China Automotive Systems, Inc.

Greetings.

Welcome to China Automotive Systems' second quarter 2020 conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Kevin Theiss. Kevin, you may begin.

Thank you, everyone. For joining us today, welcome to China Automotive Systems 2020 Second 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 may make statements that may contain forward-looking statements. and many more. 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. With the year ended December 31, 2019, S-Files Securities and Exchange Commission on May 14, 2020, and in other documents filed by the company from time to time with the Securities and Exchange Commission. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial condition may be materially and adversely affected as a result of the deteriorating market outlook for automobile sales, the slowdown in regional and national economic growth, weakened liquidity, and financial condition of our customers, and other factors that we cannot foresee. Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment, cause uncertainties in the regions where we conduct business, cause our business to suffer in ways that we cannot predict, and materially and adversely impact our business, financial condition and results of operations. A prolonged disruption or any further unforeseen delay in our operations of the manufacturing, Delivery and assembly process with any of our production facilities could continue to result in delays in shipments of products to our customers, increased costs, and reduced revenue. The company expressly disdains any duty to provide updates to any forward-looking statements in this call, 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 second quarter and first six months of 2020. Management will then conduct a question and answer session. The following 2020 second quarter and first six months financial results are unaudited and are reported under U.S. GAAP. For the purposes of our call today, I'll review the financial results in U.S. dollars. We'll begin with a review of the recent dynamics of the Chinese economy, the automobile industry, and China Automotive's market position. In the second quarter of 2020, the Chinese economy rebounded as GDP growth was 3.2%, compared with the 6.8% economic traction of the first quarter of 2020, which was tragically impacted by the COVID-19 pandemic. From the Chinese New Year in late January to mid-March, our operations were severely disrupted due to government actions to restrict the impact of the COVID-19 infections. As the first quarter of 2020 ended, closed factories began to slowly reopen, interrupted supply networks began to rebuild as materials became available and transportation was more accessible, and other disrupted daily activities began to rebound from the unprecedented effects of the COVID-19 pandemic in China. However, sales to customers continued to be limited in the early stage of the economic recovery. In the second quarter of 2020, China was among the first countries to ease the transportation lockdown and travel restrictions. As the Chinese economy began to reopen, the government enacted incentives to promote continued economic growth, including higher physical spending, more approved infrastructure projects, and lending rates and bank reserve requirements were reduced. However, lingering fears of a second COVID-19 wave, continuing tensions between the U.S. and China, and slower economic growth and impacts continued to limit total retail sales, which declined by 11.4% in the first half of 2020, according to the National Bureau of Statistics. Per capita consumer spending fell 5.9% in the same period. According to the China Association of Automobile Manufacturers, CAAM, automobile sales in April 2020 rose by 4.4% year over year. However, passenger car sedan sales declined by 6.2%. The sale of MPVs was reduced by 36%, and crossover vehicle sales were also down 11.5% in April. New energy vehicle sales also declined 22.1% in the month of April. In May of 2020, CAAF reported a 14.5% year-over-year increase in automobile sales, but with passenger car sedan sales