Q2 2024 Magna International Inc Earnings Call

Operator: Good morning, and welcome to the Magna International Inc. second quarter 2024 results webcast call. All lines have been placed on mute to prevent any background noise.

Good morning, and welcome to them at a major national I N C second quarter 'twenty 'twenty four results webcast call all lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Louis Tonelli, Vice President, Investor Relations.

Third the speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star One again, thank you all.

I'd now like to turn the call over to Louis Tonelli, Vice President Investor Relations. Please go ahead.

Louis Tonelli: Thanks, operator. Hello, everyone, and welcome to our conference call covering our second quarter of 2024. Joining me today are Swami Kotagiri and Pat McCann.

Louis Tonelli: Thanks, Operator, Hello, everyone and welcome to our conference call covering our second quarter 2024.

Speaker Change: Joining me today are swamy quarter, Gary and Pat Mccann.

Louis Tonelli: Yesterday, our board of directors met and approved our financial results for the second quarter of 2024 and updated outlooks for 24 and 26. We issued a press release this morning outlining our results. To find the press release, today's conference call webcast, the slide presentation to go along with the call, and our updated quarterly financial review, all in the investor relations section of our website at magna.com, Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation.

Yesterday, our board of directors met and approved our financial results for the second quarter of 2024.

Speaker Change: <unk> outlook for 'twenty, four and 'twenty six.

Speaker Change: We issued a press release this morning outlining our results.

Speaker Change: You'll find the press release today's conference call webcast. The slides presentation to go along with the call and our updated quarterly financial review all in the Investor Relations section of our web site at Magna Dot com.

Louis Tonelli: Such statements involve certain risks, assumptions, and uncertainties, which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to our reminder slide included in our presentation that relates to our commentary today. And with that, I'll pass it over to Swami.

Speaker Change: Before we get started just as a reminder, the discussion today may contain forward looking information or forward looking statements within the meaning of applicable securities legislation.

Speaker Change: Such statements involve certain risks assumptions and uncertainties, which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements.

Speaker Change: Please refer to today's press release for a complete description of our safe Harbor disclaimer.

Speaker Change: Please also refer to our reminder, slides included in our presentation that relates to our commentary today.

Speaker Change: And with that I'll pass it over to Swamy.

Seetarama Kotagiri: Thank you, Louis. Good morning, everyone.

Thank you Lori good morning, everyone. I appreciate you joining our call today, let's jump right in.

Seetarama Kotagiri: I appreciate you joining our call today. Let's jump right in. Before getting into some of the details from the second quarter, let me highlight a few key takeaways. Our Q2 operating performance was largely in line with our expectations, with sales of $11 billion and an adjusted EBIT margin of 5.3%. We are executing to our margin outlook from the start of 2024. Operational excellence activities remain on track to collectively contribute about 75 basis points to margin expansion during 2024 and 2025.

Swamy: Before getting into some of the details from the second quarter, Let me highlight a few key takeaways.

Swamy: Our Q2 operating performance was largely in line with our expectations.

Swamy: Sales of $11 million.

Swamy: Adjusted EBIT margin of five 3%.

Swamy: We are executing to our margin outlook from the start of 2024.

Swamy: Operational excellence activities remain on track.

Swamy: Collectively contribute about 75 basis points to margin expansion during 2024 and 'twenty five.

Seetarama Kotagiri: We have reduced our planned gross megatrend engineering spending for 2024 by another $40 million, bringing reductions for the full year to $90 million, relative to our outlook in February, and our adjusted EBIT margin range has been tightened. Our range for 2024 is now 5.4% to 5.8%. We remain focused on capital discipline and strong free cash flow generation. We have further lowered our expected CapEx range by another $100 million for a reduction of up to $200 million for 2024 compared to our February outlook.

Swamy: We have reduced our planned gross megathread engineering spend for 2024 by another 40 million, bringing reductions for the full year to $19 million realm.

Swamy: Relative to our outlook in February.

Swamy: And our adjusted EBIT margin range has been tightened.

Swamy: Our range for 2024 is now five 4% to five 8%.

We remain focused on capital discipline and strong free cash flow generation.

Swamy: We have further lowered our expected capex range by another $100 million.

Swamy: A reduction of up to 200 million for 2024 compared to our February outlook.

Seetarama Kotagiri: We are maintaining our free cash flow outlook range at 600 to 800 million, and we remain on track to be in our target leverage range of 1 to 1.5 times in 2025. Lastly, we are updating our 2026 outlook to reflect market changes impacting the automotive industry, including issues we have already discussed in prior quarter calls. We continue to execute our strategy despite current market dynamics. We are winning business on key programs across our portfolio. For instance, we were recently awarded a hot stamp door ring with a Japan-based global OEM. We are having success in commercializing our innovation. As an example, we were awarded reconfigurable seating systems with a China-based OEM.

Swamy: We are maintaining our free cash flow outlook range at $600 million to $800 million.

Swamy: And we remain on track to be in our target leverage range of one to one five times in 2025.

Swamy: Lastly, we are updating our 2026 outlook to reflect market changes impacting the automotive industry, including issues, we already discussed in prior quarterly calls.

Swamy: We continued to execute our strategy despite current market dynamics.

Swamy: We are winning business on key programs across our portfolio.

Swamy: We were recently awarded X Hot stamped door ring with a Japan based global Oems.

Swamy: We are having success in commercializing innovations.

Swamy: As an example, we were awarded Reconfigurable seating systems with a China based OEM.

Seetarama Kotagiri: And, as we have highlighted in the past, our operational initiatives across the company are delivering results. We remain focused on continuous improvement, efficiency, and logic. This year alone, we are taking actions at more than 40 divisions to restructure, consolidate, or wind down operations.

Swamy: And as we have highlighted in the past.

Swamy: Operational initiatives across the company are delivering results.

Swamy: We remain focused on continuous improvement efficiency and launches.

Swamy: This year alone we are taking actions at more than 40 divisions to restructure consolidate our wind down operations.

Seetarama Kotagiri: We are right-sizing our complete vehicle operation, and we are driving profitability through smart automation and the factory of the future initiative. As part of ongoing efforts to optimize our footprint and portfolio, early last month, we closed a transaction for the sale of an 85% controlling interest in our metal forming operations in India. With sales less than 200 million in 2023, we consider this business to be non-core. Proceeds were about $90 million, and we are making progress on vertical integration of critical subsystems to strengthen our product offering.

We are right sizing our complete vehicles operations.

Swamy: And we are driving profitability through smart automation and factory of the future initiatives.

Swamy: As part of ongoing efforts to optimize our footprint and portfolio early last month, we closed that transaction for the sale of it.

Swamy: 85% controlling interest in our metal forming operations in India.

Swamy: With sales less than 200 million in 2023, we consider this business to be non core protein.

Swamy: Proceeds were about $90 million.

Swamy: And we are making progress on vertical integration or critical sub system to strengthen our product offerings we have.

Seetarama Kotagiri: We acquired HE Systems, a power module business, for $52 million. The acquisition accelerates our in-house development of power modules and allows us to leverage our combined technical and manufacturing competence. The transaction secures the supply of a key product. With that, I'll pass the call over to Pat.

Swamy: Acquired HPE systems, a power module business.

Swamy: $2 million.

Swamy: The acquisition accelerates our in house development of our modules and allows us to leverage our combined technical and manufacturing competencies.

Swamy: The transaction secured supply of a key product.

Swamy: With that I'll pass the call over to Pat.

Patrick McCann: Thanks Swami and good morning everyone. As Swami indicated, the second quarter operating results were largely in line with our expectations. Now comparing the second quarter of 2024 to the second quarter of 2023, consolidated sales were $11 billion, in line with Q2 2023, which compared to a 2% increase in global light vehicle production. Adjusted EBIT was $577 million, and the adjusted EBIT margin was down 30 basis points to 5.3%. Adjusted EPS came in at $1.35, down 12% year over year, reflecting lower EBIT and higher interest expense, including approximately $0.09 associated with non-cash foreign exchange losses on certain deferred tax assets.

Pat: Thanks, Swamy and good morning, everyone.

Pat: As Swamy indicated second quarter operating results were largely in line with our expectations.

Pat: Okay.

Speaker Change: Now comparing the second quarter of 2024 to the second quarter of 2023.

Pat: Consolidated sales were $11 billion in.

Pat: In line with Q2, 2023, which compares to a 2% increase in global light vehicle production.

Pat: Adjusted EBIT was $577 million and adjusted EBIT margin was down 30 basis points to five 3%.

Pat: Adjusted EPS came in at $1 35 down 12% year over year, reflecting lower EBIT and higher interest expense, including approximately <unk> <unk> associated with noncash foreign exchange losses on certain deferred tax assets.

Patrick McCann: And free cash flow generated in the quarter was $123 million compared to a $7 million use in the second quarter of 2023. During the quarter, we paid dividends of $134 million and raised $450 million in debt. More importantly, with respect to our outlook, we're lowering our capital spending range and maintaining our expectations for 2024 free cash flow. Let me take you through some of the details.

Pat: And free cash flow generated in the quarter was $123 million compared to a 7 million use in the second quarter of 2023.

Pat: During the quarter, we paid dividends of $134 million.

Pat: <unk> raised $450 million Canadian and debt.

Pat: More importantly, with respect to our outlook, we are lowering our capital spending range and maintaining our expectations for 2020 for free cash flow.

Pat: Let me take you through some of the details.

Pat: Yes.

Patrick McCann: North American light vehicle production was up 1% and China increased 6%, while production in Europe declined 5%, netting to a 2% increase in global production. Breaking down North American production further, while overall production increased 1%, production by our Detroit-based customers declined 5% in the second quarter. Our consolidated sales were $11 billion, substantially unchanged from the second quarter of 2023. On an organic basis, our sales decreased 1% year over year for a minus 1% growth over market in the second quarter, but plus 1% growth over market, excluding complete vehicles.

Pat: North American light vehicle production was up 1% and China increased 6% while production in Europe declined 5% netting to a 2% increase in global production.

Pat: Breaking down in North American production further while overall production increased 1% production by our Detroit based customers declined 5% in the second quarter.

Pat: Our consolidated sales were 11 billion substantially unchanged from the second quarter of 2023.

On an organic basis, our sales decreased 1% year over year for a minus 1% growth over market in the second quarter, but plus 1% growth over market excluding complete vehicles.

Patrick McCann: The negative production mix in North America unfavorably impacted our year over year sales growth in the quarter. The end of production of certain programs, lower complete vehicle assembly volumes, including the end of production of the BMW 5 Series, the impact of foreign currency translation, and normal course customer price givebacks were offset by higher global light vehicle production, the launch of new programs, acquisitions, net of divestitures, particularly the acquisition of B&ER Active Safety, and increases to recover certain higher input costs.

Pat: The negative production mix in North America unfavorably impacted our year over year sales growth in the quarter.

Pat: At the end of production of certain programs.

Pat: Lower complete vehicle assembly volumes, including end of production of the BMW five series the impact of foreign currency translation and normal course customer price give backs were offset by higher global light vehicle production the launch of new programs.

Pat: Acquisitions net of divestitures, particularly the acquisition of <unk> active safety.

Pat: And increases to recover certain higher input costs.

Pat: Yes.

Patrick McCann: Adjusted EBIT was $577 million, and adjusted EBIT margin was 5.3% compared to 5.6% in the second quarter of 2023. The lower EBIT percentage in the quarter reflects volume and other items, which collectively impacted us by about minus 25 basis points. These include acquisitions, net of divestitures, which in aggregate came in at margins lower than the corporate average.

Pat: Adjusted EBIT was $577 million and adjusted EBIT margin was five 3% compared to five 6% in the second quarter of 2023.

Pat: The lower EBIT percentage in the quarter reflects volume.

Pat: Volume and other items, which collectively impacted us by about minus 25 basis points.

Pat: These include acquisitions net of divestitures, which in aggregate came in at margins lower than the corporate average.

