U.S. Markets closed

Edited Transcript of CAAS earnings conference call or presentation 9-May-19 12:00pm GMT

Q1 2019 China Automotive Systems Inc Earnings Call

Jingzhou May 24, 2019 (Thomson StreetEvents) -- Edited Transcript of China Automotive Systems Inc earnings conference call or presentation Thursday, May 9, 2019 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Kevin Theiss

China Automotive Systems, Inc. - Manager of IR

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the China Automotive First Quarter 2019 Conference Call hosted by Kevin Theiss. My name is Julie, and I'm your event manager. (Operator Instructions)

And now I'd like to hand the call over to Kevin. Please go ahead.

--------------------------------------------------------------------------------

Kevin Theiss, China Automotive Systems, Inc. - Manager of IR [2]

--------------------------------------------------------------------------------

Thank you, everyone, for joining us today. Welcome to China Automotive Systems' 2019 First Quarter Conference Call. Joining us today are Mr. Qizhou Wu, Chief Executive Officer; and Mr. Jie Li, Chief Financial Officer of China Automotive Systems. They will be available to answer questions later in the conference call with the assistance of translation.

Before we begin, I will 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 and the 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 first quarter. Management will then conduct a question-and-answer session. The following 2019 first quarter financial results are unaudited and are reported in U.S. GAAP. For the purposes of our call today, I'll review the financial results in U.S. dollars.

We will begin with a review of recent dynamics of the automobile industry and China Automotive's market position. China's GDP growth in the first quarter of 2019 grew at 6.4%, the same rate as in the fourth quarter of 2018, which had slowed from 6.5% in the third quarter and 6.7% in the second quarter 2018. This GDP growth rate has been the weakest growth in the last decade. First quarter 2019 factory output climbed 8.5% and the fixed asset investment is up only 6% from last year.

In 2018, vehicle sales in China suffered its first yearly downturn in 20 years as the looming moving trade war, credit curves and volatile stock market affected consumer confidence and spending in China. Additionally, the vehicle purchase tax levy was raised from 7.5% to its former standard of 10% in 2018.

According to data reported by the China Association of Automobile Manufacturers, CAAM, in the first quarter of 2019, total vehicle sales declined by 11.3% year-over-year as passenger car sales slid 13.7% and commercial vehicle sales increased 2.2%.

China's passenger vehicle sales declined for the ninth consecutive month in March of 2019. Sales in the car, SUV and MPV segments decreased by 12.1%, 14.2% and 22.4% year-over-year in the first quarter of 2019. Chinese brand automaker sales declined by 20.7% year-over-year in the first quarter of 2019 and their market share dropped to 41.5%.

In the commercial vehicle segment, the traditional internal combustion-powered bus market continued to experience a significant year-over-year decreasing unit sales in the first quarter of 2019, while overall truck sales also declined.

The medium-duty truck diesel truck sales volume down 20.3%. In such a challenging environment, net sales of our traditional hydraulic steering parts declined by 20.2% year-over-year to $87 million in the first quarter of 2019. This reduction reflects lower vehicle sales and market conditions in the first quarter of 2019.

Our electric power steering EPS product sales in the first quarter of 2019 also declined 11.2% to $22.2 million. As a percentage of net sales, EPS sales accounted for 20.3% in the first quarter of 2019 compared to 18.7% for the same period in 2018.

Our EPS sales reflect the initial growing stages of our Hubei KYB joint venture with Japan KYB Company Limited. We believe this joint venture with its focus on EPS technology and products has a solid potential for stronger future growth. We have transferred all our EPS business to the new joint venture, and we believe we will increase our market position in the Chinese market for EPS products as well as create stronger export prospects in the future.

As we further strengthen our technology base for both EPS and autonomous steering systems for future growth, we are optimistic regarding our new exclusive contract in 2019 with Great Wall Motor Company for EPS systems to steer its new all-electric small vehicle model ORA R150. Approximately 150,000 units are expected to be shipped in 2019 under this contract.

