SORL Auto Parts, Inc. NASDAQ: SORL

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SORL Auto Parts, Inc.NASDAQ SORL

• Investor Presentation April 2006

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Safe Harbor Statement
This presentation contains "forward-looking
statements" within the meaning of the
safe-harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such
statements involve known and unknown risks,
uncertainties and other factors that could cause
the actual results of the Company to differ
materially from the results expressed or implied
by such statements, including changes from
anticipated levels of sales, future national or
regional economic and competitive conditions,
changes in relationships with customers, access
to capital, difficulties in developing and
marketing new products, marketing existing
products, customer acceptance of existing and new
products, and other factors. Accordingly,
although the Company believes that the
expectations reflected in such forward-looking
statements are reasonable, there can be no
assurance that such expectations will prove to be
correct. The Company has no obligation to update
the forward-looking information contained in this
presentation.
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Corporate Profile

• Leading manufacturer of air brake valves for
  commercial vehicles in China
• Spin-off from Ruili Group which was established
  in 1987
• Revenue 47 million in 2004 64 million in 2005
• Based in Wenzhou City, Zhejiang Province
• the Hub of auto parts in China
• major highway to reach Shanghai within 5 hours
• 1295 employees

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Market Data and Valuation
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Key Investment Highlights

• A fast-growing, profitable auto parts
  manufacturer in coastal China
• No. 1 market share in China of the overall
  growth in the Chinese auto industry
• Capitalize on its abilities to manufacture at
  comparatively low costs to increase its
  international export business

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Industry Overview

• Auto penetration in China is currently at only
  2, compared with the 50 -60 penetration in US,
  Europe, and Japan.
• Already the worlds 2nd largest auto market after
  the U.S. and surpassed Japan in 2005
• Chinese Auto part sales totaled at US50bn in
  2004, expected to be 86 billion by 2010
• Domestic auto part market US40bn in 2004
• Growing export market China vehicle and parts
  exports to grow from US10bn in 2004 to US40bn
  in 2010 or annual growth rate of 27

Source UBS, GM estimates, Zuosi Research, China
Auto Association, company estimates
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SORL Industry Leadership

• No. 1 market share (21) in heavy-duty vehicle
  air brake valves in China
• 18 share in the OEM air brake valve segment,
  ranked No. 1 in China supplied to OEM customers
  such as FAW, Dongfeng Motors and Beiqi Foton etc.
• 25 share in the replacement air brake segment,
  ranked No. 1 in China
• Production in 2005 7 million units

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2005 Industry Summary

• Passenger Vehicle a volatile year that ended
  strongly
• Volume growth 24 YoY in 2005
• Auto maker Profit decline 41 YoY
• Revenue increase 13
• Net margin drops from 6.8 to 4.2
• 4Q2005 1Mil sedans sold and posted a historical
  high
• Truck market growth reset with sustainable
  margin
• 04 truck volume sales was strong due to gov
  policy
• 04 volume growth 45 YoY
• Truck sales declined sharply in 2005 36 YoY
  drop
• Gov new regulation, continued overloading
  crack-down
• 142 million Chinese heavy-duty vehicle air brake
  valve market in 2005

Source Bear Stern Equity Research, Citigroup
Equity Research, CAAM
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Heavy Duty Truck Market

• Annual sales of heavy duty trucks grow CAGR 51
  2000-2004
• Demand to grow 20 p.a. during 2006-2010 to
  reach 700,000 per year
• High entry barriers with government support
• Imports not as durable as local model due to the
  harsh road condition, lack of maintenance and low
  repair skill at local garages
• Export market grows steadily

Heavy Duty Truck Sales in Volume
Source Citigroup Equity Research Sept 2005,
CAAM, Credit Suisse Research Jan 2006
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2006 Industry Outlook

• Passenger Vehicle Auto shares around the world
  started well
• China became the main driver of Jan global sedan
  sales 60 rise YoY
• Strong volume occurred without extensive price
  discount
• Analysts expect price cuts during new car launch
  season in April and May to be more moderate
• Capacity is still expanding and demand for
  economy car remains robust
• Unanimous forecast of 20 volume growth by Wall
  Street equity analysts
• Truck market Infrastructure and regulation in
  favor of continuous growth
• Heavy truck sales decline has bottomed and
  recovery could be in 2006
• Highway expansion by 38 during 2006-2010
  (Chinese government 11th Five-Year Plan Period)
• The Ministry of Construction plans to complete
  its massive network of arterial national highways
  by 2008 prior to Beijing Olympics
• Trucks increasing role in solving logistic
  bottleneck
• Transition to Euro III standard likely boosts E2
  truck sales ahead of 2007

Source Citigroup Equity Research, CAAM, Frost
Sullivan Research - Sept 2005, Feb, 2006, Credit
Suisse Research, Jan 2006
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Competition Landscape

• Highly fragmented market with over 4,700
  registered auto component companies in China
• Customer relationship is the key Price is not as
  sensitive as passenger vehicles
• Major domestic competitors
• CAFF state-owned enterprise, older facilities,
  higher cost
• Weiming Sino-foreign JV, higher production cost
  and lower performance-to-cost ratio
• VIE fast-growing private company, no established
  aftermarket sales network
• International competitors
• Wabco, Knorr Both companies products primarily
  for European and U.S. vehicles
• On average 2 times more expensive

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Competitive Advantage
Strong Product Portfolio
Extensive Distribution
Solid Management and Relationship