Patrick McCann: Reduced earnings on lower assembly volumes, including the end of production of the BMW 5 Series, partially offset by lower incentive comp and employee profit sharing, negative 25 basis points related to lower equity income largely as a result of an unfavorable product mix and higher depreciation on increased capital deployed at certain equity accounted entities and negative 20 basis points of non-recurring items, which reflects non-cash foreign exchange losses on certain deferred tax assets, higher These items were partially offset by 40 basis points of net operational improvements, including operational excellence activities, lower net engineering spend, and lower costs associated with our assembly business, partially offset by higher net input costs, particularly related to labor. Interest expense increased $20 million, reflecting higher short-term borrowings, the net debt raised during and subsequent to the second quarter of 2023, as well as higher market rates on the new debt.

Pat: Reduced earnings on lower assembly volumes, including the end of production of the BMW five series, partially offset by lower incentive comp.

Pat: And employee profit sharing.

Pat: Negative 25 basis points related to lower equity income largely as a result of unfavorable product mix and higher depreciation on increased capital deployed at certain equity accounted entities and negative 20 basis points of nonrecurring items, which reflects.

Pat: Noncash foreign exchange losses on certain deferred tax assets higher warranty costs higher restructuring costs that are not classified as unusual and additional supply chain costs, partially offset by higher net favorable commercial items.

Pat: These items were partially offset by 40 basis points of net operational improvements, including operational excellence activities lower net engineering spend and lower cost associated with our assembly business, partially offset by higher net input costs, particularly related to labor.

Pat: Interest.

Pat: <unk> increased $20 million, reflecting higher short term borrowings our net debt raise during and subsequent to the second quarter of 2023, as well as higher market rates on the new debt.

Patrick McCann: Our adjusted effective tax rate came in at 22.8%, slightly higher than Q2 of last year, mainly as a result of an increase in non-deductible foreign exchange adjustments on the revaluation of certain deferred tax assets. Net income was $389 million compared to $441 million in Q2 of 2023, mainly reflecting lower adjusted EBIT and higher interest expense. And adjusted WDPS was $1.35, including approximately nine cents associated with non-cash foreign exchange losses on certain deferred tax assets compared to $1.54 last year.

Pat: Our adjusted effective tax rate came in at 22, 8% slightly higher than Q2 of last year, mainly as a result of an increase in non deductible foreign exchange adjustments on the revaluation of certain deferred tax assets.

Pat: Net income was $389 million compared to $441 million in Q2 of 2023.

Pat: Mainly reflecting lower adjusted EBIT and higher interest expense.

Pat: And adjusted diluted EPS was $1 35, including approximately <unk> <unk> associated with noncash foreign exchange losses on certain deferred tax assets compared to $1 54 last year.

Patrick McCann: Turning to a review of our cash flows and investment activities, in the second quarter of 2024, we generated $681 million in cash from operations before changes in working capital and $55 million from working capital. Investment activities in the quarter included $500 million for fixed assets and $170 million increase in investments, other assets, and intangibles.

Pat: Turning to a review of our cash flows and investment activities.

Pat: In the second quarter of 2024, we generated $681 million in cash from operations before changes in working capital and $55 million from working capital.

Pat: Investment activities in the quarter included 500 million for fixed assets and $170 million increase in investments other assets and intangibles.

Patrick McCann: Overall, we generated free cash flow of $123 million in Q2 compared to a $7 million free cash flow use in the second quarter of 2023. And we are maintaining our free cash flow expectations of $0.6 to $0.8 billion for 2024. And we continue to return capital to shareholders, paying $134 million in dividends in Q2. Our balance sheet continues to be strong, with investment grade ratings reaffirmed by the major credit rating agencies in the second quarter of 2024. At the end of Q2, we had about $3.7 billion in liquidity, including $1 billion in cash.

Pat: Overall, we generated free cash flow of $123 million in Q2.

Pat: Compared to a $7 million free cash flow use in the second quarter of 2023.

Pat: And we are maintaining our free cash flow expectations of 0.6 to <unk> 8 billion.

Pat: For 2024.

Pat: And we continue to return capital to shareholders paying $134 million of dividends in Q2.

Pat: Yes.

Pat: Our balance sheet continues to be strong with investment grade ratings reaffirmed by the major credit rating agencies in the second quarter of 2024.

At the end of Q2, we had about $3 7 billion in liquidity, including a $1 billion in cash.

Patrick McCann: Currently, our adjusted debt to adjusted EBITDA ratio is at 1.9, up slightly as expected from the first quarter of 2023. We anticipate a reduction in our leverage ratio by the end of 2024, and we are on track to be within our targeted range during 2025. Next, I will cover our updated 24 outlook, which incorporates slightly lower than previously expected vehicle production in Europe, while our assumptions for production in North America and China are unchanged.

Pat: Currently our adjusted debt to adjusted EBITDA ratio is up one nine up slightly as expected from the first quarter of 2023.

Pat: We anticipate a reduction of our leverage ratio by the end of 'twenty four and we are on track to be within our targeted range during 2025.

Pat: Next I will cover our updated 24 outlook, which incorporates slightly lower than previously expected vehicle production in Europe, while our assumption for production in North America, and China are unchanged.

Patrick McCann: We also assume exchange rates in our outlook will approximate recent rates. For example, we now expect a slightly higher euro and Canadian dollar for 24 relative to our previous outlook. And we continue to assume no further production of the Fisker Ocean.

Pat: We also assume exchange rates in our outlook will approximate recent rates.

Pat: We now expect slightly higher euro and Canadian dollar for 24 relative to our previous outlook.

Pat: And we continue to assume no further production of the Fisker Ocean.

Pat: Okay.

Patrick McCann: We are substantially maintaining our expected sales range with lower volumes in Europe and a negative customer mix in North America being offset by positive foreign exchange from the higher Euro and Canadian dollar. We are narrowing our adjusted EBIT margin outlook to a range of 5.4 to 5.8% as we are now halfway through 2024 and reflect H1 margins that were in line with our expectations. Consistent with our original outlook, customer recoveries and lower net engineering spend are expected to drive stronger margins from H1 to H2.

Pat: We are substantially maintaining our expected sales range with lower volumes in Europe, and negative customer mix in North America being offset by positive foreign exchange from the higher Euro and Canadian dollar.

Pat: We are narrowing our adjusted EBIT margin outlook to a range of $5 four to five 8% as we are now halfway through 2024, and reflecting <unk> margins that were in line with our expectations.

Pat: Consistent with our original outlook customer recoveries and lower net engineering spend are expected to drive stronger margins from each one to HQ.

Patrick McCann: Our reduced equity income range largely reflects lower expected unconsolidated sales of EV components. However, interest expense is expected to improve by approximately $10 million, reflecting debt issuances at better than anticipated rates and lower borrowing rates on commercial paper. We now expect capital spending to be in the $2.3 to $2.4 billion range. This is down another $100 million from our previous outlook, now totaling up to $200 million for the full year compared to our February outlook. This mainly reflects lower spending on EV programs. And our income tax rate, net income, and free cash flow expectations are all unchanged from our last outlook. I'll now pass it back to Swami.

Our reduced equity income range, largely reflects lower expected unconsolidated sales of EV components.

Interest expense is expected to improve by approximately $10 million, reflecting debt issuances at better than anticipated rates and lower borrowing rates on commercial paper.

Pat: We now expect capital spending to be in the two three to $2 $4 billion range. This was down another $100 million from our previous outlook now totally up to $200 million for the full year compared to our February outlook.

Pat: This mainly reflects lower spending on EV programs.

Pat: And our income tax rate net income and free cash flow expectations are all unchanged from our last outlook I'll now pass it back to Swamy.

Swamy: Thanks Pat.

Seetarama Kotagiri: Let me take you through the details of the revised outlook that we disclosed in our press release this morning. We don't typically provide updates to our midterm outlook, but given the changes in the broader environment, we believe it is necessary to provide a high-level update to the 2026 outlook that we provided in February, including some of the factors we highlighted on our first quarter call. We are seeing slower web adoption than previously anticipated, particularly in North America and to a lesser extent in Europe. As a result of this, and a high degree of geopolitical uncertainty.

Swamy: Let me take you through the details of the revised outlook that we disclosed in our press release this morning.

We don't typically provide updates to our mid term outlook.

Swamy: Given the changes in the broader environment. We believe it is necessary to provide a high level update to the 2026 outlook.

Swamy: Provided in February including some of the factors, we highlighted on our first quarter call.

Swamy: We are seeing slower adoption than previously anticipated.

Swamy: Particularly in North America and to a lesser extent in Europe.

Swamy: As a result of this.

Swamy: A high degree of geopolitical uncertainty.

Seetarama Kotagiri: OEMs are recalibrating their portfolios and capacity, which results in program delays or cancellations and reduced volume. There are three broad categories impacting our 2026 sales expectations. One is our complete vehicle assembly business, including the cancellation of the INEOS program. Our assumption of no future production of surface corrosion and updated information on pass-through sales of the Mercedes G-Class, which we highlighted on our first quarter call. Additionally, the impact of EV program delays, calculations, and reduced volumes. The most significant to us are Ford vehicles in Oakville and Blue Owl City.

Swamy: <unk> are recalibrating their portfolios in capacity, resulting in program delays or cancellations and reduced volumes.

Swamy: There are three broad categories impacting our 2026 sales expectations.

Swamy: One.

Swamy: Our complete vehicle assembly business, including the cancellation of the Ineos program Alright.

Swamy: Our assumption of no future production of the physical auction.

Swamy: And updated information on pass through sales of the Mercedes G class, which we highlighted on our first quarter call.

Swamy: Two the impact of EV program delays cancellations and reduced volumes the most significant to us being four vehicles in Oakville and global city.

Seetarama Kotagiri: GM's full-size electric pickups and SUVs, and a new program for a North American-based EV manufacturer that was planned for the southern U.S. and Mexico. And three, our active safety business, for which we have highlighted some of the near-term impacts in our Q1 call. The sales softening reflects volume shortfalls in sourcing of programs by certain China-based OEMs and an updated view of expected win rates on upcoming programs. We are taking a number of steps to address the new market dynamics we are facing, demonstrating our commitment to margin expansion, capital discipline, and free cash flow generation.

Swamy: Gm's full sized electric pickups, and Suvs and a new program for a north American based EV manufacturer that was planned for southern U S and Mexico.

Swamy: And three our active safety business for which we have highlighted some of the near term impact in our Q1 call.

Swamy: The sales softening.

Swamy: Volume shortfalls in sourcing of programs by certain China based Oems and an updated view of expected win rate on upcoming programs.

Swamy: We are taking a number of steps to address the new market dynamics, we are facing demonstrating our commitment to margin expansion capital discipline and free cash flow generation.

Seetarama Kotagiri: We are restructuring our complete vehicle cost base to adjust to lower volumes in the near term. We are driving engineering spend reductions for 2026 of up to 200 million while ensuring that we continue to prioritize investments for the future. We are taking actions across our portfolio and footprint, focusing on optimization and cost reduction.

Swamy: We are restructuring our complete vehicles cost base to adjust to lower volume in the near term.

Swamy: We are driving engineering spend reductions for 2026 offer up to 200 million, while ensuring that we continue to prioritize investments for the future.

Swamy: We are taking actions across our portfolio.

Swamy: Focusing on optimization and cost reductions.

Seetarama Kotagiri: All these actions are contributing to continued expected margin expansion through 2026 compared to 2024. We are also reducing expected CAPEX in 2026. Approximately $200 million, resulting in a projected CapEx to sales ratio of less than 4% for 2026. As a result of our efforts to mitigate the anticipated market impacts, we are expecting strong free cash flow in 2026 in the range of $1.8 to $2.1 billion. Although our 2026 Outlook assumptions are included in the appendix, I would like to highlight a few key points. For example, we have made no changes to foreign exchange rates or global and regional light vehicle production.