Additionally, in late 2018, one of our Tier 1 customers in North America awarded us a development program for a new recirculating-ball steering system, i-RCB program, for use in our autonomous vehicle product development. Commercial production of these products is expected in August 2019, with initial annual sales approximately 45,000 units.

In late December 2018, we entered into a new joint venture with Hyoseong Electric Co. Ltd. to produce small electric motors for use in EPS systems. These small electric motors not only add to our technology and production knowledge base to better position us to develop new steering products and to further broaden our portfolio in the future, but also enhance our insourcing capability to improve our cost structure.

Our export sales to North America decreased by 15.6% year-over-year in the first quarter 2019. These were sales for our hydraulic steering products. We have received a new product development contract, as mentioned above, to develop recirculating-ball steering systems for use in that company's autonomous vehicle. We will be able to use the knowledge developed for these products to produce other similar products in the future.

First quarter 2019 income from operations was $1 million compared to $4.6 million in the same quarter of 2018. Net income attributable to parent company's common shareholders was $1.5 million or $0.05 per diluted share in the first quarter of 2019 compared to $4.3 million or $0.14 per diluted share in the first quarter of 2018. At March 31, 2018, we had total cash, cash equivalents and pledged cash of $91.7 million.

Looking further into 2019, China's National Development and Reform Commission has announced new monitoring centers to promote growth in the automobile sector, in rural areas and even [districts] for trading and -- vehicles with older emission standards and to purchase more fuel-efficient compact vehicles. The plan will subsidize the replacement of cars complying with the 2007 emission regulation and cars with engines of 1.6 liters or smaller in rural areas.

In addition, in response to the slowing economic growth, the central government has offered a fiscal stimulus, credit loosening, debt restructuring and tax incentives for consumers to stabilize their increased economic growth and encourage consumer spending.

And some local state-owned companies are also adding centers. For example, SAIC Motor Corp in Shanghai, China's largest state-run automaker, has launched a subsidy supported by the local government to stimulate car purchases by trading in old vehicles.

Our broad product portfolio of high-quality steering products is maintaining our position as a premier steering product supplier to a large number of Chinese vehicles manufacturers and we continue to supply a number of Tier 1 vehicle manufacturers overseas.

With technology changes come challenges and opportunities. With our joint venture partners working with EPS, autonomous steering and other steering technologies, we are in a better position to accomplish our strategic goals in our targeted markets more quickly and with less risks.

Now let me review the financial results for the first quarter of 2019.

In the first quarter 2019, our net sales are $109.2 million compared to $134 million in the same quarter of 2018, reflecting an 18.5% year-over-year decline. The decrease in net sales was mainly due to lower sales volume for our legacy products in the domestic and North American passenger markets and the domestic heavy-duty vehicle market, as well as the effect of foreign currency exchange.

Gross profit was $14 million in the first quarter of 2019 compared with $21.6 million in the first quarter of 2018. Gross margin was 12.8% in the first quarter of 2019 compared with 16.1% in the first quarter 2018 mainly due to changes in the product mix.

Gain on other sales was $1.3 million in the first quarter of 2019 compared to $1.5 million in the first quarter 2018, reflecting slower -- I'm sorry, lower scrap volume.

Selling expenses were $3.1 million in the first quarter of 2019 compared to $5.8 million in the first quarter of 2018. The decrease was primarily due to reduced logistics fees, reflecting lower sales volume and the use of lower-priced shippers. Selling expenses represented 2.8% of net sales in the first quarter of 2019, compared to 4.3% in the first quarter of 2018.

General and administrative expenses, G&A, were $4.6 million in the first quarter 2019 compared to $4.4 million in the same quarter of 2018. The increase primarily reflected higher personnel expenses. G&A expenses represented 4.2% of net sales in the first quarter of 2019 and 3.3% in the first quarter of 2018.