• High-quality and continuous RD
• 40 categories and 800 specs
• Global certifications ISO/TS16949

• 27 authorized distributors covering 7 regions
• Over 800 sub-distributors nationwide
• 3 authorized sales centers (Australia, UAE, USA)

• Industry-leading management team
• Good relationship with large auto makers FAW and
  Dongfeng Motors

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Major Products
Spring BrakeChambers
Foot Brake Valves
Four-circuitProtection Valves
Air Dryers
Parking BrakeValves
Clutch Servos
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Production

• 15 Production/Assembly lines
• State-of-the-art testing facilities
• 270,000 Sq feet production space
• Advanced equipments from US, Korea and Taiwan
• ISO/TS16949 Quality Management System
• OHSAS18001 System
• ISO14001 Environmental Management System

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Research Development

• Focus on development of new products
• Clutch servo with inductive displacement
  transducer
• Automatic slack adjuster
• Loading sense proportion valve
• New Type Foot brake valve
• Transitioning to electronic controlled air brake
  valve products.
• 44 technical staff, including 32 engineers or
  senior engineers
• 1 patent, 2 licensed patents, 9 pending patent
  applications, a series of Know-Hows.
• Partnerships with leading automotive engineering
  institutes
• Beijing Jiaotong University
• Tsinghua University E-Tech Technology Co., Ltd
• Zhejiang University
• Huazhong University of Science and Technology

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Balanced Revenue Sources
Rev OEM 21M Aftermarket Replacement 20M
Export 23M Gross Margin OEM
22 Aftermarket 20 Export 25
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Customers OEM

• 47 of revenue from OEMs in 2004, declined to 32
  in 2005 as sales from other segments expanded
• Total 39 OEM manufacturers including all of key
  truck makers in China
• Solid long-term relationships, with SORLs five
  largest customers (also top Chinese truck makers)
  accounting for 57 of total OEM sales in 2005
• Annual sales contracts are generally signed at
  the beginning of the year with quarterly review
• Two largest customers, FAW and Dongfeng,
  accounted for more than 53 of the Chinese total
  heavy duty truck sales in 2005

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Customers OEM
SORL The major supplier to the major truck
manufacturers in China
Auto Makers FAW Qingdao FAW Jiefang Changchun Dongfeng Motors Liuzhou Special Auto China Natl Heavy Duty Truck Group
Heavy Duty Trucks Output (unit) 55,970 55,970 71,797 14,000 45,000
Market Share in China 23.7 23.7 30 5.8 31.6
Valves Supplied by SORL 40 22 18 50 5
FAW Qingdao and FAW Jiefang Changchun are the
only two heavy truck makers within FAW family
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Customers Aftermarket

• 12.2 Million in 04 to 20.2 Million in 05
• 26 of revenue in 2004 to 32 of revenue in 2005
• 27 authorized distributors
• Over 800 sub-distributors

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Customers Aftermarket
Success factors to win in the intensified
aftermarket competition
Established Nationwide Sales Network Close Relationship with Big OEM Manufacturers Performance-Cost Competitiveness Warranty and Reliability Timely Delivery Efficient Customer Services
Other Small Manufacturers No No Low Low Poor Poor
SORL Auto Parts Yes Yes High High Good Good
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Customers International

• 12.6 Million in 04 to 23.4 Million in 05
• 27 of rev in 2004 to 36 of rev in 2005
• Mostly replacement but begin to explore OEM
  opportunities TATA Motors
• 3 authorized sales centers (Australia, UAE and
  USA)

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Customers International
Top 7 export customers continue to show
confidence in SORL product quality
Country UAE South Africa Canada Taiwan South Africa Spain USA
YoY Increase 92 77 93 385 140 165 10
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Attractive Export Opportunity

• Current commercial vehicle air brake valves
  market size in the world over 5 billion
• Growth of aftermarket air brake valves market
  approximately 15
• Global purchase trend moving to China

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Cost Control

• Main raw materials aluminum and steel
• Economies of scale production and production
  technique optimization
• Down payment to suppliers to secure purchase
  price in a rising market
• ISO/TS16949 quality assurance system to
  discipline over 20 suppliers
• Closely monitored inventory management of other
  raw materials
• Reduction in spoilage

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Financial Highlights

• 39 CAGR of sales during 2003-2005
• 2006 sales from new products projected to
  increase to 18 of revenue
• 2006 export to reach 40 of revenue, up from 18
  in 2003 and 36 in 2005

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Growth Strategy

• OEM
• Enhance brand recognition and develop
  relationship with other truck makers cautiously
  explore opportunities in passenger vehicle domain
• Export
• Strengthen presence overseas by establishing
  relationships with additional authorized
  distributors
• MA and JV
• Wenzhou is one of most active private economies
  in China
• Well known for its auto parts specialty in the
  nation
• Over 1400 auto parts companies can become
  potential MA or JV targets
• Cost Control
• Reduce material and energy consumption strict
  measurement on waste
• Maintain high standard quality control

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Management Team
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Summary

• Maintained the No. 1 market share in the Chinese
  heavy-duty vehicle air brake valve sector
• Projected CAGR of 30 and 27 in sales and
  earnings from 2005-2008
• Globally recognized ISO/TS16949 certification,
  high-quality products and rapidly growing export
  sales
• Heavy-duty vehicle market, driven by Chinas
  rapid economic growth and mass construction,
  gives SORL a solid ongoing sales base
• Attractive growth opportunities through expansion
  into international market domestic sedan market

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Investor Contact