Swamy: All of these actions are contributing to continued expected margin expansion through 2026 compared to 2024.

Swamy: We are also reducing expected capex in 2026 at.

Swamy: Approximately $200 million, resulting in a projected capex to sales ratio of less than 4% for 2026.

Swamy: As a result of our efforts to mitigate the anticipated market impacts we are expecting strong free cash flow in 2026 in the range of one eight to $2 1 billion.

Swamy: Sure.

Swamy: Although our 2026 outlook assumptions are included in the appendix I would like to highlight a few key points.

Swamy: We have made no changes to foreign exchange rates, our global and regional light vehicle production.

Seetarama Kotagiri: However, there have been significant changes to programming, as I noted earlier. Please also note that IHS production for 2026 is currently higher than our assumptions in each of North America, Europe, and China. Given the higher level nature and timing of our forecast analysis, we are currently not able to provide 2026 forecasts with the same granularity that we previously provided, in particular for sales and adjusted EBIT margin ranges by segment for 2026.

However, there have been significant changes to program mix as I noted earlier.

Swamy: Please also note that IHS production for 2026 is currently higher than our assumptions in each of North America, Europe and China.

Speaker Change: Given the higher level nature and timing of our forecast analysis. We are currently not able to provide 2026 forecast with the same granularity that we previously provided in particular for sales and adjusted EBIT margin ranges by segment for 2020.

Swamy: Thanks.

Seetarama Kotagiri: Megatrend sales and adjusted EBIT for the years 24 to 26, and 2027 sales for Battery Enclosures, Powertrain Electrification, and ADAP. Now I'll cover the details of our updated 2026 outlook for sales, adjusted EBIT margin, equity income, capital spending, and free cash flow compared to February. Let's start with the change in our sales outlook. Our expected 2026 sales range from our February outlook was $48.8 to $51.2 billion. Complete Vehicles is down about $2.2 billion, almost half of its total sales.

Swamy: Mega trend sales and adjusted EBIT for the years 2004 through 26.

Swamy: 2027 sales for battery enclosures, powertrain electrification and Adas.

Swamy: Now I'll cover the details of our updated 2026 outlook for sales adjusted EBIT margin equity income capital spending and free cash flow compared to February.

Swamy: Okay.

Seetarama Kotagiri: As I said, we have assumed no further production for the Fisker Ocean, which reduces our 2026 sales outlook by about 600 million units. As previously noted, we continue to receive updated information on the amount of directed content on the new Mercedes G-Class assembly program.

Let's start with the change in our sales outlook.

Swamy: Our expected 2026 sales range from our February outlook was 48, 8% to $51 2 billion.

Swamy: Complete vehicles is down about $2 $2 billion almost half of the total sales change.

Swamy: As I said, we have assumed no further production for the physical auction, which reduced our 2026 sales outlook by about $600 million.

Swamy: As previously noted we continue to receive updated information on the amount of directed content on the new Mercedes G Class Assembly program.

Seetarama Kotagiri: For 2026, this has reduced expected sales by about 900 million. Recall that we expect no EBIT dollar impact related to this sales change. The cancellation of the INEOS program is expected to result in about 700 million of lost sales, which would have had assembly-type margins. So the adjusted EBIT dollar impact is less significant.

Swamy: For 2026, this has reduced the expected sales by about $900 million.

Swamy: Recall that we expect no EBIT dollar impact related to the sales change.

Swamy: The cancellation of the <unk> program is expected to result in about $700 million of loss sales, which would have had assembly type margins.

Swamy: The adjusted EBIT dollar impact is less significant.

Seetarama Kotagiri: The impact of EV delays, cancellations, and volume declines offset by higher isolated volumes is expected to be about 2 billion. Our decline in equity income also reflects timing delays and volume reductions, particularly related to North American BEV programs. Lastly, our active safety sales are expected to be down about 600 million in 2026 compared to our February expectation. Based on our top-down review of programs, we now expect a 2026 sales range of approximately $44 to $46.5 billion.

Swamy: The impact of EV delays cancellations and volume declines offset by higher isolated volumes is expected to be about $2 billion.

Swamy: Our decline in equity income also reflects timing delays and volume reductions, particularly related to North America best progress.

Swamy: Lastly, our active safety sales are expected to be down about $600 million in 2026 compared to our February expectations.

Swamy: Based on our top down review of programs. We now expect a 2026 sales range of approximately 44 to $46 5 billion.

Seetarama Kotagiri: Our 2026 adjusted EBIT margin range from our February outlook was 7.0 to 7.7 percent. Based on our expected sales range in February, that translates to adjusted EBIT dollars between $3.4 and $3.9 billion. Our lower expected sales in complete vehicles at margins below our corporate average are expected to be accretive to consolidated margins. Lower anticipated EV sales, including lower unconsolidated sales, partially offset by higher ice volumes, are expected to negatively impact Mars, and our lower projected active safety sales are expected to reduce margins. As I said earlier, there are a number of self-help initiatives that are well underway to partially offset the impacts of the market challenges we are facing.

Swamy: Our 2026 adjusted EBIT margin range from our February outlook was 7.0 to seven 7%.

Swamy: Based on our expected sales range in February that translates to adjusted EBIT dollars between three four and $3 9 billion.

Swamy: Our lower expected sales in complete vehicles at margins below our corporate average is expected to be accretive to consolidated margins.

Swamy: Lower anticipated EV sales, including lower than consolidated sales, partially offset by higher volumes is expected to negatively impact margins.

Swamy: And our lower projected active safety sales is expected to reduce margins.

Swamy: As I said earlier, there are a number of self help initiatives that are well underway to partially offset the impacts of the market challenges we are facing.

Seetarama Kotagiri: These include incremental actions in operational excellence activities, restructuring actions, as well as reduced engineering and capital spending. Our updated 2026 EBIT margin range is 6.7% to 7.4%, and based on our updated sales range, this translates to an expected EBIT dollar range of between 2.9 and 3.4 billion dollars. However, I want to assure you that we are continuing to explore opportunities that are not included in our revised outline.

These include incremental actions and operational excellence activities restructuring actions as well as reduced engineering and capital spending.

Swamy: Our updated 2026 EBIT margin range is six 7% to seven 4%.

Swamy: And based on our updated sales range translates to an expected EBIT dollar range of between $2 nine and $3 4 billion.

Swamy: However, I want to assure you that we are continuing to explore opportunities that are not included in our revised outlook.

Seetarama Kotagiri: As a result of lower expected sales, we have reduced our CapEx plans for 2024 through 2026. Our 2024 capital expenditure has been reduced from approximately $2.5 billion at the start of the year to a range of $2.3 to $2.4 billion now. We have also reduced both 2025 and 2026 capital spending expectations, with 2026 coming down to a range of $1.6 to $1.8 billion, compared to about $1.9 billion that we expected in our February outlook.

Swamy: As a result of lower expected sales, we have reduced our capex plans for 2024 through 2026.

Swamy: Our 2024 capital has been reduced from approximately $2 $5 billion at the start of the year to a range of two three to $2 4 billion map.

Swamy: We have also reduced both 2025 and 26 capital spending expectations with 2026 coming down to a range of one six to $1 8 billion compared to about $1 9 billion that we expected in our February outlook.

Seetarama Kotagiri: To start the year, we anticipated CapEx as a percentage of sales to decline from about 5.6% this year to a low 4.4% in 2026. We now expect about 5.2% for 2024 and less than 4% for 2026, consistent with our previous commitment. To recap our updated 2026 outlook, our sales forecast has been updated to reflect the shifting market with an expected range of 44 to 46.5 billion. We are actively pursuing customer recoveries to offset the impact of EV program cancellations, delays, and lower volumes.

Swamy: To start the year, we anticipated capex as a percentage of sales to decline from about five 6% this year to low 4.4% in 2026.

Swamy: We now expect about five 2% for 2024 and less than 4% for 2026 consistent with our previous commitment.

Swamy: To recap our updated 2026 outlook.

Swamy: Our sales forecast has been updated to reflect the shifting market with an expected range of 44 to $46 5 billion.

Swamy: We are actively pursuing customer recoveries to offset the impact of EV program cancellations delays and lower volumes.

Seetarama Kotagiri: With respect to margins, we have a number of self-help initiatives well underway to mitigate the impact of lower sales. We now expect adjusted EBIT margins in the range of 6.7 to 7.4%, which represents 150 basis points or more improvement over 2023. We are curtailing investments for the 2024 to 2026 period, targeting reductions of up to $500 million of gross engineering investments in megatrend areas and up to $600 million in CapEx. As a result of our significant efforts to mitigate lower sales, we continue to expect free cash flow generation to increase each year of our outlook period, reaching $1.8 to $2.1 billion in 2026.

Swamy: With respect to margins, we have a number of self help initiatives well underway to mitigate the impact of lower sales.

We now expect adjusted EBIT margins in the range of $6, 7% to 754%, which represents a 150 basis points or more improvement over 2023.

Swamy: We are curtailing investments or the 'twenty 'twenty four to 2000 2006 period.

Swamy: Targeting reductions up to $500 million of gross engineering investments and megatrend areas and up to $600 million in Capex.

Swamy: As a result of our significant efforts to mitigate lower sales. We continue to expect free cash flow generation to increase each year offer outlook period, reaching one eight to $2 1 billion for 2026.

Swamy: This is over $1 $6 billion higher than 2023.

Seetarama Kotagiri: This is over $1.6 billion higher than 2020. Coming back to Summarize 2024, our operating performance in the second quarter was largely in line with our expectations. We are actively mitigating market challenges with a focus on margin expansion, capital discipline, and pre-cash flow generation. With respect to our updated 2024 outlook, we are maintaining our sales range, narrowing our adjusted EBIT margin range, lowering our capital spending, and maintaining our free cash flow expectations for the year. All in all, a solid quarter, and we remain on track for 2024. Thank you for your attention. And now we'll open it up to questions.

Swamy: Coming back to summarize 2020 for our operating performance in the second quarter was largely in line with our expectations.

Swamy: We are actively mitigating market challenges with a focus on margin expansion capital discipline and free cash flow generation with.

Swamy: With respect to our updated 2024 outlook, we are maintaining our sales range narrowing our adjusted EBIT margin range, lowering our capital spending and maintaining our free cash flow expectations for the year all in all a solid quarter and we remain on track for 2024. Thank you.

Speaker Change: Your attention and now we'll open it up to questions.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening through a loudspeaker on your device, please pick up your handset and ensure that your device is not on mute when asking your question. Please go ahead.

Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and I would like to ask a question. Please press star one on your telephone keypad to raise their hand and joined the queue. If you would like to withdraw your question Press Star one again.

Speaker Change: If you are called upon to ask your question and are listening by allowed speaker on Euro Dubai. Please pickup your handset and ensure that your device is not on mute when asking your questions and your first question comes from the line of John Murphy with Bank of America. Please go ahead.

John Murphy: Good morning, guys. And thanks for all the help and sort of the walk through on how things are changing through 2026. But I do have one follow up on that. I think it's kind of important.

John Murphy: Good morning, guys.

John Murphy: Thanks for all the.

Speaker Change: To help in sort of the walk on how things are changing through 2026.

Speaker Change: I do have one follow up on.

On that.

Seetarama Kotagiri: I'm not sure if you can answer it in extreme detail. But Swami, as you're going through these numbers, you know, as EV programs are pushed down into the right, there's certainly some lost volume or sort of lower volume expectations there, at least. Yeah, how do you think about the potential for the backfill of ICE vehicles as you're going through this? And then, you know, it seems like there's going to be more program extensions, potentially, you know, stuff that's more like mid cycle, you know, majors to add more ADAS to the vehicles, potentially update sheet metal, etc. You know, how do you think about that backfill? And is that in any meaningful way in your thought process for these 2026 numbers?

Speaker Change: Kind of important I'm not sure if you can answer it in extreme detail, but swamy as youre going through these numbers.

Speaker Change: As EV programs are pushed down into the right.

