Q1 2025 Magna International Inc Earnings Call

Hello, and welcome to the Magna International first quarter 'twenty to 'twenty five results webcast. All lines have been placed on mute to prevent any background noise. After he does speakers remarks, there will be a question and answer session. If you would like to ask a question. During this time she depressed star followed by the number one on your telephone keypad. If you would like to withdraw your question.

Operator: Hello and welcome to the Magna International First Quarter 2025 results webcast. 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 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. And as a reminder, this call is being recorded.

Press Star one again, thank you.

As a reminder, this call is being recorded.

Louis Tonelli: I would now like to hand the call over to Louis Tonelli, VP of Investor Relations. Louis, please go up. Thanks, operator.

Speaker Change: I would now like to hand, the call over to Louis Tonelli VP of Investor Relations. Louis. Please go ahead.

Louis Tonelli: Thanks, Operator, Hello, everyone and welcome to our conference call covering our first quarter 2025 results.

Louis Tonelli: Hello, everyone, and welcome to our conference call covering our first quarter 2025 results. Joining me today are Swami Kotagiri and Pat McCann. Yesterday, our Board of Directors met and approved our financial results for the first quarter of 2025 and our updated outlook. We issued a press release this morning outlining our results.

Speaker Change: Joining me today are swamy quite a gerry.

Speaker Change: Mccann.

Speaker Change: Yesterday, our board of directors met and approved our financial results for the first quarter of 'twenty, five and our updated outlook.

Speaker Change: The press release this morning outlining our results.

Louis Tonelli: You'll 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, discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. 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.

Speaker Change: You'll 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 Dot com.

Speaker Change: Before we get started just as a reminder, this.

Speaker Change: Question today may contain forward looking information or forward looking statements within the meaning of the 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 the reminder, slide included in our presentation that relates to our commentary today with that I'll pass it over to Swamy.

Louis Tonelli: Please also refer to the reminder slide included in our presentation that relates to our commentary today.

Swami Kotagiri: With that, I'll pass it over to Swami. Thank you, Louis. Good morning, everyone. I appreciate you joining our call today.

Swamy: Thank you Louis good morning to everyone. I appreciate you joining our call today.

Before we start.

Swami Kotagiri: Before we start, I want to express our deep sadness here at Magna with the passing of our former CFO, Vince Gallippi. Vince was not only a remarkable leader, but also a cherished colleague, mentor, and a friend to me and many of us. Vince's contributions to Magna over his 30-plus year career were invaluable, including playing a crucial role in shaping our financial strategies, providing stability, and ensuring a disciplined, profitable growth. Many of you listening in today benefited from his knowledge, wisdom and insight.

Swamy: Want to express our deep sadness here at Magna the passing.

Speaker Change: Our former CFO Vince <unk>.

Swamy: Vince was not only a remarkable leader.

Swamy: Also curious colleague mentor and a friend to me and many of us.

Swamy: <unk> contributions to magna or his 30, plus year career, where invaluable.

Swamy: Including playing a crucial role in shaping our financial strategies, providing stability and ensuring disciplined profitable growth.

Swamy: Many of you listening in today benefited from his knowledge wisdom and insight.

Swami Kotagiri: As we mourn his loss, we also celebrate his life and the profound influence he had on man.

Swamy: As we mourn his loss we also celebrate his life.

Swamy: And the profound influence you had on that now.

Swamy: There are some notable takeaways from the quarter that I would like to highlight before getting into some of the details.

Swami Kotagiri: There are some notable takeaways from the quarter that I would like to highlight before getting into some of the details. We are pleased that our Q1 results came in ahead of our quarterly planning cadence, mainly reflecting strong incremental margin on higher sales. You may recall that in our February call, I mentioned that the first half of 2025 would be weaker than the second half, and of the first two quarters, Q1 would be weaker. We returned $187 million to shareholders in the first quarter in the form of dividends and share repurchase. Despite increased uncertainty due to the current tariff environment, we have updated our outlook, which includes Higher sales largely due to foreign currency translation, partially offset by slightly lower vehicle production in North America.

Swamy: We are pleased that our Q1 results came in ahead of our quarterly planning cadence.

Swamy: Mainly reflecting strong incremental margin on higher sales.

Swamy: You may recall that in our February call I mentioned that the first half of 2025.

Swamy: Would be weaker than the second half.

Swamy: And of the first two quarters Q1 would be weaker.

Swamy: We returned $187 million to shareholders in the first quarter in the form of dividends and share repurchases.

Swamy: Despite increased uncertainty due to the current tariff environment, we have updated our outlook, which includes <unk>.

