China Automotive Systems New Joint Venture Steers The Company In The Right Direction

China Automotive Systems (CAAS) disclosed via 8-k filing that it would contribute its existing Electronic Power Steering (EPS) business to a newly formed Joint Venture with KYB Corporation, a major Japanese producer of auto parts.

CAAS has not issued a press release or made any public comments about the transaction.  KYB provided this explanation:

KYB Clip

Key Terms of the Joint Venture Agreement

  • Investment of 960mm RMB (about US$150mm) with 2/3 from CAAS and 1/3 from KYB
  • Capital contribution of 213mm RMB by CAAS satisfied by production assets valued by an independent appraiser plus cash
  • Capital contribution of 107mm RMB by KYB paid in cash
  • Annual production capacity of 5mm units of products (compares to CAAS 2017 production of 6.1mm units)
  • R&D department to be supported by each company.  CAAS will contribute existing C-EPS (column type electric power steering) and MCU/ECU (microcontroller and electronic control unit) technologies while KYB will contribute P-EPS (pinion assist type electric power steering) and R-EPS (rack assist type electric power steering) technologies
  • Products to be marketed in China and overseas, except Japan.  Existing KYB steering customers in China will be transferred to the JV
  • Exclusivity – neither party will form a JV with any other company and will not manufacture EPS products outside the JV
  • 20 year term

Partnership with a high quality international company signals confidence in CAAS and its management team. It appears that the venture will bring access to new technology and customer relationships.  The expected growth in production capacity of the venture could enable CAAS to achieve the ambitious 2020 growth targets described on CAAS Chinese website

  • 10mm annual unit sales (+63% vs 2017)
  • 1/3 of sales exported (vs 23% in 2017)
  • 1/3 of sales from EPS (vs 24% in 2017)

2020 Target


CAAS decision not to issue a press release about such a positive development hints at a strong desire to go forward with its privatization plan.  (edit: A press release was issued after publication of this article) Disclosure of the transaction removes uncertainty over the company’s strategy for competing in the EPS market and meeting its 2020 growth targets.  This information provides a fair basis for negotiations between the Buyer Group and the Special Committee of the Independent Directors.

Disclosures & Notes:

The author is a public shareholder of CAAS.  The author does not make any recommendation regarding any investment in any company mentioned in this article.  Investors are encouraged to check all of the key facts cited here from SEC filings prior to making their own investment decisions.

If any company mentioned in this article can point out any factual errors in the text using public information as of 05/01/18 then corrections will be made as promptly as possible.

Interested parties who wish to communicate privately about CAAS may contact the author at konekoresearch (at)




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