Speaker Change: There is certainly some lost volume or lower volume expectations. There at least how do you think about the potential for the backfill of ice vehicles as youre going through this and then it seems like theres going to be more program extensions potentially.

Speaker Change: Stuff, that's more like mid cycle majors to add more aid as due to the vehicles potentially update sheet metal et cetera.

Speaker Change: How do you think about that backfill and us is that in any meaningful way in your thought process for the 2026 numbers.

Seetarama Kotagiri: Good morning, John. Great question. Yes, that's on our minds, but we've been cautious in looking at the exact data that is available today. That's why, in my prepared comments, I talked about continuing to look at opportunities that could be out there. As you know, we are talking just about an 18-month timeframe, right, where we are now into 2026. There has been some offset into the overall that we talked about already, and we continue to look at some discussions, but we wanted to make sure we got some concreteness in the data while we are having these discussions going into 2026.

John Murphy: Good morning, John.

John Murphy: Great question.

Speaker Change: Yes, thats on our mind, but we've been cautious in looking at exact data that is available today.

The reason in my prepared comments.

Speaker Change: About continuing to look at opportunities that could be out there.

Speaker Change: As you know we are talking just about a 18 month timeframe, great where we are now into 2026.

Speaker Change: There has been some offset into the overall.

Speaker Change: Talked about.

Speaker Change: <unk>.

Speaker Change: And we continue to look at some discussions, but we wanted to make sure we get some.

Speaker Change: Concrete nets in the data while we're having these discussions going into 2026, so when we talked about the role.

Seetarama Kotagiri: So, when we talked about the role on the slide, you saw the second bar, which said about 2 billion impact, EV impact, that is already partially offset by some higher ice volumes that we've been seeing, right? So, I would say that's in the range of eight, nine hundred million that we already saw for the ice, but You know, I don't want to give a number or guess a number, but those discussions continue, and we'll, like I said, continue to pursue those options.

Speaker Change: On this slide you saw the second.

Rich: Rich said.

Speaker Change: <unk> 2 billion impact EBIT impact that is already partially offset by some higher ice volumes that we've been seeing right now I would say thats in the range of $900 million that we already saw for the ice.

Rich: But.

Speaker Change: I don't want to give a number our guests in number but those discussions continue and we will like I said continue to pursue those options.

John Murphy: But the $800 to $900 million is based on what you've been told about programs and releases from automakers themselves as opposed to assumptions. Is that a fair statement? Absolutely not.

Speaker Change: The eight to 900 million is based on on what you've been told on programs in releases from automakers themselves as opposed to when the assumptions is that a fair statement exactly yes. That's what I meant we are only looking at things that are already confirmed and we know rather than any assumptions got.

Seetarama Kotagiri: Exactly. Yes, that's what I meant. We are only looking at things that are already confirmed, and we know rather than make any assumptions.

John Murphy: Gotcha. And then the second question, just on Steyr and the restructuring that needs to go on there. I guess my understanding is that it would be mostly headcount and, you know, pretty relatively easy, although not great for the folks, but relatively easy to execute. I mean, how much risk is there as you're readjusting around this Fisker G-class and INEOS changes here, you know, to that actual restructuring? Is it fairly straightforward, or is it how complicated could that be?

Speaker Change: Got you.

Speaker Change: Then second question just on Steier.

Speaker Change: The restructuring that needs to go on there I guess my understanding is that would be mostly head counts.

Speaker Change: You too.

Speaker Change: Pretty easy relatively easy, although not great for the folks, but relatively easy to to execute I mean, how much risk is there as you're readjusting around this fifth gear G class and Ineos changes here.

Speaker Change: To that actual restructuring is it is it fairly straightforward or is it how complicated could that be.

Seetarama Kotagiri: I think the straightforward answer, John, is pretty straightforward, and this is not something that we are... Thinking forward, this is already in place, and I would say substantially addressed. As you know, in this business, we talk about program starts and ends. So, as programs ramp down, You know, it's a normal process to go through that, and we have done that already. So I would say it's a pretty straightforward exercise and already on track, and that's the reason why I was able to say that, you know, the restructuring activities and getting to the appropriate cost base given what we already have in the plan are in place for complete vehicles.

Speaker Change: I think the straightforward answer John is pretty straightforward and this is not something that we're.

Speaker Change: Thinking forward. This is already in action in place.

Speaker Change: I would say substantially addressed.

Speaker Change: As you know this business, we talk about program starts and ends so as programs ramp down.

Speaker Change: It is normal process to go through that and we have done that already.

Speaker Change: So I would say, it's a pretty straightforward exercise.

Speaker Change: Already on track.

Speaker Change: That's the reason why I was able to say that.

Speaker Change: The restructuring activities and getting to the right.

Speaker Change: <unk> face given what we already have in plan is in place for complete vehicles Assembly sorry.

John Murphy: And just one last quick one on the Japanese hot stamp door ring. I'm just curious about the structure business on Cosmo. You know what percent of the business is to the Japanese at the moment? Because it sounds like that's a pretty good initial foot in the door. I know you have some other stuff, but I mean, you know how big an opportunity the Japanese for Cosmo is.

Speaker Change: Sorry, and just one last quick one on the Japanese hot stamped door ring.

Speaker Change: I'm just curious on the structures business on Kosmos.

Speaker Change: What percent of the business is to the Japanese the moment 'cause it sounds like Thats a pretty good.

Speaker Change: Initial putting them in the door I know you have some other stuff, but I mean, how big an opportunity to the Japanese for Cosmos.

Seetarama Kotagiri: I would still say it's not a large percent, John, right? I think we have had some entries in the past in processes and products that are pretty specific and specialized, and we've been able to penetrate that market. But I would still say it's not substantial compared to our other core customers in Europe and North America. Okay, great.

Speaker Change: I would still say.

Speaker Change: Not any large percent John right I think we have had some increase in the past.

Speaker Change: Processes and products that are pretty specific and specialized and we've been able to get that market.

Speaker Change: I would still say its not substantial compared to our other core customers in Europe and North America.

John Murphy: Okay, great. Thank you very much, guys.

Speaker Change: Okay, great. Thank you very much guys.

Sean: Thanks, Sean.

Adam Jonas: Your next question comes from the line of Adam Jonas with Morgan Stanley. Please go ahead.

Speaker Change: Your next question comes from the line of Adam Jonas with Morgan Stanley. Please go ahead.

Adam Jonas: All right, thanks. Good morning, everybody.

Adam Jonas: Hi, Thanks, Good morning, everybody. So swamy if magna were included in the S&P 500.

Adam Jonas: It would rank in the bottom two percentile I think around 492 out of 500 companies.

Adam Jonas: So, Swami, if Magna were included in the S&P 500, you know, it would rank in the bottom two percentile, I think around 492 out of 500 companies. And I know you can't like that. You and Pat definitely can't like that.

Speaker Change: And I know you can't like that.

Speaker Change: You impact can definitely not like that investors don't like it I'm sure your board doesn't like that.

Speaker Change: But that kind of company I mean, these are companies with serious strategic problems or where the market really doesn't like the capital allocation going forward. So why do you think.

Seetarama Kotagiri: Investors don't like it, and I'm sure your board doesn't like it either. But that kind of company, I mean, these are companies with serious strategic problems, or the market really doesn't like the capital allocation and execution strategies going forward. So why do you think? What defense do you give, or do you just accept the capital allocation and execution strategies? Need to change. Now, I see the CapEx and the spending, you're addressing it, there's an acknowledgment, but does something else have to change on top of that? Then I have a follow-up question. Thanks.

<unk> do you give or or do you just accept the capital allocation and execution strategies.

Speaker Change: To change now I see I see the Capex and the spending are you addressing that there is an acknowledgment, but it does something else have to change on top of that and then I have a follow up thanks.

Seetarama Kotagiri: Good morning, Adam. Yes, obviously, those statistics are something we continue to see, and you know, the market is. Shifted or pivoted drastically, and when we look at it, it's not the one or two years, as you know, in the cycle time for the business over the cycle for the business that we have. So when we looked at capital allocation based on a trend, part of it is flexible, and part of it is something we do from the product.

Adam Jonas: Good morning, Adam.

Speaker Change: Yes, obviously those statistics are something we continue to see in the.

Speaker Change: The market has shifted our pivotal drastically and when we look at it it's not a one or two years as you know.

Speaker Change: In the.

Speaker Change: And some times of the business over the cycles of the business that we have.

Speaker Change: So when we looked at.

Capital allocation based on that trend.

Speaker Change: Our traffic is.

Speaker Change: Flexible and part of it is something we do from the product for example, when you look at.

Seetarama Kotagiri: For example, when you look at our college structural business, we have a substantial market share and presence in certain product lines, whether it's frames, underbody, and so on and so forth. When you start looking at body enclosures, given the hypothesis that EV is a secular trend, except that the rate is uncertain.

Our colleagues auction business.

Substantial market share and presence in certain product lines, whether its streams under body and so on and so forth.

Speaker Change: When you start looking at body enclosures, given the hypothesis that EV is a secular trend.

Speaker Change: <unk> that the rate is uncertain.

Seetarama Kotagiri: You have to be in that market not only to look at the evolution of the product that we already have but also to look at possible integration. So those are some of the long-term investment decisions that are made. But like I said now, the capital allocation, wherever there is flexibility, we are able to pivot very, very quickly. And that's what we are trying to go through and have been able to communicate today about $600 million of reduction in the three-year time period.

Speaker Change: You have to be in that market not only to look at the evolution of the product that we already have and look at possible integration. So those are some of the long term investment decisions that are made.

Speaker Change: As I've said now the capital allocation.

Well there is flexibility we are able to pivot very very quickly and that's what we are trying to.

Speaker Change: Go through and have been able to communicate today about $600 million of production to three year time period, and it's not done yet we continue to look at that.

Seetarama Kotagiri: And it's not done yet. We will continue to look at that. We look at regions or divisional levels or product lines in the long term, not based on the quarter or the year, but if there are certain parts from a product line perspective where relevance might be in question or market share might be in question, all of this is a normal process that we continue to look at, and we will look at that. And the basic objective of optimization is shareholder value.

Speaker Change: You look at the regions, our divisional level all product lines in.

Speaker Change: In the long term not based on.

Speaker Change: Quarter of a one year, but if there are certain parts from a product line perspective there.

Speaker Change: <unk> might be in question are market share might be in question. All of this is a normal process that we continue to look at and we will look at that.

Speaker Change: Okay.

Speaker Change: Basic objective optimization is the shareholder value.

Adam Jonas: And just to follow up, many of your competitors seem to have been really rewarded recently for returning cash to shareholders through share buybacks, for example, Aptiv, Borg, and even some of your customers like General Motors and others. Even Toyota is doing a massive buyback, which is kind of out of character for them. Magna is a very high quality company with strong cash flow, and one of the cheapest stocks in the world in any industry. So why does Magna management feel the stock is not a good enough investment for you to buy back your own shares? Because people are noticing. So Adam, my simple answer.

Speaker Change: Thank you Swamy and just a follow up.

Speaker Change: Many of your competitors seem to have been really rewarded recently for returning cash to shareholders through share buybacks. For example, apt of Borg given some of your customers like General Motors and others, even Toyota is doing a massive buyback, which just got out of character for them.

Speaker Change: Magna is a very high quality company strong cash flow of one of the cheapest stocks in the world in any industry. So why does Magna management appeal. The stock is not a good enough investment for you to buy back your own shares.

Speaker Change: We're noticing.

Seetarama Kotagiri: So Adam, my simple answer is I think that is the best investment that we would like to do. No question.

Adam Jonas: So Adam.

Adam Jonas: Simple answer is embedded.

Our best investment.

Adam Jonas: We would like to do no question.