Swamy: Higher sales largely due to foreign currency translation, partially offset by slightly lower vehicle production in North America.

Swami Kotagiri: and a modest reduction in margin mainly due to the higher Euro and decremental margins related to the North American volume reduction. We continue to work closely with our customers to mitigate the tariff impacts and adjust in this rapidly evolving environment, focusing on what is under our control, including cost containment efforts. And we have clearly communicated to our customers our intention to pass on any unmitigated incremental tariff costs. We continue to win new business and advance automotive technology. We are collaborating with NVIDIA for next generation scalable active safety and autonomous driving systems, as well as other applications.

Swamy: And a modest reduction in margin, mainly due to the higher euro and decremental margins related to the North American volume reduction.

Swamy: We continue to work closely with our customers to mitigate the tariff impact and adjust in this rapidly evolving environment.

Swamy: <unk> on what is under our control, including cost containment efforts.

Swamy: And we have clearly communicated to our customers our intention to pass on any unmitigated incremental tariff costs.

Swamy: We continue to win new business and advance automotive technologies.

Swamy: We are collaborating with Nvidia for next generation scalable active safety and autonomous driving systems as well as other applications.

Swamy: We have been awarded a new complete Adas system with a north American based global OEM.

Swami Kotagiri: We have been awarded a new complete ADAS system with a North American-based global OEM. And we are supplying a two-speed dual motor eDrive with advanced off-road technology for Mercedes-Benz. Our customers and the industry continue to recognize Magna for excellence in launch and innovation. We recently won GM Supplier of the Year and Overdrive Award. and Automotive News recently selected our AI-based thermal sensing technology as a 2025 ace pilot innovation to watch.

Swamy: And we are supplying a two speed dual motor E drive with advanced offload technology for Mercedes Benz.

Our customers and the industry continue to recognize magnet for excellence in launch and innovation.

Swamy: We recently won GM supplier Allstate, your and Overdrive Awards.

Swamy: And automotive news recently selected our AI based thermal sensing technology as a 2025 paid pilot innovation to watch.

Swamy: As I said earlier the industry is facing a high degree of uncertainty.

Swami Kotagiri: As I said earlier, the industry is facing a high degree of uncertainty as a result of the tariff and trade-in run. Let me frame tariffs in the context of Magna. Last year, our North American business was about $20 billion, or less than half of our global sales. In 2024, we imported roughly $2 billion of goods from countries, including Canada and Mexico, that are subject to tariffs, which would result in roughly $500 million in gross tariff costs. Based on our analysis to date, 75 to 80% of our parks crossing the border are already USMCA compliant. which puts our 2025 annualized direct tariff impact estimate at about $250 million.

Swamy: As a result of the tariff and trade environment.

Swamy: Let me frame tariffs in the context of Magnum.

Swamy: Last year, our North American business was about $20 billion.

Swamy: Less than half of our global sales.

Swamy: In 2024, we imported roughly $2 billion of goods from countries, including Canada and Mexico.

Swamy: Subject to tariffs, which will result in roughly $500 million.

Swamy: And gross tariff costs.

Swamy: Based on our analysis to date, 75% to 80% of our parts crossing the border.

Swamy: Already Usmc of compliance.

Swamy: Which puts our 2025 annualized direct tariff impact estimate at about $250 million.

Swamy: We continue to evaluate options that will further increase U S MCA compliance to mitigate tariff impacts.

Swami Kotagiri: We continue to evaluate options that will further increase USMCA compliance to mitigate tariff impacts. In some instances, it will require design modifications, validation, and or customer approvals. We will continue to evaluate the full scope of this opportunity. As a result, we are highly focused on working with customers to consider further mitigation opportunities, utilizing government remission programs where appropriate. continuing cost reduction programs already in place and remaining disciplined with capital spend. As I said at the outset, we expect 100% of unmitigated incremental direct tariff costs to be recovered from customers.

Swamy: In some instances it will require design modifications validation and our customer approvals, we will continue to evaluate the full scope of these opportunities.

Swamy: As a result, we are highly focused on working with customers to consider further mitigation opportunities Utah.

Swamy: Utilizing governmental emission programs where appropriate.

Swamy: Continuing cost reduction programs already in place.

Swamy: The remaining disciplined with capital spend.

Swamy: As I said at the outset, we expect 100% of unmitigated incremental direct tariff costs to be recovered from customers.

Swamy: Next slide.

