 million as of September 30, 2008 from US$67.2 million as of December 31, 2007. Working capital reached US$75 million. Property, plant equipment increased to approximately US$50 million. The long-term convertible notes payable was valued at US$32.8 million.

Mr. Qizhou Wu, Chief Executive Officer of China Automotive Systems, stated, "In response to the higher raw material costs during the summer, we have increased our selling prices to our customers, especially the commercial vehicle OEMs. With falling steel prices and our adjusted ASP, we are expecting a much improved gross margin in the fourth quarter. On the sales front, we expect the gradual recovery of domestic auto sales growth following the new emission standard introduction. We remain hopeful that the Chinese government's road and port infrastructure build-out plan along with US$ 586 billion stimulus package can benefit the domestic auto industry."

Mr. Jie Li, Chief Financial Officer, stated, "As the global capital market continues to experience turbulence and the Chinese auto industry undergoes a transition year, we are carefully planning our growth strategy based on our financial strength, and focusing on strengthening our balance sheet. We have improved our cash position by managing account receivables and reducing capital expenditures. We want to continue to generate positive cash-flow, mitigate financial risks and enhance our long term shareholder's value."

Recent Developments

On October 23rd, founder and Chairman, Mr. Hanlin Chen, Chief Executive Officer, Mr. Qizhou Wu, Chief Financial Officer, Mr. Jie Li and other officers announced plans to invest US$500,000 to purchase the common shares of CAAS in the open market.

On October 14th, China Automotive Systems announced that its subsidiary, Jingzhou Henglong Automotive Parts Co. ("Henglong"), received orders from Dongfeng Peugeot Citroen Automobile Company Ltd. ("DPCA") for power steering gears for the Dongfeng Elysee. Henglong started development of three new power steering gears for DPCA in 2005. These three models are Peugeot 206, Elysee R23 and Picasso N68. Subsequently, all models have passed the French UTAC safety test, road tests and inspections. In July 2008, Henglong won the supply contract for the Peugeot 206 and has begun commercial production.

On September 2nd, the Company announced that its subsidiary, Jingzhou Henglong Automotive Parts Co. ("Henglong"), signed a supply agreement with ChangAn Auto Co. Ltd. ("ChangAn Auto"). Henglong successfully developed 4 different models of hydraulic power steering systems and one model of Electronic Power Steering for ChangAn Auto. Henglong is now a power steering system supplier to ChangAn Auto's CV6 model. Total shipments to ChangAn Auto for 2008 will be approximately 30,000 total units. According to the China Association of Automobile Manufacturers, ChangAn Auto Co. Ltd. produced and sold around 50,000 sedans and 250,000 SUVs in 2007. ChangAn Group has been consistently ranked as a top 5 automaker in China for many years.

Conference Call

Management will conduct a conference call today, November 12 at 8:00 a.m. Eastern Standard Time to discuss these results. A question and answer session will follow management's presentation.

To participate, please call the following numbers 10 minutes before the call start time and ask to be connected to the "China Automotive Systems" conference call:

  Phone Number: +1-877-407-8035 (North America)
  Phone Number: +1-201-689-8035 (International)

In addition, the conference call will be broadcast live over the Internet at: CAASAUTO.

Please go to the web site at least 15 minutes early to register, download and install any necessary software.

A telephone replay of the call will be available after the conclusion of the conference call through 11:59 PM Eastern Standard Time on Wednesday, November 26, 2008. The dial-in details for the replay are: U.S. Toll Free Number +1-877-660-6853, International dial-in number +1-201-612-7415; using Account "286" and Conference ID "301311" to access the replay. The internet audio stream will also be available until 11:59 pm Eastern Standard Time on Wednesday, November 26.

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