# Dear Shareholder

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NASDAQ_CAAS_2021/NASDAQ_CAAS_2021.mmd` · pages 2-8_

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Dear Shareholder,

2021 net sales grew by 19.3% year-over-year to \(498.0 million as our passenger vehicle steering sales increased by 26.5% year-over-year even as sales to the commercial vehicle market declined by 16.0%. We returned to profitable operations earning \)0.36 per share and generating net cash flow from operating activities of $28.3 million.

Our advanced hydraulic product sales rose by 7.6% year-over-year and our electric power steering ("EPS") revenue increased 86.0% with our Henglong KYB subsidiary EPS sales gaining 53.1% in 2021. EPS sales increased to 23.2% of total revenues from 14.8% a year ago. Exports sales to the American markets also increased including a 10.4% increase in North America and our Brazilian sales were robust in 2021.

We achieved these favorable results despite headwinds in the Chinese economy that interrupted automobile production and lowered vehicle demand. China's GDP grew by 18.3% year-over-year in the first quarter of 2021 as China's economy rebounded from COVID-19 restrictions. However, GDP growth fell to 4.0% in the fourth quarter of 2021. Renewed COVID-19 restrictions affected supply chains, computer chip supplies could not meet demand, new emission standards and intermittent power outages from coal shortages interrupted production schedules, construction activities declined, and reduced consumer sentiment and spending affected demand for vehicles during the year.

For 2021, statistics from the China Association of Automobile Manufacturers ("CAAM"), revealed that overall automobile sales grew by only 3.8% year-over-year. Passenger vehicle sales in China grew by 6.5% compared with 2020 led by a 7.1% rise in sedan sales and a 6.8% increase in SUV sales. However, overall passenger car sales were uneven and declined for 7 consecutive months from May 2021 through November 2021. Commercial vehicle sales were down by 6.6% year-over-year in 2021 as bus sales rose by 12.6%, but the larger truck market declined by 8.5%. Lower truck sales accounted for the majority of our reduced commercial vehicle sales in 2021. The Chinese Government has instituted more pro-growth policies in early 2022 to stimulate economic expansion and create more vehicle demand.

CAAM statistics showed that commercial vehicle sales increased by 15.7% in the first half of 2021 due to a pre-buy of less expensive, less strict National-V emission vehicles before the national implementation of the National-VI emission standard in July 2021. After July, production of National-VI vehicles weakened as a large inventory of National-V vehicles remained unsold. This change in emission standard and the chip shortages weighed heavily on commercial vehicle sales in the second half of 2021.

The automobile industry is experiencing a rapid increase in vehicle technology with micro processing chips to improve reliability, performance, fuel efficiency and add new functions for safety, entertainment and communications. New energy vehicle ("NEV") sales including battery-powered electric vehicles, plug-in petrol-electric hybrids and hydrogen fuel-cell vehicles, grew by 157.5% to 3.52 million vehicles in 2021. Government policies in China strongly encouraged replacing polluting internal combustion vehicles with clean energy propulsion. In fact, China regulations require vehicle manufacturers to produce a certain percentage of NEVs every year.

In 2021, we became the first Chinese domestic steering producer to entirely develop a new complex steering system by our research and development teams alone. We advanced our EPS products with new proprietary technology that integrates and communicates with a vehicle's main data to create lane keeping assist, automatic parking assist, lane centering and traffic jam assist functions for our Advanced Driver Assistance Systems. This new system adapts to differing road conditions providing a safer and enhanced driving experience. This technology is a major innovation that improves our autonomous driving systems. A number of customers began to purchase our EPS products in 2021 including Great Wall, Chery Auto, Beijing Auto, JAC Motors and Fiat Chrysler Automobiles and interest continues to build in 2022.

To more quickly build our autonomous driving product portfolio and other NEV products, we

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purchased a 40% interest in Sweden's Sentient AB, a world leader in steering and vehicle control software and hardware. In addition to gaining access to advanced steering technology, Sentient AB operates an office in China and seven facilities in Sweden offering us greater entry into the European markets for high-end vehicles that require more sophisticated steering.

We also developed a new steering system for use by the prestigious European brand, Alfa Romeo, for its first luxury plug-in-hybrid SUV model, the 2021 Tonale. This new steering system is attracting attention from other European brands planning to use plug-in-hybrid powertrains. And in 2021, our Hubei Henglong Automotive Systems Group Co. Ltd. subsidiary received the ISO26262:2018 ASIL-D (Automotive Safety Integrity Level) certification from SGS TUV. The D rating is the highest safety standard and separates us from many other steering companies. This designation will provide further assurance to vehicle manufacturers, especially outside of China, as to the high quality and performance of our products, some already in use by Ford Motor Company and Fiat Chrysler Automobiles (FCA) in North America, and by Fiat and Chery Auto operations in Brazil. Headquartered in Europe, SGS TUV is the world's leading inspection, verification, testing and certification company. We increased research and development investment in 2021 by approximately 9.7% year-over-year to bring our enhanced EPS products to fruition and advance our autonomous driving and new energy systems.

Our Hyoseong (Wuhan) Motion Mechatronics System Co., Ltd., subsidiary made further progress in developing small powerpack brushless motors for its i-RCB, C-EPS and P/DP-EPS products in 2021. We have control over the quality, production and cost of these Hyoseong products for the benefit of our own EPS systems.

We concluded 2021 with total cash and cash equivalents, pledged cash and short-term investments of $161.3 million. Net cash flow from operating activities was $28.3 million and cash paid to acquire property, plant and equipment and land use rights decreased to $9.3 million in 2021. We have adequate overall production capabilities for the near term although equipment may be needed as sales of our new energy products ramp up.

In 2021, sales increased year-over-year with higher gross margin due to greater sales of advanced hydraulic and especially EPS products. Operations and earnings from affiliated companies generated profits versus a loss in 2020. We have enhanced our EPS portfolio of products and added more steering technology to address the new energy and autonomous driving markets for the near future. While we expect 2022 to be a better year, challenges exist especially with supply chain interruptions from the recent resurgence of COVID-19 in China. However, we are better positioned with our steering products than ever before as we maintain market share in China and expand our global presence.

Sincerely,

Qizhou Wu

CEO & Director