Swami Kotagiri: I will cover our updated outlook. Uncertainty in the current business environment caused by tariffs and other trade measures has made forecasting more challenging than normal. Our outlook reflects our strong first quarter performance and near-term OEM production release information, including announced production downtime at certain OEM assembly facilities. Our production assumptions do not contemplate the potential impacts of tariffs. and other trade measures on vehicle costs, vehicle affordability or consumer demand nor the impact of these on vehicle production. Relative to our previous outlook, we have reduced North American production by about 100,000 units to 15 million. held Europe production unchanged and have raised our China production assumptions by roughly our Q1 outperformance to 30.2 million units.

Swamy: I will cover our updated outlook.

Swamy: Uncertainty in the current business environment caused by Paris, and other trade measures has made forecasting more challenging than normal.

Swamy: Our outlook reflects our strong first quarter performance and near term OEM production release information.

Swamy: Excluding announced production downtime at certain OEM Assembly facilities.

Swamy: Hog production assumptions do not contemplate the potential impacts of tariffs and.

Swamy: And other trade measures on vacant cost vehicle affordability, our consumer demand nor the impact of these on way to production.

Swamy: Relative to our previous outlook, we have reduced north American production by about 100000 units to $15 million.

Swamy: Hello, Europe production unchanged and have raised our China production assumptions by roughly our Q1 outperformance to $30 2 million units.

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

Swami Kotagiri: We also assume exchange rates in our outlook will approximate recent rates. We now expect a higher euro and Canadian dollar for 2025 relative to our previous outlook. The increase in our sales range is predominantly associated with foreign exchange translation due to the higher euro relative to the US dollar. partially offset by lower vehicle production in North America, particularly with respect to certain programs with high magna content. The lowering of EBIT margin range reflects the margin dilutive impact of Euro-US dollar translation, as well as decremental margin on the lower sales associated with the volume reductions in North America.

Swamy: We now expect a higher euro and Canadian dollar for 2025 relative to our previous outlook.

Swamy: The increase in our sales range is predominantly associated with foreign exchange translation due to the higher euro relative to the U S dollar.

Swamy: Partially offset by lower vehicle production in North America, particularly with respect to certain programs with high Magna content.

Swamy: The lowering our EBIT margin range reflects the margin dilutive impact of Euro U S. Dollar translation as well as decremental margin on the lower sales associated with the volume reductions in North America.

Swami Kotagiri: We increased our tax rate to approximately 26% from approximately 25% mainly due to mix of earnings. We expect capital spending to be in the $1.7 to $1.8 billion range, down slightly from $1.8 billion previously, reflecting our continuing efforts to differ or reduce capital wherever possible. And our interest expense, net income, and free cash flow ranges are all unchanged from our last outcome.

We increased our tax rate to approximately 26% from approximately 25% mainly due to mix of earnings.

Swamy: We expect capital spending to be in the one seven to one $8 billion range down slightly from $1 8 billion previously, reflecting our continuing efforts to defer or reduce capital wherever possible.

Swamy: And our interest expense net income and free cash flow ranges are all unchanged from our last outlook.

Swamy: In addition, we are providing some helpful financial modeling guidance with respect to Magnum.

Swami Kotagiri: In addition, we are providing some helpful financial modeling guidance with respect to MAG. Our average content per vehicle in North America is approximately $1,300. And we would estimate incremental and decremental margins in North America to be in the 15 to 20 percent range at the magna level under normal conditions. We have also seen relatively volatile foreign exchange rate swings over the past few months. As you model sales, keep in mind that a one cent change in the euro USD rate has about a 110 million dollar impact on annual sales with a margin below our corporate average.

Swamy: Our average content per vehicle in North America is approximately <unk> hundred dollars.

Swamy: And we would estimate incremental and decremental margins in North America to be in the 15% to 20% range at the Magna level.

Swamy: The normal conditions.

Swamy: We have also seen relatively volatile foreign exchange rates swings over the past few months.

Swamy: As you model sales keep in mind that a one cent change in the Euro USD rate has about a $110 million impact on annual sales is a margin below our corporate average.

Swami Kotagiri: And a one cent change in the Canadian to US dollar is about 50 million in annual sales, with a margin at about our corporate average.

Swamy: And it <unk> change in the Canadian to U S. Dollar is about $50 million in annual sales with the margin at about our corporate average.

Swami Kotagiri: Lastly, we are proactively evaluating costs and capital. I would like to reiterate that our guiding principles remain the cornerstone of MAGNA. a long-term ownership mentality that starts with our culture of accountability and alignment of interests at all levels of the company. Managing our portfolio under a consistent set of criteria and dispassionately assess our product lines in terms of the markets, market positions, and returns. Maintaining a strong balance sheet to have the financial flexibility to manage through the cyclicality of our industry and a capital allocation strategy that entails a long-term balance of investing for profitable growth together with returning capital to shareholders.

