China Automotive Systems Reports 2006 Second Quarter Results

   Second Quarter 2006 Highlights:

   - Total net sales for the period increased to US$24.7 million, reflecting
     a 47% year-over-year growth;

   - Net sales from steering components for passenger and light-duty
     vehicles increased to US$15.8 million, reflecting a 31% year-over-year
     growth;

   - Net sales from steering components for commercial vehicles increased to
     US$6.0 million, reflecting an 88% increase year-over-year;

   - Operating income for the second quarter of 2006 increased to $3
     million, reflecting a 76% year-over-year growth;

   - Net income rose to $0.75 million, reflecting a 50% year-over-year
     growth; and

   - Diluted earnings per share was US$0.03, an increase of 50%
     year-over-year

WUHAN, Hubei, China, Aug. 10 /Xinhua-PRNewswire/ -- China Automotive Systems, Inc. , a leading power steering components and systems supplier in China, today announced 2006 second quarter financial results.

Total net sales for the second quarter of 2006 was $24.7 million, compared with $16.8 million reported in the same period of 2005 and $ 21.0 million for the first quarter of 2006, reflecting a 47% year-over-year growth and an 18% quarter-over-quarter growth respectively. Net income for the second quarter of 2006 was $0.75 million, or $0.03 per diluted share, compared with $0.5 million, or $0.02 per diluted share in the same period last year and $1.1 million, or $0.05 per diluted share, for the first quarter of 2006, reflecting a 50% year-over-year growth and a 32% quarter-over-quarter decline, respectively.

Net sales from steering products for passenger and light-duty vehicles for the second quarter of 2006 increased to $15.8 million, compared with $12.1 million reported in the same period of 2005 and $ 15.1 million for the first quarter of 2006, reflecting a 31% year-over-year growth and a 5% quarter-over-quarter growth respectively. Net sales from steering products for commercial vehicles for the second quarter of 2006 increased to $6.0 million as compared with $3.2 million reported in the same period of 2005 and $5.6 million for the first quarter of 2006, reflecting a 88% increase year-over-year and a 7% quarter-over-quarter increase, respectively.

"China's domestic passenger vehicle market maintained strong growth momentum in the second quarter. We are delighted to report another record high in quarterly net sales. The continuous economic development in populated inland China is starting to bear fruit, as more and more people in inland China have more disposable income. As a result, most auto markers benefited from the surge of cars and SUVs sales to inland China in the first half of the year. Our main customer Chery Automobile demonstrated a strong 72% year-over-year growth in the first half of 2006. Our sales to Chery grew from 12% of our total OEM revenue to 14%. With the joint venture with Chery in progress, we strengthened our key supplier position to support Chery's rapid expansion in the economy car market." said Mr. Hanlin Chen, Chairman and Chief Executive Officer of China Automotive Systems.

Mr. Chen also commented, "Along with our production cost management, we successfully expanded our production to meet the rising market demand. On the new product side, we formed a joint venture to specialize in Electric Power Steering production. After closely monitoring the dynamics of new product demand in both the domestic and international markets, we believe that we are well positioned to reap the potential upside of the fuel efficient and environmental friendly EPS products."

Gross profit for the second quarter of 2006 increased to $9.2 million, compared with $6.0 million reported in the same period for 2005 and $6.9 million for the first quarter of 2006, reflecting a 54% increase year-over-year and a 33% quarter-over-quarter increase, respectively. Operating income for the second quarter of 2006 increased to $3.0 million, compared with $1.7 million reported in the same period for 2005 and $2.5 million for the first quarter of 2006, reflecting a 76% year-over-year growth and a 20% quarter-over-quarter growth, respectively.

Total cash and cash equivalents as of June 30, 2006 totaled $19.8 million as compared to $12.4 million as of December 31, 2005. Stockholder's equity increased to $44.3 million as of June 30, 2006 from $36.9 million as of December 31, 2005.

Mr. Daming Hu, chief financial officer stated, "Our strength in cost management and technical innovation reinforced our leading position in the domestic marketplace. We posted another sequential and year over year growth in gross margin. By installing more advanced production equipment, we optimized the production cycle and lowered production cost. Income taxes increased by approximately $0.5 million compared with the same period last year, mainly due to the expiration of two-year tax holiday in one of our subsidiaries in Zhejiang. The existence of minority interests in our subsidiary -- Henglong Automotive Parts continues to hinder the full reflection of our strong top line growth in the bottom line."

New Development

On June 29th, 2006, the Company announced that it established a new joint venture to manufacture electric power steering ("EPS") systems and components. EPS systems are attractive for a variety of reasons, including lower fuel consumption, environmental friendliness and higher profit margin as compared to hydraulic platforms. The joint venture company, under the name of Wuhan Jielong Electric Power Steering Co. Ltd. "WJEPS," is based in Wuhan city, Hubei, one of the key auto manufacturing bases in China. WJEPS is expected to commence production in 2007 and reach its full capacity of 300,000 sets of electric power steering systems and components in 2011.

About CAAS

Based in Hubei Province, People's Republic of China, China Automotive Systems, Inc. is a leading supplier of power steering components and systems to the Chinese automotive industry, operating through seven Sino-foreign joint ventures. The Company offers a full range of steering system parts for passenger automobiles and commercial vehicles. The Company currently offers 4 separate series of power steering and 307 models of power steering with an annual production capacity of 800,000 sets, steering columns, steering oil pumps and steering hoses. Its customer base is comprised of leading Chinese auto manufacturers such as China FAW Group, Corp., Donfeng Auto Group Co., Ltd., Brilliance China Automotive Holdings Ltd., Beiqi Foton Motor Co., Ltd. and Chery Automobile Co., Ltd. etc. For more information, please visit: http://www.caasauto.com/

China Automotive Systems, Inc. Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended June 30, 2006 2005 Net sales from continued operations, including $794,200 and $544,935 to related parties at June 30, 2006 and 2005, respectively $24,747,912 $16,763,309 Cost of sales, including $674,207 and $490,032 purchased from related parties at June 30, 2006 and 2005, respectively 15,476,767 10,796,558 Gross profit 9,271,145 5,966,751 Costs and expenses: Selling 1,699,118 1,716,305 General and administrative 3,039,936 1,602,040 R&D expenses 251,394 138,239 Depreciation and amortization 1,253,604 769,950 Stock-Based Compensation -- 68,850 Total costs and expenses 6,244,052 4,295,384 Income from operations 3,027,093 1,671,367 Other income (expenses): Other non-operating income 117,887 31,702 Financial expenses (177,477) (324,368) Other income (loss), net (59,590) (292,666) Income before income taxes 2,967,503 1,378,701 Income taxes 850,739 302,361 Income before minority interests 2,116,764 1,076,340 Minority interests 1,365,128 574,286 Net income $751,636 $502,054 Basic $0.03 $0.02 Diluted $0.03 $0.02 Weighted average number of common shares outstanding -- Basic 23,254,121 22,574,542 Diluted 23,267,235 22,577,958