# We may be adversely affected if our competitors consolidate or enter into strategic alliances.

Our industry is capital intensive and requires substantial investments in manufacturing, machinery, research and development, product design, engineering, technology and marketing in order to meet both consumer demands and regulatory requirements. Large companies are able to benefit from economies of scale by leveraging their investments and activities on a global basis across brands. If our competitors consolidate or enter into strategic alliances, they may be able to benefit more from larger economies of scale. In addition, our competitors could use consolidation or alliances as a means of enhancing their competitiveness or liquidity position. Any such consolidation or strategic alliance by our competitors could materially and adversely affect our business and prospects.

# Any negative impact on the transportation of our products and raw materials could adversely affect our business and operational condition.

We depend on a combination of sea and land transportation to obtain our raw materials and deliver products to our customers. If we cannot secure sea and land transportation necessary for the delivery of raw materials to us and our products to our customers, or if we are unable to secure economically-feasible alternative methods to transport our products and raw materials during disruptions of transportation systems which are beyond our control, our results of operations may be adversely affected. Any disruption of raw material supply may interrupt our production and could have a negative effect on the competitiveness of our products and our financial condition.

# Our labor costs may increase for reasons such as the implementation of more stringent requirements regarding fixed-term employment, the minimum wage and paid annual leave.

In 2011, 2012, 2013 and the six months ended June 30, 2014, our labor costs in cost of sales were RMB68.2 million, RMB153.2 million, RMB520.4 million and RMB706.0 million, respectively, accounting for 3.6%, 4.2%, 4.2% and 3.3% of our cost of sales for the same periods.

There have been instances of shortages in the labor supply in industries, including manufacturing, in the PRC. In the event of future labor shortages, we may have difficulties recruiting or retaining labor for our production facilities or may face increasing labor costs. In such event, our business and results of operations may be adversely affected. If there is a shortage of labor, or for any reason labor costs in the PRC rise significantly, our expenses are likely to increase, which could materially and adversely affect our business, financial condition and results of operations.

In addition, labor costs in the PRC are generally expected to increase. As a result of the PRC Labor Contract Law ( ) which became effective on January 1, 2008, the requirements on employers in relation to entry into fixed and non-fixed term employment contracts, and dismissal of employees and the minimum wage requirement became more stringent. In addition, the National Leisure and Tourism Outline 2013-2020 ( ) (the “Tourism Outline”) which became effective on February 2, 2013 sets a more detailed timetable regarding the mandatory annual leave requirement introduced by the Regulations on Paid Annual Leave for Employees ( ), which became effective on January 1, 2008, and according to the Tourism Outline, all workers in the PRC must be provided with paid annual leave by 2020.

# Our manufacturing and other operational activities may be adversely affected if there are failures in, or inefficient management of, our information technology system.

Our information technology system forms a key part of our production, sales and marketing process and any disruptions to it will likely have a negative impact on our operations. We cannot

assure you that we will not incur any damage or interruption caused by power outages, computer viruses, hardware and software failures, telecommunications failures, fires and other similar events to the information technology system in the future. If serious damage or significant interruption occurs, our operations may be disrupted and our financial condition and results of operations may be adversely affected. Furthermore, if our operations are disrupted by the introduction of a new information technology system, including migration from an existing system, our financial condition and results of operations may be similarly adversely affected.

# If we fail to attract and retain senior management and key technical experts, our production and other operational activities may be adversely affected.

We rely on experienced and talented senior managers and highly skilled technical personnel to operate our businesses and to develop our new passenger vehicles. We expect increased competition for senior managers and skilled technical personnel from other automobile companies in the future, driven partly by strong growth in the PRC automobile industry. We cannot assure you that we or our joint venture companies will be able to recruit suitable candidates or retain existing senior managers and technical personnel. High turnover of senior management could adversely affect our existing customer relationships, our operations and our development as well as hinder our future recruiting efforts. In addition, we must successfully integrate any new management personnel in order to achieve our operating objectives. Changes in key management positions may temporarily affect our operations as new management will need time and further effort to become familiar with our business and our operations. We expect to increase our effort to recruit more industry and technical experts to fulfill our future business plans. If we or ourj oint venture companies are unable to recruit and retain experienced senior management and key technical experts in the future, our business operations will be adversely affected.

# Non-compliance with environmental regulations in China may result in significant monetary damages, fines and other liabilities as well as negative publicity and damage to our brand name and reputation.

Our manufacturing processes generate noise, waste water, and gaseous and other industrial wastes and we are subject to national and local environmental regulations applicable to us in China. In addition, we are required to comply with the relevant emission standards applicable to our passenger vehicles. In the event of our non-compliance with present or future environmental regulations, we may be subject to governmental inspections or penalties, civil liabilities or business interruptions, and our management might be subject to relevant liabilities as well. We may also be subject to adverse publicity and damage to our brand name and reputation. In addition, if more stringent regulations are adopted in the future, the costs of compliance with these new regulations could be substantial.

# We may be subject to fines, penalties or other actions resulting from future examination by PRC regulatory authorities.

We are subject to a wide range of inspections by PRC regulatory authorities from time to time. Accordingly, we may incur fines, penalties or other actions as a result of examination by PRC regulatory authorities that could adversely affect our reputation, business, financial condition and results of operations. During the Track Record Period, we did not incur any fines or penalties as a result of examination by PRC regulatory authorities which had a material adverse effect on our results of operations and financial condition. However, we cannot assure you that we will not incur any material fines or penalty or be subject to other disciplinary or similar actions in the future.