Swamy: Lastly, we are proactively evaluating cost and capital.

Swamy: I would like to reiterate that our guiding principles remain the cornerstone of Magna.

Swamy: A long term ownership mentality that starts with our culture of accountability and alignment of interests at all levels of the company.

Swamy: Managing our portfolio under a consistent set of criteria and dispassionately assess our product lines in terms of the markets market positions and returns.

Swamy: Maintaining a strong balance sheet to have the financial flexibility to manage through the cyclicality of our industry and our capital allocation strategy that entails a long term balance of investing for profitable growth together with returning capital to shareholders.

Swami Kotagiri: Regardless of where we are in the cycle or challenges we are facing, these overarching principles govern the way we manage MAGNA for long-term success.

Swamy: Heartlands of where we are in the cycle our challenges we are facing.

Swamy: This overarching principles governing the way, we manage magna for long term success with that.

Pat McCann: With that, I'll pass the call over to Pat. Thanks, Swami. And good morning, everyone. As Swami indicated, we delivered solid first quarter earnings ahead of our expectations.

Pat: Pass the call over to Pat.

Pat: Thanks, Paul and good morning, everyone.

Speaker Change: As <unk> indicated we delivered solid first quarter earnings ahead of our expectations.

Pat McCann: recall that we indicated on our February call that we expected our 2025 earnings to be lowest in the first quarter of the year. Now comparing the first quarter of 2025 to the first quarter of 2024. Consolidated sales were $10.1 billion, down 8% compared to a 3% decline in global light vehicle production. Adjusted EBIT was $354 million and adjusted EBIT margin was 3.5 percent. Adjusted EPS came in at $0.78, down 28% year over year, primarily due to decremental margins on lower sales, but ahead of our expectations. And free cash flow used in the quarter was $313 million, ahead of our expectations, and compared to $270 million in the first quarter of 2024.

Speaker Change: Recall that we indicated on our February call that we expected our 2025 earnings to be lowest in the first quarter of the year.

Now comparing the first quarter of 2025 to the first quarter of 2024.

Speaker Change: Consolidated sales were $10 1 billion down 8% compared to a 3% decline in global light vehicle production.

Speaker Change: Adjusted EBIT was $354 million and adjusted EBIT margin was three 5%.

Speaker Change: Adjusted EPS came in at 78.

Speaker Change: Around 28% year over year, primarily due to decremental margins on lower sales, but ahead of our expectations.

Speaker Change: And free cash flow used in the quarter was $313 million ahead of our expectations and compare it to $270 million in the first quarter of 2024.

Pat McCann: Let me take you through some of the details. North American and European light vehicle production decreased 5% and 8% respectively. and production in China increased 2% netting to a 3% decrease in global production. On a sales weighted basis, light vehicle production declined 5% from the prior year. Our consolidated sales were $10.1 billion, compared to $11 billion in the first quarter of 2024. On an organic basis, our sales decreased 6% year over year for a negative 1% growth over market in the quarter, in part reflected Negative production next from lower D3 production in North America. Lower Light Vehicle Production.

Speaker Change: Let me take you through some of the details.

Speaker Change: Yeah.

Speaker Change: North American and European light vehicle production decreased 5% and 8%, respectively and production in China increased 2% netting to a 3% decrease in global production.

Speaker Change: On a sales weighted basis light vehicle production declined 5% from the prior year.

Speaker Change: Our consolidated sales were $10 1 billion compared to <unk> 11 billion in the first quarter of 2024.

Speaker Change: On an organic basis, our sales decreased 6% year over year for a negative 1% growth over market in the quarter in part reflecting negative production mix from lower <unk> production in North America.

Speaker Change: Lower light vehicle production.

Pat McCann: A decline in complete vehicle assembly volumes, including the end of production of the Jaguar E and I-Pace in Graz, Austria. the end of production of certain other programs. The divestiture of a controlling interest in our metal forming operations in India. The impact of changes in foreign exchange rates and normal course customer price give back. These were partially offset by the launch of new programs, higher commercial recoveries, and customer price increases to recover certain higher production input costs. Adjusted EBIT was $354 million, and adjusted EBIT margin was 3.5%, down 80 basis points from Q1 2024. The lower EBIT percent in the quarter reflects positive 60 basis points from operational items reflecting operational excellence activities, lower engineering spend, and lower net input costs, harshly offset by higher new facility costs.

Speaker Change: A decline in complete vehicle assembly volumes, including the end of production of the Jaguar E pace in Graz, Austria.

Speaker Change: The end of production of certain other programs.

Speaker Change: The divestiture of a controlling interest in our metal forming operations in India.

