May 14, 2024 - CAAS
China Automotive Systems (CAAS) recently released their first-quarter earnings for 2024, and the numbers, on the surface, appear…fine. A slight dip in sales, solid gross margins, and a healthy cash position paint a picture of stability amidst a volatile Chinese economy. But what if I told you there’s a story hidden within this transcript, a narrative whispering of potentially explosive growth that no one seems to be talking about?
CAAS, at its core, is a steering system manufacturer. They’ve traditionally focused on hydraulic steering, the kind you find in older cars. But the real engine revving under CAAS’s hood is Electric Power Steering (EPS). In Q1 2024, EPS sales held steady at around 34% of total revenue. While not a dramatic jump, this consistency itself is remarkable in a quarter that saw slight overall sales decline.
This quiet resilience of EPS becomes even more intriguing when paired with CAAS’s projected capital expenditures for 2024. They’re earmarking $25 million, with a significant chunk going towards expanding production of their R-EPS product, a specific type of EPS. CAAS explicitly states that they’re already at maximum capacity for R-EPS and expect rapid order growth.
Now, let’s weave in another thread – the Chinese EV boom. CAAS is deeply embedded in this market, supplying steering systems to BYD, a giant in the Chinese and global EV space. BYD’s sales are skyrocketing, and they use CAAS’s C-EPS, R-EPS, and traditional hydraulic steering in various models.
Here’s where the hypothesis starts to form. What if the surge in R-EPS demand that CAAS is anticipating is directly linked to BYD’s EV expansion? Could CAAS be sitting on a gold mine of R-EPS orders from BYD that they’re quietly preparing to fulfill?
This pie chart illustrates the potential distribution of CAAS's revenue, assuming EPS maintains its Q1 2024 share.
Let's crunch some numbers. CAAS’s full-year 2024 revenue guidance is $605 million. If EPS maintains its current 34% share, that translates to $205.7 million in EPS revenue.
Even assuming CAAS supplies R-EPS for only a fraction of those vehicles, say 25%, at an average selling price of, let’s say, $150 per R-EPS unit, we’re already looking at potential revenue of $115.5 million from BYD alone – more than half their projected total EPS revenue.
This, of course, is just a back-of-the-envelope calculation, but it highlights the immense potential for CAAS to become a key beneficiary of BYD’s explosive growth. Furthermore, CAAS is developing new EPS products for BYD, and they’re actively courting other EV producers and tech companies venturing into the EV market. This suggests that their reliance on BYD may diversify in the future, further bolstering their growth prospects.
While analysts may be fixated on the top-line sales dip, I believe they’re missing the forest for the trees. CAAS is subtly positioning itself as a power player in the global EV steering system market, and the signs are there for those who dare to look beyond the obvious.
"Fun Fact: Did you know that the first power steering system was developed in 1903? It used hydraulic pressure from the engine to assist the driver. CAAS, though founded much later, carries the torch of steering innovation into the electric age."
Remember, this is just a hypothesis, and the future is uncertain. But sometimes, the most compelling stories are the ones hiding in plain sight, waiting to be discovered. Keep an eye on CAAS – they might just be the quiet giant about to roar onto the EV stage.