Research and development expenses, R&D, were $6.6 million in the first quarter 2019 compared to $8.3 million in the first quarter of 2018. R&D expenses represented 6% of net sales in the first quarter of 2019 compared to 6.2% in the first quarter 2018. The reduction in R&D expenses was due to increased cost controls.

Income from operations were $1 million in the first quarter of 2019 compared to $4.6 million in the same quarter 2018. The decrease is primarily due to lower gross profit and gross margin.

Interest expense was $0.6 million in the first quarter of 2019 compared to $0.4 million in the same quarter of 2018. The increase was due to increased bank borrowings at higher interest rates.

Net financial expense was $0.7 million in the first quarter of 2019 compared to net financial income of $0.8 million in the first quarter of 2018. The decrease in net financial expense was primarily due to an increase in financial income in the first quarter of 2019.

Income before income tax expense and equity in earnings of affiliated companies was $1.2 million in the first quarter of 2019 compared to $4 million in the first quarter of 2018. The decrease in income before income tax expenses and equity in earnings of affiliated companies was mainly due to lower income from operations.

Net income attributable to parent company's common shareholders was $1.5 million in the first quarter of 2019 compared to $4.3 million in the first quarter of 2018.

Diluted earnings per share were $0.05 in the first quarter of 2019 compared to $0.14 in the first quarter of 2018. The weighted average number of diluted common shares outstanding was 31,513,297 in the first quarter of 2019 compared to 31,644,044 shares in the first quarter of 2018.

Selected balance sheet items. As of March 31 2019, total cash and cash equivalents and pledged cash were $91.7 million. Total accounts receivable, including notes receivable, were $264.3 million. Accounts payable were at $193.3 million and short-term bank and government loans were $65.9 million. Total parent company stockholders' equity was $292-point million (sic) [$292.9 million] as of March 31, 2019, compared to $285.9 million as of December 31, 2018.

Management has reiterated its revenue guidance for the full year 2019 of $510 million. This target is based on the company's current views on operating and market conditions, which are subject to change.

Operator, with that, we're now ready for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We do have one question and it comes from the line from [Robert].

--------------------------------------------------------------------------------

Unidentified Shareholder [2]

--------------------------------------------------------------------------------

I was wondering about the joint venture with Hyoseong Electric Motors. When do you expect that production facility to be initially operational? When do you expect, I guess, the product to be utilized in your electric power steering systems?

--------------------------------------------------------------------------------

Unidentified Company Representative [3]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [4]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [5]

--------------------------------------------------------------------------------

Okay. [Interpreted] We formed a joint venture with our Korean partner, Hyoseong, in -- earlier this year and we are in the process of putting together, preparation mode, and also facilitating all the document and the other planning, market planning. In terms of trial production, we won't [repeat it], it's going to start in the fourth quarter of this year and then we'll go into the market production in 2020 first quarter.

--------------------------------------------------------------------------------

Unidentified Shareholder [6]

--------------------------------------------------------------------------------

I have got another question. As it relates...

(technical difficulty)

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

I think we seemed to have lost our caller.

(Operator Instructions) We've got [Robert] back on again.

--------------------------------------------------------------------------------

Unidentified Shareholder [8]

--------------------------------------------------------------------------------

Now these electric motors that you're going to be joint venture-building, will they be used in automated steering systems, some of them, and will that enhance your capabilities? And I guess the other question would be margin improvement. I mean I know you are outsourcing these motors currently. Do you see any meaningful reduction allowing for margin improvement in the joint venture?

--------------------------------------------------------------------------------

Unidentified Company Representative [9]

--------------------------------------------------------------------------------

Okay. (foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [10]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [11]

--------------------------------------------------------------------------------

Okay. (foreign language)

[Interpreted] So first part of the question -- answer to your first part of the question, yes, this motor will be used on the electric power steering EPS products and also it will be used in the high-end EPS product. This particular joint venture will produce, I mean, the brushless motor. And brushless motor, it's a high-end product for high-end EPS systems. The cost is high if we -- in the past we had to procure them. And also, the autonomous driving of driverless vehicles or any other ADAS system, where the trend is going on right now. So all these can be used our -- or can install our EPS system powered by this type of brushless motors. (foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [12]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [13]

--------------------------------------------------------------------------------

Okay. [Interpreted] On the cost side, definitely it's going to change for better for us because the -- in terms of supply and demand, the demand is higher, much higher than supplier -- supply for this type of motor for the scaling systems globally, and that's why the cost is -- remain at a high level for a while. This is the very reason we've decided to go into, as you mentioned, with the technology partner who specialize in motor. So that will help us to bring the cost down, hence improve the margin.