Speaker Change: The impact of changes in foreign exchange rates and normal course customer price give backs.

Speaker Change: These were partially offset by the launch of new programs.

Speaker Change: Commercial recoveries.

Speaker Change: And customer price increases to recover certain higher production input costs.

Adjusted EBIT was $354 million and adjusted EBIT margin was three 5% down 80 basis points from Q1 2024.

Speaker Change: The lower EBIT percent in the quarter reflects.

Speaker Change: Positive 60 basis points from operational items, reflecting operational excellence activities.

Speaker Change: Our engineering spend and lower net input costs, partially offset by higher new facility costs.

Speaker Change: Negative 15 basis points related to lower equity income as a result of lower net favorable commercial items higher net transactional FX losses and reduced earnings on lower sales, partially offset by lower launch costs, all with respect to certain equity accounted investments.

Pat McCann: Negative 15 basis points related to lower equity income as a result of lower net favourable commercial items, higher net transactional FX losses, and reduced earnings on lower sales, partially offset by lower launch costs, all with respect to certain equity-accounted investments. negative 10 basis points for tariff costs paid out but not yet recovered from customers and volume and other items which impacted us by negative 150 basis points reflecting reduced earnings on lower sales and lower net transactional FX gains. In net discreet items, higher net savable commercial items was completely offset by higher net warranty costs and higher restructuring costs not called out as unusual.

Speaker Change: Negative 10 basis points for tariff costs paid out, but not yet recovered from customers.

Speaker Change: <unk> <unk>.

Speaker Change: Volume and other items, which impacted us by negative 150 basis points, reflecting reduced earnings on lower sales and lower net transactional FX gains.

Speaker Change: In net discrete items higher net favorable commercial items was completely offset by higher net warranty costs and higher restructuring costs not called out as unusual.

Speaker Change: Interest was essentially in line with last year.

Pat McCann: Interest was essentially in line with last year. Our adjusted effective income tax rate came in at 25.7%, higher than Q1 of last year, primarily due to higher losses not benefited in Europe, unfavorable foreign exchange adjustments for U.S. GAAP purposes, and a change in the mix of earnings. partially offset by favorable changes in our reserves for uncertain tax positions. Net income was $219 million compared to $311 million in Q1 2024. mainly reflecting lower EBIT, partially offset by lower income tax and lower minority interest. and Adjusted EPS was $0.78 compared to $1.08 last year reflecting lower net income partially offset by fewer diluted shares outstanding.

Speaker Change: Our adjusted effective income tax rate came in at 25, 7% higher than Q1 of last year, primarily due to higher losses not benefited in Europe.

Speaker Change: Favorable foreign exchange adjustments for U S GAAP purposes, and a change in the mix of earnings.

Speaker Change: Partially offset by favorable changes in our reserves for uncertain tax positions.

Speaker Change: Net income was $219 million compared to $311 million in Q1 2024.

Speaker Change: Mainly reflecting lower EBIT, partially offset by lower income tax and lower minority interest.

Speaker Change: And adjusted EPS was <unk> 78.

Speaker Change: Compared to a $1 eight last year.

Speaker Change: Reflecting lower net income, partially offset by fewer diluted shares outstanding.

Speaker Change: The fewer shares outstanding largely reflects share repurchases in the fourth quarter of 2024, and the first quarter of 2025.

Pat McCann: The fewer shares outstanding largely reflects share repurchases in the fourth quarter of 2024 and the first quarter of 2025.

Speaker Change: Turning to a review of our cash flows and investment activities in.

Pat McCann: Turning to a review of our cash flows and investment activity. In the first quarter of 2025, we generated $547 million in cash from operations before changes in working capital and used $470 million in working capital. Investment activities in the quarter included $268 million for fixed assets and $148 million increase in investments, other assets, and intangibles. Overall, we used free cash flow of $313 million in Q1, better than we were forecasting and compared to $270 million in the first quarter of 2024. And we continue to return capital to shareholders, paying $136 million in dividends, along with $51 million in share repurchases during the first quarter of 2025.

Speaker Change: In the first quarter of 2025, we generated $547 million in cash from operations before changes in working capital and used $470 million in working capital.

Speaker Change: Investment activities in the quarter included $268 million for fixed assets and $148 million increase in investments other assets and intangibles.

Speaker Change: Overall, we used free cash flow of $313 million in Q1.

Speaker Change: Better than we were forecasting and compared to $270 million in the first quarter of 2024.

Speaker Change: And we continue to return capital to shareholders paying $136 million in dividends, along with $51 million in share repurchases during the first quarter of 2025.