Seetarama Kotagiri: But we also talked about a balance sheet strategy and committed to a leverage ratio with the V&A requisition that's in place and continuing. We are on track to get to the leverage ratio that we talked about. And as I said, the cash flow is strong and coming back to that level. As soon as we get to the commitments that we made from a balance sheet perspective, it is absolutely on the cards and the usual process around the October, November time frame. We came out with a plan for the share buyback and with the strong cash flow. Things to be on track and have in place right now. I look forward to talking about it with you.

Speaker Change: But we also talked about our balance sheet strategy and are committed to a leverage ratio.

With the <unk> acquisition, that's in place and continuing.

Speaker Change: We are on track to get to the leverage ratio that we talked about and as I said that cash flow.

Speaker Change: Is strong and coming back to that level as soon as we get to the commitments that we've made.

Speaker Change: From a balance sheet perspective, it is absolutely on the cards and usual process around October November timeframe, when we come out with their plan for the share buyback and with the strong cash flow.

Speaker Change: It seems to be on track and have it planned right now.

Speaker Change: Look forward to talking about it.

Rami: Thanks Rami.

Ann: Thanks Ann.

Tamy Chen: Your next question comes from the line of Tamy Chen with BMO Capital Markets. Please go ahead.

Speaker Change: Your next question comes from the line of Jimmy Chen with BMO capital markets. Please go ahead.

Tamy Chen: Good morning. Thanks for the question. I wanted to ask about the power and vision side, and I guess more specifically the ADAS side. But I'm just wondering if you could give a more detailed update on what's happening in the ADAS market in particular. There was, I think, the Chinese dynamic that was called out last quarter, something moving to being insourced. I'm wondering if you're seeing more of that. And there was the language of an increase in guidance for 2026, an updated view on expected win rates. I'm wondering if you can elaborate on that.

Speaker Change: Good morning, Thanks for the question.

Jimmy Chen: I wanted to ask about the power and vision side.

Speaker Change: More specifically.

Jimmy Chen: Adas side, but I was just wondering if you could give.

Speaker Change: A more detailed update on what's happening in the Adas market in particular.

Speaker Change: Thank you.

Speaker Change: Chinese dynamic I recall that last quarter's something being enforced.

Speaker Change: Im wondering if.

Speaker Change: More of that.

Speaker Change: And there was the language of for.

Speaker Change: 2020 guidance.

Speaker Change: An updated view on expected win rate I'm wondering if you can elaborate on that.

Seetarama Kotagiri: Yeah, good morning, Tamy. Yes, you're right. We did talk about it, and about 600 million is the magnitude that we're talking about, predominantly in China. The insourcing that we talked about was also related to one Chinese OEM on a program. Based on that and also the type of products that are going into the vehicles there, we kind of looked comprehensively at the programs that were there and, you know, took our approximation of what we think is the wind rate possibility and, therefore, adjusted that.

Tommy: Yes, good morning Tommy.

Speaker Change: Yes, you are right. We did talk about it in about $600 million is the magnitude that we're talking about predominantly in China.

Speaker Change: In sourcing that we talked about was also related to one Chinese OEM on a program.

Speaker Change: Based on that.

Speaker Change: And also the type of products that are going into the vehicles there.

Speaker Change: Looked a comprehensive knee at the programs that they're in.

Speaker Change: To crowd approximation of what we think is they've been great possibility.

Speaker Change: And therefore adjusted back but.

Seetarama Kotagiri: But just to give you a broader context, in the overall scheme of our ADA sales for 2026. This is a rough estimate, but I would say The exposure to Chinese or to China for us is roughly 10 to 12% of the total. So I would say it's pretty contained in my comments about the insourcing trend in China. In the rest of the QALYT regions, we are continuing to see the same traction and win rates that we have noticed.

Speaker Change: But just to give you a broader context.

Speaker Change: In the overall scheme of our Adas sales for 2026.

Speaker Change: This is a rough estimate.

Speaker Change: I would say.

Speaker Change: The exposure to Chinese are in China for Us is roughly 10% to 12% of the court. So I would say it's pretty contained.

Speaker Change: In my comments about the in sourcing trend in China, and the rest of the.

Speaker Change: Quality reagents.

Speaker Change: We have continued to see similar traction in win rates that we have.

Speaker Change: Noticed.

Seetarama Kotagiri: And I think one of the other things, Tamy, is that the OEMs are grappling with or still making a decision on what ADAS architecture they're going to use, right, whether it's centralized with the peripheral sensors or having smart sensors and edge compute still included? So these are a bunch of questions that the OEMs are also coming to conclusions on. So we want to be prudent on what we take on, where our priority is, and how much we invest in different projects until that gets to some sort of certainty.

And I think one of the other things as we look at the.

Speaker Change: The Oems are grappling or making a decision still on what.

Speaker Change: A desk architecture, theyre going to right, whether it's centralized.

They're paid for ROE.

Speaker Change: Sensors are having smart sensors and edge compute still included.

So these are the bunch of questions that the Oems are also.

Speaker Change: And coming to conclusions on so we want to be prudent.

Speaker Change: And what we take on.

Speaker Change: It is our priority and how much we.

Speaker Change: Invest in different projects until that gets to some sort of certainty.

Tamy Chen: Right. And on the PMV margin, so I noticed that it was brought down for this year. And even if I think about Q2, I think last quarter you were saying, you know, this Q2, the margin would be at least but more, probably more than double Q1. And I think it was a little bit, a little bit softer.

Speaker Change: Alright.

Speaker Change: The <unk> margin.

Speaker Change: I noticed that Rick brought downturn this year and even if I think about the Q2 I think.

Last quarter, you were saying.

Speaker Change: All those key margin would be at least more at that time more than double Q1.

Speaker Change: Little debt a little bit softer so I'm just wondering.

Seetarama Kotagiri: So I'm just wondering, oh, but your revenues for PMV and Q2 came in pretty, pretty well; I would have thought that would have had some operating leverage. So just, can you talk about, I guess, this year's margin for the PMV? Like, how should we think about that? Because I think the expectation has been that just as more and more and more sales come in here, you're going to just naturally drive substantial margin improvement.

Speaker Change: Revenue for Q2.

Speaker Change: Pretty well I would've thought that would've had some operating leverage so can.

Speaker Change: Can you talk about I guess, yes, this year's margin or the PND like how should we think about that so I think the expectation has been just as much.

Speaker Change: More and more and more sales people.

And then on just natural Jive substantial margin improvement.

Tamy Chen: Yes, Tamy, I think you're absolutely right. I did mention in the last call that it's going to be at least double. The two factors that impacted the business were, I think the pull through generally in the business was pretty good. The one major impact was the change in equity income from our LGEJB. That impacted our expectation of what we had in Q2, and the second one, I would say, is a little bit of a mix in terms of a couple of programs.

Speaker Change: Yes, Tammy I think Youre, absolutely right I did mentioned in the last call, it's going to be at least double.

Speaker Change: There are two factors that impacted I think the pull through generally in the business was pretty good.

Speaker Change: The one major impact was the change in the equity income from our LTE JV.

Speaker Change: That impacted.

Speaker Change: Our to our expectation of what we had in the Q2 and the second one I would say is a little bit of mix in.

Speaker Change: In terms of a couple of programs.

Tamy Chen: I don't see that as a significant... If you look at our forecast on the equity income, that continues to be... (inaudible) Specifically, I would say in our joint venture with the GM programs in North America. So that's the one drive. We just kind of had to take a look at it. But at a fundamental baseline of the business, we continue to hit the expectations of what we thought the overall business was going to be.

Speaker Change: I don't see that as significant.

Speaker Change: Ed.

Ed: If you look at our forecast on the equity income that continues to be.

Softer than previously expected and that is again exposure too.

Ed: Specifically I would say in our joint venture to the GM programs in North America. So.

That's the one drive.

Ed: So we just kind of have to take a look at it but at a fundamental baseline of the business we continue to.

Ed: Hit the expectations of what we thought the overall business is going to be.

Seetarama Kotagiri: And Tamy, just for perspective, the equity income is related to EVs as well, and that impact alone is 40 basis points. Right, so x the equity income delta, we were within expectations. And we did take

Ed: And Tammy just for perspective, the equity income.

Tammy: Is related to <unk> as well and that impact alone is 40 basis points right. So ex the equity income Delta we were within expectations.

Seetarama Kotagiri: And we do take down our Power Envisions sales for the year as well, even though current...

Tammy: We did take down our empower ambitious sales for the year as well, even though currency so.

Tammy: Yes.

Tamy Chen: Right, okay. And last one for me is this whole aspect on the EV side with the OEMs in North America, you know, they're continuing to delay and defer some of the new programs. Just curious, based on your conversations with them about this, like, where do you think we're at? Like, do you feel like these OEMs are there? Do you feel that given the current Pull through EVs, there's still some more to go on recalibrating their expectations?

Tammy: Okay. Okay.

Speaker Change: Last one for me is this whole aspect on the EV side with the Oems in North America.

Speaker Change: Delay thus far.

Speaker Change: The new program just curious based on your conversations with them about that.

Phil: Well thanks, Phil.

Speaker Change: The OEM.

Speaker Change: Do you feel like given the current.

Speaker Change: Pull through.

Speaker Change: Theres still some whites hotel.

Speaker Change: Recalibrating their expectations, we feel like there's still a phone call Daniela cannot.

Tamy Chen: Do you feel like there's still some programs you're looking at that probably still get punted down? Or, like, do you feel we're getting to a point where this is behind us? A lot of this has recalibrated appropriately to the current backdrop? Thanks. Tamy, I would say it's a little bit of a twist.

Speaker Change: <unk> does it pencil down or do you feel we're getting to a point where this is this is behind US a lot of it has to be calibrated appropriately to that.

Speaker Change: Thanks.

Seetarama Kotagiri: Tamy, I would say it's a little bit of a crystal ball question overall about the market, but I'll give you our viewpoint from Magna. We have said that before.

Speaker Change: Tammy I would say, it's a little bit of a crystal ball question overall of what the market, but ill give you our viewpoint from Magna.

Speaker Change: We have said that before.

Tamy Chen: We have our own judgment on volumes when... You know, the customer volumes come to us based on historical data. But as you know, some of these programs that are coming for EVs don't have that much historical data. But we still have our, I would say, conservative judgment on that. From our perspective, the big changes that we talked about in three, four programs that had a were the reason for reducing sales.

Speaker Change: We have our own judgment on volumes.

Speaker Change: Their customer volumes come to us based on based on historical data, but as you know some of these programs that are coming towards <unk> don't have that much of historical data, but we still have order.

Speaker Change: I'd say converted judgment on that.

Speaker Change: From our perspective.

Speaker Change: Sure.

Speaker Change: The changes that we've talked about on <unk> III for programs that had a.

Speaker Change: That was the reason for reducing the sales if.

Tamy Chen: If you look at the rest, we feel pretty contained, you know, in our set of assumptions that we have, even based on the volumes that the OEMs are talking about today. We have taken that into account, plus our own viewpoint on what they could be. So, all in all, I think. I won't be able to comment on what the volumes and EVs are going to do in the next 18 months or two years, but I would say we have been more conservative in the past and even now, even with the current volume set.

Speaker Change: If you look at the rest.

Speaker Change: Feel pretty contained.

Speaker Change: Sure.

Speaker Change: <unk>.

Speaker Change: Our setup assumptions that we have.

Speaker Change: Based on the volumes that the Oems are talking today, we have taken that into account plus.

Speaker Change: Our own viewpoint on what that could be so all in all I think.

Speaker Change: We won't be able to comment on what their volumes in evs are going to do in the next 18 months or two years back.

Speaker Change: I'd say, we are being more conservative in the past and even now even with the current volume set.

Speaker Change: Okay.

Speaker Change: Thank you.

Okay.

Dan Levy: Your next question comes from the line of Dan Levy with Barclays. Please go ahead.

Speaker Change: Your next question comes from the line of Dan Levy with Barclays. Please go ahead.