--------------------------------------------------------------------------------

Unidentified Shareholder [14]

--------------------------------------------------------------------------------

Okay. I have another question.

--------------------------------------------------------------------------------

Unidentified Company Representative [15]

--------------------------------------------------------------------------------

Sure.

--------------------------------------------------------------------------------

Unidentified Shareholder [16]

--------------------------------------------------------------------------------

The -- you know about the trade issues that we face today. I guess we'll know more about that tonight. But I was wondering, as it relates to the revised NAFTA deal, how will that -- how do you think that's going to impact potential for the future for China Automotive in the United States? I was thinking it might not be that significant because steering is more of a critical item. But I was wondering, what are your thoughts?

And my second question actually has to do with sales in China. Do you feel that we're at a point now where sales, monthly sales, year-over-year comparisons will probably get easier going forward? I mean that's my guess at this point, based upon what I'm looking at. And maybe we've leveled out from here and maybe there's a good chance that we could possibly resume some growth as we get into later in the year or early next year.

--------------------------------------------------------------------------------

Unidentified Company Representative [17]

--------------------------------------------------------------------------------

Okay. Sure. (foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [18]

--------------------------------------------------------------------------------

Foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [19]

--------------------------------------------------------------------------------

Okay. (foreign language)

[Interpreted] Yes. Regarding your question on the trade war, it's a very complex. As we all know, it's a very complex situation. It's a very complex question. The -- our understanding is -- the challenge we are facing during doing the negotiation between U.S. and China, 2 countries, our main -- is due to Trump administration's general agenda to bring the manufacturing back to America. That being said is -- so because the supply chain and many other reasons, the complexity is beyond our analysis. We can't see that yet because that sector has changed dramatically in the last 15 years.

On the steering product side, yes, you're right, it's a critical component or it's a critical system for the vehicles and it's safety-related also. And that gives us an opportunity to discuss with our main customers in North America. And we are currently undergoing friendly negotiation with our customers in North America to -- looking for a resolution. And hopefully, both party can -- hopefully, we will have a better solution to solve the tariff or potential tariff issue. And on the other hand, we are also, since we have a factory in Brazil, we may also use the resource over there to help out some of the North America business.

And lastly, we never go into details in terms which particular geographic location are moving our product in North America. Today, we're happy to discuss that. We do have one of our main U.S. American customer, they have a facility in Mexico. And so some of our product, not all, some of our product are actually being shipped to their Mexico factory. So we believe that's a bit -- that's a very different situation scenario with them shipping directly to, for instance, a production line in Detroit. So -- and again, we have to wait and see what could be the impact going forward.

--------------------------------------------------------------------------------

Unidentified Company Representative [20]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [21]

--------------------------------------------------------------------------------

Okay. [Interpreted] So on your question regarding the Chinese domestic market, we have to say the last few quarters and the overall 2018 was disappointing for Chinese auto industry as a whole. And 2019 first quarter was weak as well. However, we remain cautiously optimistic. Reason being, one, on the long-term side, if you look at the current ownership, vehicle ownership versus the total population, China is still at about 15%. So every 100 people, we have 15 vehicles. In Europe and U.S., that number is significantly higher, running at 70%. So we're not saying we're going to get to that level of ownership, but if we want to move it to 20% to 30% versus the population, it's a very -- still very reasonable range and target. And that give us -- that give Chinese auto industry still a lot of room to grow. So that's why long term, we feel pretty optimistic.