Speaker Change: Our balance sheet continues to be strong with investment grade ratings from major credit agencies at the end of Q1, we had just under $4 6 billion in liquidity, including about $1 $1 billion in cash.

Pat McCann: Our balance sheet continues to be strong with investment grade ratings from the major credit agencies. At the end of Q1, we had just under $4.6 billion in liquidity, including about $1.1 billion in cash. Currently, our adjusted debt to adjusted EBITDA ratio is at 1.92, better than we had anticipated coming into the quarter.

Speaker Change: Currently our adjusted debt to adjusted EBITDA ratio is at 192, better than we had anticipated coming into the quarter.

Speaker Change: In summary, we had solid financial performance in the quarter ahead of what we had expected.

Pat McCann: In summary, we had solid financial performance in the quarter, ahead of what we had expected. We returned $187 million to shareholders in the quarter in the form of dividends and share repurchases. We updated our outlook, excluding the impacts of tariffs, which includes higher sales largely due to foreign currency translation, partially offset by lower volumes in North America, and a modest reduction in margin, mainly due to the higher euro and decremental margins related to North American volume reduction. And we are working closely with our customers to mitigate tariff impacts and adjust in a rapidly evolving environment.

Speaker Change: We returned $187 million to shareholders in the quarter in the form of dividends and share repurchases.

Speaker Change: We updated our outlook, excluding the impacts of tariffs, which includes higher sales largely due to foreign currency translation, partially offset by lower volumes in North America.

Speaker Change: And a modest reduction in margin, mainly due to the higher euro and decremental margins related to North American volume production.

Speaker Change: And we are working closely with our customers to mitigate tariff impacts and adjust in a rapidly evolving environment.

Speaker Change: Thanks for your attention. This morning, we will be happy to take your questions.

Pat McCann: Thanks for your attention this morning.

Operator: We would be happy to take your questions. We will now begin the question-and-answer session. If you would like to ask a question, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.

Speaker Change: We will now begin the question and answer session. If you would like to ask a question see depressed star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.

Speaker Change: And your first question comes from the line of John Murphy with Bank of America. John. Please go ahead.

John Murphy: And your first question comes from the line of John Murphy with Bank of America. John, please go ahead. Good morning guys.

John Murphy: Good morning, guys very sorry to hear about Vince it's tough games for all of US I think we all learned a lot from and he was great friends. So that's.

John Murphy: I'm very sorry to hear about Vince. It's tough news for all of us. I think we all learned a lot from him. He was a great friend. So, that's a rough way to start the call. Thoughts are out to all you guys.

Speaker Change: That's rough rough way to start the call.

John Murphy: Thoughts around to all of you guys.

John Murphy: Thank you.

John Murphy: I guess first here, maybe kind of thinking sort of mid to long term swarming, you know, on the seeding business, you know, it just seems like even, you know, adjusting for tariffs, you know, the business remains kind of kind of tough. I'm just curious, you know, as you think about that business, you know, mid to long term, you know, if there's something you need to do on a micro basis, you know, organically, or do you need to get larger scale? Because there's a lot of other folks out there that are that are kind of tripping over that business as well.

Hi, I guess first here, maybe kind of thinking sort of mid to long term swamy.

John Murphy: On the seating business it just seems like even.

John Murphy: <unk> for tariffs.

John Murphy: The business remains kind of kind of tough I'm just curious as you think about that business mid to long term if.

John Murphy: There is something you need to do on a on a micro basis organically.

John Murphy: Or do you need to get.

John Murphy: Larger scale, because there are a lot of other folks out there that are kind of tripping over that business as well.

John Murphy: And it seems like it should be an okay business, but it seems like you just can't get it to turn the corner. What are your thoughts there on?

John Murphy: And it seems like it should be an okay business, but it seems like you just can't get it to turn the corner what are your thoughts around seating.

John Murphy: Good morning, John and thanks for your comments.

Swami Kotagiri: Good morning, John, and thanks for your comments. On the seating, I don't know if you caught it, the big topic, the one time which is behind us was a 30 million magnitude warranty topic that's included in the quarter right now, and that's behind us. Operationally, continuing to look at what we had last year and what we had in the past, it continues to track. Given the volatility and, you know, the program that we talked about in South Carolina and it comes on board for next year, the macro variables that we talked about in seeding as a business hasn't changed.

John Murphy: On the seating I don't know if you caught it.

John Murphy: The one time between behind Us for the 30 million.

John Murphy: Magnitude.

John Murphy: Warranty topics.

John Murphy: Thats included in the cargo right moment, that's behind us.

John Murphy: Additionally, continuing to look at what we had last year and more to be had in the past.

John Murphy: It continues to track.