Patrick McCann: Good morning, and thank you for taking the time to answer the question. Just a question first on the 2024 outlook. Given we continue to hear about, you know, reductions to schedules, especially from the D3, maybe you can just give us a sense within your guidance of what you are assuming on production schedules, especially as what we're seeing from the third-party forecasters is likely going to be coming down just based on commentary from the calls and, you know, we saw another sort of soft-ish sales print. So maybe you can comment on, you know, the level of conservatism, if at all, in the D3 assumptions for 2024.

Speaker Change: Okay.

Dan Levy: Good morning, and thank you for taking the questions.

Dan Levy: A question first on the 2024 outlook given we continue to hear about.

Dan Levy: Productions to schedule, especially from the <unk>, maybe you can just give us a sense within your guidance. What you are assuming on production schedule, especially as overseeing from third party forecasters is likely going to be coming down.

Speaker Change: Based on commentary from the call then.

Speaker Change: Another sort of Softish sales print. So maybe you can comment on that.

Speaker Change: A level of <unk>.

Speaker Change: Services and if at all.

Speaker Change: On the <unk> assumptions for 'twenty four.

Patrick McCann: Morning, Dan. Maybe just a level set. So what we're seeing overall is our North American volumes are coming in at, we're projecting 15.7, Europe at 17.1 and China at 29. So North America, we see on a year-over-year basis, we're basically flattish. Overall, about a 2% decline in Europe and China's down about one. If we turn to H2 specifically, on a year over year basis, D3, where we're seeing slavish production, let's keep in mind last year, the D3 were undergoing strikes, right?

Dan Levy: Good morning, Dan.

Dan Levy: Maybe just to level set so what we're seeing.

Dan Levy: Overall as are our north American volumes are coming in that we're projecting 15 seven Europe at 17, one in China at 29.

Speaker Change: So in North America, we're seeing on a year over year basis were basically flattish.

Speaker Change: Overall about a 2% decline in Europe, and China is down about one.

Turn to H, two specifically on a year over year basis.

Speaker Change: Three were.

Speaker Change: We're seeing flattish production, let's keep in mind last year. The Q3, we're undergoing strikes rate too.

Patrick McCann: So, you know, in a normal case, you'd expect them to go up. In that case, we're still seeing some declines. Oh, not declines, I guess flat year over year, but we're seeing declines of about 5% from H1 into H2, the biggest driver there really being Stellantis in particular. And I think in Europe, I think back half of the year, we're pretty consistent with, you know, data providers, IHS in particular.

Speaker Change: A normal case, you would expect from us.

Speaker Change: In that case that we're still seeing some declines.

Speaker Change: I will not declines I guess flat year over year, but we are seeing declines of about 5% from each 1% to <unk> the <unk>.

Speaker Change: Biggest driver there really being still anticipate particular.

Speaker Change: And I think in Europe, I think back half of the year were pretty consistent with.

Speaker Change: With data providers IHS in particular.

Dan Levy: Got it, got it. Thank you.

Speaker Change: Got it got it thank you.

Dan Levy: Second question I wanted to ask, and it's sort of a two-part question, it's about the impact of sort of the globalization of the Chinese auto industry. And it's, A, maybe you could just comment on, I think we saw some reports in the quarter that your Steyr operations in Europe could possibly accommodate Chinese automakers willing to, or looking to, localize production in Europe. If you could just comment on that, But also, we've heard about Chinese suppliers that are increasingly globalizing and establishing presences in other regions. Maybe you could just address, sort of competitively, how much of a threat, if at all, you see from the rise of Chinese suppliers.

Speaker Change: Second.

Speaker Change: Question I wanted to ask.

Speaker Change: It's sort of a two part question on the impact of sort of the.

Speaker Change: Globalization of the Chinese auto industry.

Speaker Change: And maybe.

Speaker Change: Maybe you could just comment on I think we saw some reports in the quarter that.

Speaker Change: Stier operations in Europe.

Speaker Change: Could possibly accommodate Chinese automakers willing to or looking to it.

Speaker Change: <unk> production in Europe.

Speaker Change: Comment on that but also we heard about Chinese suppliers that are increasingly globalizing and establishing presence isn't in other.

Speaker Change: Other regions, maybe you could just address sort of competitively how much of a threat. If at all you see from the rise of Chinese suppliers.

Seetarama Kotagiri: Good morning, Dan. To answer your first question, based on tariffs and regulations, and so on and so forth, we hear, as you mentioned rightfully, the Chinese OEMs coming and looking for a footprint in Europe to be able to maneuver through the tariff regulations and so on and so forth. Whatever those could be, I mean, we have an asset, not just an asset, it's experience, capability, competence, and we have done that with various customers, European and North American OEMs in the past in Europe, and so on.

Dan Levy: Good morning, Dan I think the answer to your first question.

Speaker Change: <unk>.

Speaker Change: Based on pad configurations.

Speaker Change: And so on and so forth.

Speaker Change: Sure.

Speaker Change: As you've mentioned directly.

Speaker Change: The Chinese Oems coming.

Speaker Change: And looking for a footprint in Europe.

Speaker Change: To be able to maneuver through the regulations and so on and so forth.

Speaker Change: Whatever those could be I mean, we have a.

Speaker Change: Asset.

Speaker Change: Not just massive it's an experienced team with deep competence and we've done that maybe customers European.

Speaker Change: American Oems in the past in Europe, and so on so I think that remains a very interesting.

Seetarama Kotagiri: So, I think that remains a very interesting variable for us, and we continue to have discussions with all types of customers. So, I look forward to that, and, you know, when there is something material, we'll bring it forward. On the second part of your question, I would like to go back, look into the history a little bit, whether it's Japanese or Korean, entering the Western markets and coming along the ecosystem at that time.

Speaker Change: Well for us.

Speaker Change: Continue to have discussions with all types of customers.

Speaker Change: So look forward to that and then there is something material, we'll bring it forward.

Speaker Change: On your second part of your question.

Speaker Change: I would like to go back to look into the history, a little bit whether it's Japanese or Korean.

Speaker Change: Entering into the western markets and came along the ecosystem at that time I'm sure there will be a similar trend.

Seetarama Kotagiri: I'm sure there will be a similar trend. Would I say, you know, we're not worried? Of course not. It's never good to be complacent. So we always have our finger on the pulse to see what's going on. On the other hand, we are also present in China today, working not only with Western OEMs in China but also with prominent Chinese OEMs in China. And we believe when they come over, whether it's for homologation reasons or bringing the local knowledge of meeting the regulatory requirements for Chinese in other parts of the world, I think we could bring a lot of value, and, you know, we believe we'll be at the table.

Speaker Change: Okay.

Speaker Change: I see.

We are not worried of course, not it's never good to be complacent. So we always have our finger on the pumps to see what's going on on the other hand, we are also present in China today, working not only with the western Oems in China, but also the prominent Chinese Oems in China, and we believe.

Speaker Change: They come over.

Speaker Change #100: For homologous use reasons are.

Speaker Change #100: Bringing the local knowledge of.

Speaker Change #100: Hitting the regulatory requirements for.

Speaker Change #100: For Chinese and other parts of the World I think we could bring a lot of value in.

Speaker Change #100: We believe we will be at the table.

Speaker Change #101: Great. Thank you.

Dan Levy: Your next question comes from the line of James Picariello with BNP. Please go ahead.

Speaker Change #101: Your next question comes from the line of James Picariello.

Speaker Change #102: With BNP please.

Speaker Change #102: Please go ahead.

Speaker Change #102: Hi.

Operator: Lost to James.

Speaker Change #104: Loss to James.

Operator: James, we don't hear you.

Speaker Change #105: James We don't hear you.

Operator: Operator, maybe go to the next question and we'll come back.

Speaker Change #106: Operator, maybe go to the next question will come back.

Mark Delaney: Alright, your next question comes from the line of Mark Delaney with Goldman Sachs. Please go ahead.

Speaker Change #107: Alright. Your next question comes from the line of Mark Delaney with Goldman Sachs. Please go ahead.

Mark Delaney: Yes, good morning. Thanks for taking the questions. First, with regard to the new 2026 outlook, I understand some of the specifics and exact quantification is a little hard to comment on. But at a high level, as you're thinking about lower revenue from some of these megatrend areas, as well as a number of the cost and efficiency actions you articulated today, on a directional basis, do you still think you can be break-even within the megatrend areas in 2026?

Mark Delaney: Yes. Good morning, Thanks for taking the questions first with regard to the new 2026 out whether I understand some of the specifics exact quantification is.

Mark Delaney: A little hard to comment on but at a high level as youre thinking about lower revenue from some of these megatrend areas as well as a number of the cost and efficiency actions you articulated today on a directional basis do you still think you can be breakeven within the mega trend.

Mark Delaney: Areas in 2026.

Seetarama Kotagiri: Good morning, Mark. I think, like you said, it's a high level; we're going through it. There's a lot of flux here and with the reduction in sales, we still have to go through the bottoms up and really not get into the details of the break even at that point of time or that specific area by area. We are looking at the big picture of what needs to be, as I said, curtailed, held, optimized as much as we can, but that is something we've got to come back to, you know. And even if it's that relevant, given the big picture of what we need to deal with, I think, Mark, the one thing I'd add.

Mark Delaney: Good morning, Mark I think like you said, it's a high level, we are going through it there is a lot of flux in here and with the.

The reduction in sales, we still have to go through the bottoms up and really not getting into the details of the breakeven at that point of time or that specific area by area.

Mark Delaney: Looking at the big picture of what needs to be curtailed.

Kurt: Kurt payout held.

Kurt: Optimize as much as we can but it's something we got to come back to.

Kurt: <unk>.

And even if its that relevant given the big picture of what we need to deal with I think mark the one thing I would add just to be clear when you look at that 2026.

Patrick McCann: I think, Mark, the one thing I'd add, just to be clear, when you look at that 2026 Reforecast we did, the sales adjustment in particular related to the EVs, it is beyond just the megatrends. So to be clear, that includes, you know, seats, mirrors, body in white. So the megatrend impact within that sales reduction of, you know, two-ish billion is much, much more beyond the megatrend

Kurt: We forecast we did the sales adjustment in particular related to the Evs.

Kurt: It is beyond just the mega trends so to be clear that includes.

Speaker Change #110: Seats mirrors body in white, so the mega trend impact within that sales reduction of.

Speaker Change #111: <unk> two ish billion is much much more beyond the mega trends.

Mark Delaney: That's helpful. Thanks for that.

Speaker Change #111: That's helpful.

Speaker Change #112: Thanks for that my other question was on Evs on the 423 call back that I had said it was investing to support our future low cost from the leading North American EV provider.

Seetarama Kotagiri: My other question was on EVs. On the 4Q23 call, Magna had said it was investing to support a future low-cost EV from a leading North American EV provider. This morning, you spoke about that program as a factor in your lower 2026 outlook, but I'm hoping to understand if sales of a lower-cost vehicle are still something Magna expects to have meaningful exposure to at that OEM, even if it's maybe not as much as you were originally thinking when it was envisioned as an all-new platform and a new factory but perhaps still some reasonable opportunity for you with a different type of low-cost Yeah, I don't want to comment.

And you spoke about that program as a factor in your lower 2026 outlook, but I'm, hoping to understand if sales for a lower cost vehicle is still something magna expects to have meaningful exposure to at that OEM, even if it's maybe not as much as you were originally thinking when it was envisioned an all new platform in a new factory, but perhaps some yes.

Speaker Change #113: Some reasonable opportunity for you with.

Speaker Change #114: Type of low cost vehicle. Thanks.

Seetarama Kotagiri: Yeah, I don't want to comment on or surmise anything at this point in time. Given customer feedback and the program timing, we have taken it out. Don't want to comment or guess on what the future could be. We obviously have conversations but don't want to go beyond that.

Speaker Change #113: Yes.

Speaker Change #115: I don't want to.

Speaker Change #116: Comment on sort of our surmise anything at this point of time, given customer feedback and if program timing we have taken it out.

Speaker Change #116: Don't want to comment our guests on what the future could be.