In short-term, we also are optimistic. Reason being, one, government is doing lot -- rolling out a lot of policies to support industry. For instance, there are policies for -- different policies, for instance, the old vehicle, if you are replace them, you get subsidies that will help you to buy a new vehicle. And also, the government is loosening the credit side, so auto loan will be a lot easier to get now. So with different kind of policy and also the -- or we'll see some of that new policy coming in very soon and help vehicle owners to choose their second vehicle or replace their vehicle and buy an economy or fuel efficiency -- fuel-efficient vehicles. So all that considered, we think the next few months, this should turn around and we will see somewhat stabilizing and even growth in 2019.

--------------------------------------------------------------------------------

Unidentified Shareholder [22]

--------------------------------------------------------------------------------

Okay. Would you take one more question from me?

--------------------------------------------------------------------------------

Unidentified Company Representative [23]

--------------------------------------------------------------------------------

Sure.

--------------------------------------------------------------------------------

Unidentified Shareholder [24]

--------------------------------------------------------------------------------

KYB, I know you guys did the joint venture and that's set up. The transfer, I guess both companies are going to transfer the business into the joint venture. And I was wondering, as it relates to KYB, have you seen all of that business transfer into the joint venture? Or is that like an ongoing process? And how are things going? I mean if -- with the joint venture operational, did you reach your I guess production objectives in the first quarter? How does it look?

--------------------------------------------------------------------------------

Unidentified Company Representative [25]

--------------------------------------------------------------------------------

Okay. (foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [26]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [27]

--------------------------------------------------------------------------------

Okay. [Interpreted] So on your question on the joint venture of KYB, it -- we started trial production in October 2018. Ever since then, things are moving very smoothly. We now -- both -- we now have transferred 100% of the EPS, electric power steering product, production into this joint venture.

And on the KYB side, they are transferring some of their customers, mostly our Japanese customers in China. They're transferring those customer to the joint ventures as they agreed. And those are domestic customers. And they have established those -- KYB has established relationship with those customers over the decades. Their relationship they carry with them for a long time. And however, we just want to clarify one thing, the business KYB with the Japanese customer in Japan are not part of the joint venture. This joint venture only handles with their China business. So, so far, so good.

In terms of production of the joint venture, we definitely see things are moving into the right direction as we planned. First, is the production management, we're very pleased of our Japanese partner and our Chinese team working very well together. And the production [scale] has been running at very high efficiency as well as quality improvement. And in terms of our technology, we're even more excited working with our partner. Now we're seeing a upgrade on the technology as well as the quality.

And now, in terms of our evaluation, whether it's meeting our milestones or our target, we have to say it was -- trading was a bit below our expectations. Main reason is the market demand is a bit soft, as you know. Since the second half of 2018, the auto sales in China has been consistently having decline month after month, quarter after quarter. And so with this type of environment, we're not meeting our target. But not by a lot, it's only fairly below. But overall, we see the second half of the year, even the second quarter, starting second quarter, things will heat up and we are booking some new contracts. And so we believe we are going to meet those targets and even exceed them.

--------------------------------------------------------------------------------

Unidentified Shareholder [28]

--------------------------------------------------------------------------------

Okay. I don't know if you'd take another question? I don't know if there's anyone else listening.

--------------------------------------------------------------------------------

Unidentified Company Representative [29]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Unidentified Shareholder [30]

--------------------------------------------------------------------------------

As it relates to, I guess, the company's public stock and so forth, I know you guys did put in place a share buyback program. And I was wondering, we haven't seen much activity on it. But do we have potential to do more of a share buyback at this point? And has the company pretty much -- can we expect, as shareholders, that the company will remain a public company for the foreseeable future? Because I know we did have a situation where the Chairman did want to buy the company and take it private. And would you say that's kind of left as something that we won't see in the future and we'll remain a public company. And that's -- those are my last questions, I promise.