John Murphy: Given the volatility in the program that we've talked about in South Carolina and it comes on board for next year, the macro variables that we've talked about in seeding of the business hasn't changed.

Swami Kotagiri: From an operations perspective, the execution plans that we have been talking about stay on track. But, you know, in the bigger context, not just the seeding, John, we, as I mentioned before, we continue to look at all product lines. So that's always a part of the process. Okay.

John Murphy: From an operations perspective, the execution plans that we have been talking about stay on track.

John Murphy: But.

John Murphy: In the bigger context, not just to seating.

Speaker Change: We as I mentioned before we continue to look at all the product line. So that's always a part of the process.

John Murphy: Okay.

John Murphy: And then just a second question, as you think about tariffs, and I hate to harp on this. Yesterday, the Customs Border Patrol, they put out a sort of a notice that seems to be an indication that USMCA-compliant parts are going to remain on tariff beyond sort of the 90-day review, would certainly be on May 3rd, and it seems like that may be in perpetuity. I'm just curious what you're hearing there, and if that's correct interpretation, because that would create some pretty extreme relief for you guys here, at least in North America. John, I read that report and you're absolutely right.

John Murphy: And then just a second question as you think about tariffs and I hate to harp on this yesterday, the customs border patrol that they put out a sort of a notice that seems to be an indication that U S. MCA compliant parts are going to remain on tariff beyond sort of the 90 day review with certainly beyond May 30, it seems like that.

John Murphy: May be in perpetuity I'm just curious what your.

John Murphy: Hearing there and if thats correct interpretation, because that would create some pretty extreme relief for you guys here at least in North America.

John Murphy: John.

John Murphy: That report and Youre, absolutely right I think I've mentioned in the call we had about <unk>.

Swami Kotagiri: I think I mentioned in the call, we are about, that's where the focus has been. We have had work streams looking at, you know, in intricate detail of every part that, you know, crosses the border. We are about between 75 to 80% USMCA compliant. A lot of discussions on how to take that percentage up. Yes, definitely that gives a lot more certainty and relief in our planning process. And that is the assumption that we are going with and hope to get some more clarity and certainty on that decision.

John Murphy: That's where the focus has been we have had work streams looking at.

John Murphy: Right.

John Murphy: Intricate detail our favorite part.

John Murphy: No.

John Murphy: Crosses the border <unk> between 75% to 80% U S. MCA combined a lot of discussions on how to take that percentage up.

John Murphy: Yes, definitely that gives us a lot more certainty and beliefs.

John Murphy: Our planning process.

John Murphy: And that is the assumption that we are going with and hope to get some more sporadic Tms certainly beyond that.

John Murphy: And maybe just to follow on that I mean as far as schedule changes.

John Murphy: And maybe just to follow on that, I mean, as far as schedule changes and program launch changes, what have you heard from automakers so far? It seems like everybody's kind of trying to plow ahead without making significant changes yet. Have you seen big changes in short-term schedules or potential program launches for the second half of this year or maybe even into next year? John, we have not, not just looking at releases. So first, to address the releases, right, April seemed pretty aligned with our planning. May, from a visibility perspective, also looks normal. But we always have been thinking about depending on any announcements that might change pretty quickly.

John Murphy: And program launch changes.

John Murphy: As you heard from automakers, so far it seems like everybody's kind of trying to plough ahead without making significant changes yet have you seen big changes in short term schedules or potential program launches.

John Murphy: The second half of this year or maybe even into next year.

Speaker Change: John we have not not just looking at the reserves. So go.

Speaker Change: To address the recent strike April seemed pretty aligned with our planning may from a reasonably perspective also looks normal but.

Speaker Change: All of this have been thinking about depending on.

Speaker Change: Any announcements that might change pretty quickly, but as we see today it looks pretty aligned.

Swami Kotagiri: But as we see today, it looks pretty aligned. And obviously, we don't stop just by looking at the data here. We have been in conversations with OEMs at least two or three times a week at my level even to get a understanding and not depend only on the releases. Overall, we have not seen any changes in terms of planning or in terms of production schedules, at least from the programs that we are involved with. But even at a macro level, we are not seeing it. A lot of discussions on how to get more USMCA compliance for sure, but that's where the chips fall today.

Speaker Change: And obviously, we don't stop just by looking at the.

Speaker Change: The data here, we have been in.

Speaker Change: Conversations with Oems at least two or three times a week at my level even to get a.

Speaker Change: Understanding and not dependent only underneath us.

Speaker Change: Overall, we have not seen any changes in terms of planning in terms of production schedules.

Speaker Change: At least from the programs that we had in August but even at a macro level. We are not seeing a lot of discussions on how to get more U S. MCA compliance for sure, but that's where the.