Speaker Change #116: Yes, we have conversations we're going to want to go beyond that.

Speaker Change #117: Understood. Thank you.

Okay.

James Picariello: Your next question comes from the line of James Picariello with BNP. Please go ahead.

Speaker Change #118: Your next question comes from the line of James Picariello O'neil with BNP. Please go ahead.

Operator: Hi, can you hear me? Okay. Yeah, yeah. All right.

Hi can you hear me okay.

Speaker Change #118: Eric.

James Picariello: I just like to double click on the 2026 targets and specifically the incremental margins. I mean, I know a lot goes into that forecast that roll up, but, you know, the implied operating leverage is almost right. It's roughly 40%. Can you just walk through and elaborate on just what, you know, what are the puts and takes that that get you? is such a high Incremental Margin on Growth, and particularly power and vision.

Speaker Change #118: Alright.

Speaker Change #119: I'd just like to double click on the 2026 targets and specifically the incremental margins I mean, I know a lot goes into that forecast that rollout but.

Speaker Change #119: Yes.

Speaker Change #120: The implied operating Leverages is almost right, it's roughly 40%.

Speaker Change #119: Can you just.

Speaker Change #120: Walkthrough elaborate on.

Speaker Change #121: What what are the puts and takes that get you.

Speaker Change #119: Hi.

Speaker Change #122: Incremental margin on the growth thanks.

Speaker Change #122: And particularly in the tower ambition.

Patrick McCann: I'm sorry, for 26, James?

Speaker Change #122: Sorry for 2006, James we're not providing 26 segment.

Speaker Change #122: So maybe.

James Picariello: Yeah, okay, just to consolidate it. I'm referring back to the previous one.

Speaker Change #123: Yeah, Okay. So just to consolidate.

Speaker Change #123: Exactly.

Speaker Change #124: The prior segment breakout for yes, so yes, just to be clear right. We did a top level adjustment and Thats why like those segment margins now we have to.

Patrick McCann: segment breakout for that. So yeah, just to be clear, right, we did a top level adjustment. And that's why, like those segment margins, now we have to, you know, they're no longer, they shouldn't be relied upon. When you think big picture, you know, the leverage on the margin pull through, you have to consider we have about 2.2 billion complete vehicles. [inaudible] sales that are coming down, and those are well below corporate averages. You also have close to a billion dollars in straight pass-through on the G. So when you work through that number, that's a sizable benefit.

Speaker Change #124: There are no longer they shouldn't be relied upon.

Speaker Change #124: When you think big picture.

Speaker Change #124: The leverage.

Speaker Change #125: On the on the margin pull through you have to consider we have about $2 2 billion of complete vehicles.

Speaker Change #125: The sales that are coming down in those those are well below corporate.

Average is you also have close to $1 billion on a straight pass through on the GE.

Speaker Change #125: You work through that number that's a sizable benefit so when youre looking at slide 24 of the all you can see it pretty sizable positive just coming out of mix I would say between the various products.

Patrick McCann: So when you're looking at slide 24 of the roll, you can see a pretty sizable positive just coming out of the mix, I would say, between the various products. I would say on the sales decline on the EVs, net of the ice, you know, that coming through at our traditional decremental margins we're seeing in our various businesses. So I think that's, that's fair. And then the same with the active

Speaker Change #126: I would say on the sales decline on the Evs net of the ice.

Speaker Change #126: That's coming through at our traditional decremental margins, we're seeing in our various businesses. So I think thats.

Speaker Change #126: That's fair and then the and then the same with the active safety on the flip side, where you see the positives for the offset it's really.

Patrick McCann: On the flip side, where you see the positives for the offsets, it's really, you know, we have a bucket of issues, but, you know, Swami and his remarks talk about we're going to reduce engineering spend that that's dropping to the bottom, lower capital resulting in lower DNA. We You know, we're restructuring. We have restructured certain operations, and we're continuing to restructure more operations. So you put them through. It does hang together. I know there is more behind it. But, you know, if you think about it in those four broad categories of buckets, as opposed to just A versus B, I think it makes much more sense.

Speaker Change #126: We have a bucket of issues, but.

Speaker Change #126: Swamy in his remarks talked about we're going to reduce engineering spend that's dropping to the bottom lower capitals, resulting in lower DNA.

Speaker Change #126: We also have.

Speaker Change #126: We're restructuring we have restructured certain operations, where continued restructure more operations. So you put them through so it does hang together I know there is more behind it but.

If you think about it in those four broad categories of buckets.

Speaker Change #126: As opposed to just a versus B I think it makes much more sense.

James Picariello: Got it. And then is there any visibility in Commercial Recoveries or Cost Savings for the second half of this year as we think about the implied EBIT, DEPA, first half to second half, you know, on an industry within an industry backdrop where the second half is certainly getting harder, right? Yet, you know, we're seeing second half reductions coming in pretty, pretty substantial.

Speaker Change #127: Got it and then is there any visibility in.

Speaker Change #127: Commercial recoveries are our cost savings for the second half of this year as well.

Speaker Change #127: Think about the implied EBIT step up first half to second half.

Speaker Change #127: Yes.

Speaker Change #129: And then just within an industry backdrop, where.

Speaker Change #127: The second half and certainly getting getting harder right.

Speaker Change #127: We're seeing seeing the second half reductions come in at a pretty substantial clip.

Seetarama Kotagiri: So, James, good morning. This is Swami.

Swamy: So James Good morning, this is swamy.

James Picariello: I think it's not the second half first half those discussions are always difficult.

Speaker Change #131: We have taken all of that into account when we talk about 2024 outlook right.

Speaker Change #132: And Theres a lot of puts and takes we've talked about.

Speaker Change #133: Productivity give back there is a commercial discussion.

Speaker Change #133: No.

Speaker Change #133: Discussions regarding volume reductions new programs.

Seetarama Kotagiri: I think this isn't the second or first time. Those discussions are always difficult, but we have taken all of that into account when we talk about the 2024 outlook, right? And there's a lot of puts and takes. We talked about, you know, high productivity, givebacks, there are commercial discussions, there are, you know, discussions regarding volume reductions, new programs. You've taken all of that into account and, you know, still feel comfortable, and that's the reason we've given the outlook, and we feel pretty good going into the second half, we will see the cadence that that outlook is reflecting. And I think, James, if you think about what we would have.

Speaker Change #133: Taken all of that into account.

Stuart Field: Stuart field.

Stuart Field: Comfortable and Thats the reason.

Stuart Field: Given the outlook can be feel pretty good going into the second half debt.

Stuart Field: We will see the cadence.

Stuart Field: The Doubleclick is reflective.

Patrick McCann: And I think James, if you think about what we would have seen last year in our 2023 margin cadence by quarter, we're expecting a similar trajectory where, you know, from day one, we were expecting our margin to improve quarter by quarter. And it's really related to commercial recoveries, you know, whether it's, you know, commercial inflation to be more in the back half of the year. And that's still what we're expecting, based on past history. So we're still seeing an uptick from Q2 into Q3, similar to what we would have seen as an incremental improvement in 23, and then further improvement into Q4.

Stuart Field: And I think James if you think about what we would have seen last year, and our 2023 margin cadence by quarter.

Speaker Change #135: It is.

James Picariello: We're expecting a similar type trajectory where from day, one we are expecting our margin to improve quarter by quarter, and it's really related to commercial recoveries.

James Picariello: Whether it's commercial inflation to be more in the back half of the year and that's still what we're expecting based on past history. So we're still seeing an uptick from Q2 into Q3 similar to what we would've seen as an incremental improvement in 'twenty three and then and then <unk>.

James Picariello: Other improvement into Q4.

Speaker Change #136: Thanks, guys.

Itay Michaeli: Your next question comes from the line of Itay Michaeli with City. Please, go ahead.

Amy <unk>: Your next question comes from the line of Amy <unk> with Citi. Please go ahead.

Itay Michaeli: Great, thank you. Good morning, everyone.

Speaker Change #137: Great. Thank you good morning, everyone.

Speaker Change #137: Just had a.

Speaker Change #140: A couple of follow ups on active safety.

Itay Michaeli: Just a couple of follow-ups on active safety. First, of the shortfall in the 2026 outlook, the $600 million, could you just mention how much of that is for the older V&E or assets as opposed to Magna? And then just, Swami, I think you alluded to it before, but the updated view on the win rates, is that just updated for China, or is that also outside of China? And then maybe you can comment on just what you're seeing for trends and active safety outside of China as well.

Speaker Change #141: First half of the shortfall in 2026 outlook.

Speaker Change #142: Can you just dimension how much of that is where the older <unk> assets as opposed to to Matt and then just Swamy I think you alluded to it before but the.

Speaker Change #143: The updated view on the win rates is that just updated for China or is that also outside of China and maybe if you can comment on just what youre seeing from quoting trends in active safety outside of China as well. Thank you.

Seetarama Kotagiri: Yeah, I think, Itay, it will be very difficult to separate whether it's V&E or, you know, call it Magna Electronics pre-V&E. To your second part of the question, I think, from my assumptions, and what I specifically talked about was related to China. And I was making a point that our exposure in China of the overall sales in ADAS is 10 to 12 percent. My comment about win rates was overall. What I was trying to make a point is, if you look at it overall, our win rates seem to be still in cadence with what we have seen in the past. To be more clear, I was saying that this is not impacting or changing as a trend overall. That's what I meant to say.

Speaker Change #143: Yes.

Speaker Change #144: It can be very difficult to separate whether it's <unk> or <unk>.

Speaker Change #145: Call It microelectronics premium here.

Speaker Change #144: To your second part of the question I think for my.

Speaker Change #144: Assumptions and what I, specifically talked about was related to China and that was making the point that.

Speaker Change #144: Exposure in China of the overall sales in Adas.

Speaker Change #146: Is that 10% to 12%.

My comment about win rates was overall, what I was trying to make a point is if you look at overall our win rates.

Speaker Change #146: Seem to be still in cadence of what we have seen in the past.

Speaker Change #146: To be more clear I was saying that this is not impacting.

Speaker Change #146: Changing as a trend overall, that's what I meant to say.

Itay Michaeli: Thanks for that clarification, Swami. In terms of just quoting activity, how's that trending along with active safety thus far this year?

Speaker Change #147: Got it thanks for that clarification Swamy just in terms of this quoting activity how is that trending along with active safety. Thus.

Speaker Change #146: Thus far this year.

Seetarama Kotagiri: And that was my point in the software architecture discussions with the, or amongst, OEMs, right? So there is a little bit of flux in how the sourcing decisions are being pushed out or moved around a little bit. But overall, I don't think we are seeing a significant change in the, call it the, assisted driving piece of ADAS. I don't see a significant difference. That's very-

Speaker Change #146: And that was my point on the software architecture discussions with them.

Speaker Change #148: Amongst Oems right.

Speaker Change #149: So there is a little bit of flux in how the sourcing decisions are being pushed out or more data than looking back.

Speaker Change #150: But overall I don't think we are seeing a significant change in the quality.

Speaker Change #150: Assisted driving piece of Adas.

Speaker Change #150: I don't see a significant change.

Itay Michaeli: Great. That's very helpful. Thank you.

Great. That's very helpful. Thank you.

Brian Morrison: Your next question comes from the line of Brian Morrison with T.D. Cohen. Please go ahead.

Speaker Change #150: Your next question comes from the line of Brian Morrison with TD Cowen. Please go ahead.

Speaker Change #150: Okay.

Operator: Hey Brian, we can't hear you.

Hey, Brian.

Brian Morrison: Can't hear you.

Brian Morrison: Sorry, Pat, I'm on mute. I just want to pull together. I appreciate the puts and takes here. This question's for you.

Brian Morrison: Alright patent.

Speaker Change #152: I just wanted to pull together I appreciate the puts and takes here. This question's for you.