--------------------------------------------------------------------------------

Unidentified Company Representative [31]

--------------------------------------------------------------------------------

Thank you. Okay. (foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [32]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [33]

--------------------------------------------------------------------------------

Okay. [Interpreted] We have -- in terms of share buyback, we have -- since the announcement, we have purchased over 200,000 shares. We may buy more going forward. And in terms of the go-private proposal from a large shareholder in the past, in the foreseeable future, we don't expect another attempt. We will remain a U.S.-listed company. And I think -- yes, that's the -- that will be the answer.

--------------------------------------------------------------------------------

Unidentified Shareholder [34]

--------------------------------------------------------------------------------

Okay. And I've been a shareholder for a long time and I still have hope and faith in China Automotive Systems. So I appreciate everything.

--------------------------------------------------------------------------------

Unidentified Company Representative [35]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

We do have another question, and it comes from the line of [John Shi.]

--------------------------------------------------------------------------------

Unidentified Analyst [37]

--------------------------------------------------------------------------------

Thank you for providing detailed answers to the previous questions. Can you comment on the strategic target of 10 million units of sales mentioned on the website? When do you hope to reach those targets? And if you reach it, then how much growth would you see in annual revenues?

--------------------------------------------------------------------------------

Unidentified Company Representative [38]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [39]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [40]

--------------------------------------------------------------------------------

Okay. [Interpreted] So yes, we did, some point in the past, talked about our long-term plan to reach 10 million units annual target. And we're actually now running about -- producing and selling about 6 million to 7 million units a year. In the next 3 to 5 years, we are definitely going to reach that goal of 10 million on the annual basis. There are some factors making us remain confident of that target. Domestically, we think the -- like we mentioned earlier, the auto industry still have room to grow since both the ownership increasement -- increased as well as the government level of incentives to help people to increase vehicle purchase.

International side, we're seeing a lot of growth opportunities. The world is a large place. For instance, in Europe, we are -- now supply to Fiat and that's going very well. In Brazil, we're experiencing a very strong growth in the shipment. And also on the product side, our electric power steering system, EPS system, after we formed the joint venture with Japanese partner KYB, we are significantly improving our production and quality and technology as well. So we are going to gain market shares. We're going to increase and leverage our relationship, existing relationship with so many OEM customers in China and abroad.

And lastly, on the ADAS, the drive system side, we have put a lot of R&D effort in the past and now into this area for research. And we will see some of the progress and the product coming up in the near future. So all in all, we remain optimistic and we are going to meet the 10 million units.

--------------------------------------------------------------------------------

Unidentified Analyst [41]

--------------------------------------------------------------------------------

And if you reach 10 million units, how much growth would you see in annual revenue? Would it be 50% more? Or would the average selling price also be increasing due to the higher quality and higher specifications of the products?

--------------------------------------------------------------------------------

Unidentified Company Representative [42]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [43]

--------------------------------------------------------------------------------

(foreign language)

--------------------------------------------------------------------------------

Unidentified Company Representative [44]

--------------------------------------------------------------------------------

Okay. [Interpreted] So in terms of borrowing, the next number of years, we should see 5% to 10% annual growth given those tailwinds we're seeing. On the ASP side, average selling price side, because ESP -- EPS product carries a higher ASP. So -- and with the increase of the EPS sales and the sales revenue mix, we should see ASPs going to increase. So we're -- for that reason, we think we are heading to the right direction.

--------------------------------------------------------------------------------

Operator [45]

--------------------------------------------------------------------------------

Thank you. There are no further questions on the audio platform. And I'm just going to turn back over to Kevin, please.

--------------------------------------------------------------------------------

Kevin Theiss, China Automotive Systems, Inc. - Manager of IR [46]

--------------------------------------------------------------------------------

Thank you, all, today for your participation in today's conference call, and we look forward to speaking with you again in the future. Have a good day.

--------------------------------------------------------------------------------

Operator [47]

--------------------------------------------------------------------------------

Thank you, Kevin. That concludes your conference call for today. You may now disconnect. Thank you for joining, have a great day.