China Automotive Systems Reports Slowed Sales

The auto component supplier won't recover until the overall auto sector starts to accelerate.

Author: Belinda Zhou   

Shares in China Automotive Systems Inc. (Nasdaq: CAAS) jumped over 7% then cooled down after the power steering components and systems supplier reported a decline in sales, profits in the first quarter.

The Hubei-based company said in a statement today that its net sales reached $73.6 million in the first quarter, down 33% year-over-year. Net loss hit $488,000 in the first quarter, compared with $1.2 million, or 5 cents per share, in the same period last year.

"Our extraordinary sales decline reflects the devastating impact of the COVID-19 pandemic on China's economy and especially the domestic Chinese automobile industry," Qizhou Wu, the chief executive officer of CAAS, said in the statement.

The company attributed the revenue decrease to the shrunken sales in the legacy hydraulic products and lower average selling prices in China. Net sales of electric power steering, which assists the driver of a vehicle, dropped to $8.1 million in the first quarter, down 64% year-over-year.

The supply relationship in North America helps the company to maintain the sales number with its clients Chrysler Group LLC and Ford Motor Company, which totaled $28.1 million in the first quarter. "Internationally, our sales to our tier-1 North American customers remained constant," Wu added.

After the lockdown in Wuhan City where its headquarters are located, the company temporarily relocated to Jingzhou City in March. The company fulled reopened in April back at its Wuhan headquarters.

"We remain cautiously hopeful that the resilience of the Chinese economy and large consumer base will propel a reasonable recovery of the auto sector in the remaining part of the year," Wu said.

Industry data show that both the auto sales and the production rose to 2.19 million vehicles in May in China, the world's biggest vehicle market, up 18%, and 15% year-over-year, according to China Association of Automobile Manufacturers.

Sales growth in May followed a 6% growth rate in April, but sales growth guidance for the full year 2020 will show a slowdown. Credit rating agency Moody‘s Investors Service lowered its global auto sales forecast for the fourth time this year, noting that global car sales will decline by 20% in 2020. However, Moody's forecast for China is far better than its forecast for U.S. and European automobile industry peers. 

Looking ahead, China Automotive Systems provided revenue guidance of $360 million for the full year 2020, down 42% year-over-year from $510 million in 2019.

Shares in China Automotive Systems traded at $3.14 per share as of midday Tuesday, mostly unchanged on the day.