Brian Morrison: In the 2024 margins, if you could just pull it all together, a sequential margin walk, you start at 5.3% this quarter, you take out the FX, I think you get up to 5.5%, 5.6%. Then you have the lower engineering costs, you talked about higher commercial recoveries from Q2 to Q3, you need to hit six to six and a half percent margins in the back half of the range. What are other factors that could get you from that low to high?

Speaker Change #153: In the 2020 for margins if you could just pull it together our sequential margin walk.

Speaker Change #154: You start at five 3% this quarter you take out the FX I think you can get up to 555, 6%.

Speaker Change #155: Then you have the lower engineering costs, you talked about higher commercial recoveries from Q2 to Q3, we need to hit 6% to six 9% margins in the back half of the range. What are the other factors that could get you to that low to high end.

Speaker Change #154: Yes.

Patrick McCann: Hey, Brian, I think broadly, when you think moving from h1 into h2, there's I talked about the cadence from Q2 to Q3 to Q4 being consistent increases, so last year. The big buckets that didn't occur in Q2, I would say, would be, number one being the commercial, where we're seeing those recoveries based on history coming in primarily in the fourth quarter. And the other big factor is that we have lower engineering net spending.

Speaker Change #156: Hey, Brian I think broadly when you think moving from <unk> into <unk> to theirs.

Speaker Change #157: <unk> talked about the cadence from Q2 to Q3 to Q4 being consistent increases sell last year.

Speaker Change #158: Big buckets.

Speaker Change #158: It didn't occur in Q2, I would say would be.

Number one being the commercial where we're seeing those recoveries based on history coming in primarily in the fourth quarter and the other big factor is we had lower engineering net spending so that the combination of our spend and timing of program recoveries and those tend to be coming back in the second half of the year.

Patrick McCann: So that's a combination of our spend and time in a program recoveries. And those tend to be coming back in the second half of the year. But on the other side, you know, we do have some weakness in volumes. And that's primarily in local currencies. It's hidden in the translation FX, Brian, but we do have lower sales activity in local currencies.

Speaker Change #158: On the other side.

Speaker Change #158: We do have some weakness in volumes and Thats, primarily in local it's hidden in the translation FX, Brian, but we do have lower sales activity.

Speaker Change #158: In local currency.

Brian Morrison: Okay, so lower engineering spend, commercial recoveries, and are there heightened benefits from restructuring as well?

Okay. So lower engineering spend commercial recoveries is there heightened benefits from restructuring as well.

Patrick McCann: Yes, but it would be third on the list. Okay.

Speaker Change #160: Yes, but it would be third on the list.

Brian Morrison: Okay. Thanks for the clarification. Great. Thanks, Brian.

Brian Morrison: Okay. Thanks for the clarification, okay. Thanks.

Brian Morrison: Thanks, Brian.

Joseph Spak: Your next question comes from the line of Joseph Spak with UBS. Please go ahead.

Brian Morrison: Your next question comes from the line of Joseph Spak.

Joseph Spak: UBS. Please go ahead.

Joseph Spak: Thanks, maybe just to follow up on this, you know, a lot of stupid answers, but can you can you just help us understand like exactly how much like half over half you think engineering will be lower?

Joseph Spak: Thanks, Matt maybe just to follow up on this.

Joseph Spak: A lot has been answered but can you can you just help us understand like exactly how much like half over half do you think engineering it will be lower.

Patrick McCann: We're not going to get into the specifics, Joe, but we talked about the two items that are the most impactful to our H1 versus H2 role.

Speaker Change #162: We're not going get into the specifics.

Joseph Spak: Joe, but we talked about the two others, though the most most impactful to our H one versus eights to roll.

Joseph Spak: Okay.

Joseph Spak: And then I guess just going back to the 26 guide and sort of James' question like with the high incrementals, I appreciate some of that color you gave, and but I guess you know part of that right you mentioned is sort of the restructuring savings, is all that related to initiatives that have already started? Or are there still more planned initiatives? And also, you talked about trying to get recoveries for UV cancellations, and I'm wondering if any of that is embedded into the

Joseph Spak: And then I guess, just going back to the 26 guidance from James' question like what's the what's the high Incrementals.

Joe: I appreciate some of that.

Speaker Change #162: The color you gave in but I guess.

Speaker Change #162: Part of that right, you mentioned that sort of.

Joseph Spak: The restructuring savings is.

Joseph Spak: Or is that related to.

Speaker Change #164: Initiatives that have already started or are there still more planned initiatives and then also you talked about trying to get recoveries for EV cancellations and I'm wondering if any of that is embedded into the forecast.

Seetarama Kotagiri: From a restructuring perspective, Joe, I think these are activities that are ongoing, some, you know, substantially done, some continuing, and, you know, some, you know. It's not just that we're not talking about this quarter of this year, right? We've been talking about operational excellence last year. Some of it, we've already started seeing the flow and the delivery of results, and for the changing market conditions, you know, some we are adding in addition to, right?

Joseph Spak: From a restructuring perspective, Joe I think these are activities that are ongoing.

Joe: Substantially done some continuing.

Joe: Some.

Speaker Change #165: It's not just we are not talking about this quarter. This year right. We've been talking about operational excellence last year. Some of it we have already started seeing the flow.

Victor: The delivery of the results and for the changing market conditions. Some we're adding an addition too right. So we talked about <unk> as an example chartered in the past we continue to add to that that's across the organization. So it's only Victor.

Seetarama Kotagiri: So we talked about CBA as an example started in the past. We continue to add to that. That's across the organization. So it's a little bit of both, right? Some that are finished, some are in progress, and a few that are in the plan. And when I say in the plan, not starting now, we contemplated that a long time ago.

Joe: Both rate some better finished some are in progress.

Joe: A few that are at the plant.

Joe: When I say implant not starting now we have contemplated that long time ago.

Joseph Spak: Right. Okay. And the recovery is for the EV program.

Joe: Alright, okay.

Joe: The recovery is for the EV programs.

Seetarama Kotagiri: It's part of the larger discussions, right? Like, it's not specific to EV programs; it's volume reductions, it's cancellations, it's push-outs, it's, you know, productivity give-backs. Mostly, all of this combined together has become a discussion with the OEM.

Speaker Change #165: It's part of the larger discussions right.

Speaker Change #167: Not specific to EV programs, it's volume reductions and cancellations push outs.

Speaker Change #165: And our productivity give back mostly all of this combined together.

Speaker Change #165: Become a discussion with the OEM.

Joseph Spak: But but that's embedded in the 26 numbers at some level of that.

Speaker Change #165: But that's embedded in the 26 numbers some some level of that.

Seetarama Kotagiri: Some level of that, but I would say it's, you know, more substantial in 24 than going into 26. Okay, thank you.

Speaker Change #165: Some level of that but I would say.

Speaker Change #165: More substantially in 'twenty, four and then going into 2006.

Speaker Change #168: Thank you.

Speaker Change #165: Okay.

Colin Langan: Your next question comes from the line of Colin Langan with Wells Fargo. Please go ahead.

Speaker Change #168: Your next question comes from the line of Colin Langan with Wells Fargo. Please go ahead.

Colin Langan: Oh, great. Thanks for taking my questions.

Colin Langan: Oh, great. Thanks for taking my questions.

Colin Langan: Just wanted to follow up the sales guidance revision is very small we saw throughout the quarter pretty big cuts from IHS.

Colin Langan: I just want to follow up. The sales guidance revision is very small. We saw throughout the quarter, you know, pretty big cuts from IHS. So I'm a little surprised we haven't seen a bigger impact on you guys, particularly with so much coming from the Detroit three. Any color on what's offsetting that? Or were you already just taking a much more conservative outlook than IHS heading into the quarter? And in any color, what's sort of keeping you offset?

Speaker Change #172: So I'm a little surprised we haven't seen a bigger impact to you guys, particularly with so much coming from the Detroit three.

Speaker Change #171: Any color on what's offsetting that <unk> already just taking a much more conservative outlook than IHS.

Speaker Change #174: Heading into the quarter.

Speaker Change #172: Color, there, what's sort of keeping the announcement.

Patrick McCann: Colin, if you remember last quarter, we held our outlook in terms of volumes to North America and Europe even though IHS was higher than we were. So I'd say that IHS ended up coming down this past quarter closer to where we were anyway. So other than our takedown and takedown in Europe this quarter for the full year, I think it was already reflected in our numbers last year. And in terms of offsets, I mean, currency is a positive for us relative to our last outlook. So we do have a little bit of decline offset by current.

Carl: Carl if you if you remember last quarter, we were we held our our outlook in terms of volumes in North America and Europe.

Speaker Change #179: Even though IHS was higher than we were so I'd say that IHS ended up coming down this past quarter closer to where we were anyway. So other than I would take down and taken down in north sorry in Europe. This quarter for the full year I think it is already was already reflected in our numbers last quarter.

Carl: And in terms of offsets I mean currency is a positive for us relative to our last outlook.

Carl: So we do a little bit of decline offset by currency.

Colin Langan: And if I look at the midpoint of guidance, on the EBIT side, it looks like most of it is only about $50 million at the midpoint. If I look at the quarter itself, there was about over $30 million of warranty and $30 million of FX. So, you know, even though sales are down slightly, these are just sort of rounding errors, or you anticipated some of these FX and warranty issues.

Speaker Change #177: Got it.

Speaker Change #179: And if I look at the midpoint of guidance.

Speaker Change #176: On the EBIT side it looks like most of it is the only like $50 million at the midpoint.

Speaker Change #184: I look at the quarter itself, there was about over $30 million of warranty and $30 million of FX. So.

Carl: Even though sales were down slightly.

Speaker Change #179: These are just sort of rounding errors or you anticipated some of these FX and warranty issues.

Patrick McCann: I think we did have some low performance on commercial items in the quarter as well. But, big picture.

Speaker Change #180: I think.

Speaker Change #184: We did have some outperformance on commercial items in the quarter as well.

Speaker Change #182: Big picture.

Colin Langan: If you think we, we... We were generally in line with our expectations for the quarter. So you're mentioning a couple of negatives. We did have some positives that offset those negatives to a certain extent. And then at the midpoint, you can see some of that lowering the 10 basis points. But I think you name two negatives, Colin; you have to pick up the positive. Yeah, somebody else being commercial. Yeah, and a little bit on operational. It was a little better than what we had.

Speaker Change #176: If you think we.

Speaker Change #186: We were generally in line with our expectations for the quarter. So youre mentioning a couple of negatives. We did have some positives that offset those negatives.

Speaker Change #188: To a certain extent and then at the mid point you can see some some of that lowering the 10th at 10 basis points.

Speaker Change #183: And I think you named two negatives call and you have to pick up the possible somebody I guess being commercial.

Speaker Change #183: Little bit on operational level better than what we had in Alaska outlook.

Colin Langan: Got it. All right. Thanks. Thanks for my questions.

Colin Langan: Got it. All right. Thanks. Thanks.

Speaker Change #183: Got it alright, thanks, guys. Thanks for taking my questions. Thanks Colin.

Speaker Change #183: Okay.

Seetarama Kotagiri: Okay, I think I've pretty assumed there are no more questions. So just want to thank everyone for listening in today. I want to reiterate what I said earlier. We remain highly focused on margin expansion, capital discipline, and free cash flow generation while ensuring we continue to invest to take advantage of future opportunities where possible. Thanks again, and have a great day.

Speaker Change #184: Okay Alright.

Speaker Change #184: Operator.

Speaker Change #191: There are no more questions. So just want to thank everyone for listening in today I wanted to reiterate what I said earlier, we remain highly focused on margin expansion capital discipline and free cash flow generation.

Speaker Change #184: Ensuring we continue to invest to take advantage of future opportunities.

Speaker Change #184: Possible.

Speaker Change #184: Thanks, again and have a great day.

Operator: This concludes today's call. Thank you all for joining us. You may now disconnect.

Speaker Change #188: This concludes today's call. Thank you all for joining you may now disconnect.

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Speaker Change #184: Sure.

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