Speaker Change: The chip spoke today.

John Murphy: And then just lastly, China seems like it's showing some relative strength and absolute strength relative to expectations. Can you just remind us of your of your footprints or your mix of customers there, domestic, Chinese OEMs versus international? Yeah, it happens to be we were in China about just three weeks ago. About five and a half billion dollars of revenue is from China. Of that, just about over 60-65% of the business is with Chinese OEMs. And they are, I would say, largely joined with five to six customers, the major Chinese OEMs there. If you remember, we started in China predominantly with all the Western OEMs and we've been able to move that mix from 10% to 65 plus percent or in that range today.

Speaker Change: And then just just lastly, China seems like it's showing some relative strength in absolute strength relative to expectations can you just remind us of your of your footprint or your mix of customers they're domestic.

Speaker Change: Chinese Oems versus international.

Speaker Change: Yes.

Speaker Change: Happens to be where in China, We're just two weeks ago.

Speaker Change: Climate at $5 billion of our revenue is from China.

Speaker Change: Then just about over 60% 65% of the business.

Speaker Change: He is with Chinese Oems.

Speaker Change: And there I would say largely John with five to six customers.

Speaker Change: The major Chinese Oems there if you remember we started in China predominantly with all the rest from Oems and we have been able to move.

Speaker Change: Move that mix from 10% to 65 plus percent or in that range. Today. So we continue to gain traction even last year, we grew at 15%.

Swami Kotagiri: So, we continue to gain traction. Even last year, we grew at 15%, you know, in China compared to the roughly 5% that China market was going. So, we feel pretty good about it. We're deliberate which product, which customer, but we continue to gain or improve our mix there. I mean, I thought just about a year ago that was 50-50. It did move that quickly. No, John, your numbers are correct. We continue to make good progress and have traction.

Speaker Change: In China compared to the roughly 5% of that China market is growing so we feel pretty good about it we are deliberate reached product reach customer, but we continue to gain.

Speaker Change: Improve our mix there.

Speaker Change: So let me ask just about a year ago that was 50 50, I mean did it move that quickly or Where's my number yes.

Speaker Change: It did with equity.

Speaker Change: Your numbers are correct, we continue to make good progress and have traction.

John Murphy: Great. Thank you very much, guys. John. Thanks, John.

Speaker Change: Great. Thank you very much guys.

Scott: Scott Thanks, Sean.

Speaker Change: And your next question comes from the line of Tommy Chen with BMO capital markets. Please go ahead.

Tamy Chen: And your next question comes from the line of Tamy Chen with BMO Capital Markets.

Tamy Chen: Tamy, please go ahead. Hi, good morning. Thanks for the question. First, I just wanted to clarify. So, Swami and Pat, the annualized tariff exposure this year, you said $250 million. So, so my to interpret that is essentially the COGS exposure from you importing into your U.S. plants parts from Canada and Mexico. And are you saying this, this number you believe you would get 100% recovery from your customers?

Scott: Hi, good morning, Thanks for the question.

First I just wanted to clarify so.

Scott: So on the impact the annualized tariff exposure. This year, you said $250 million. So so much interpret that as essentially the.

Scott: Cogs exposure of Sun.

Scott: You are inputting into your U S plans.

Scott: Okay.

Scott: Canada, and Mexico and are you seeing this this number you believe you would get 100% recovery from your customers.

Speaker Change: So Tommy good morning.

Swami Kotagiri: So, Tamy, good morning. First, yes, what you said, there are 250 million we are talking about where we are the importer of record for tax. Beyond Canada and Mexico. China and what not. China and Europe, although those numbers are smaller, but it's a very comprehensive. second Obviously, our first initiative is to mitigate that as much as possible with all our internal actions, resourcing, rebalancing, continuing to work with our customers to increase the U.S. compliance. Some of it might need design modifications or validations or, you know, the production part approval process, and we're working with them and will continue to.

Speaker Change: Yes, what you said there are $250 million, we're talking about <unk>.

Speaker Change: Record Cortex, Canada, Mexico, Canada, Mexico, China, and whatnot, China, and Europe, although those numbers are smaller, but its a very comprehensive.

Speaker Change: Second.

Speaker Change: Obviously, our post.

Speaker Change: The initiative is to mitigate that as much as possible with all of our internal actions.

Speaker Change: Resourcing rebalancing continuing to work with our customers to increase the U S.

Speaker Change: Some of it might need design.

Speaker Change: Vacations or validation.

Speaker Change: The production part of the approval process and we are working with them and we'll continue to do so now anything that is remaining past all of those efforts, yes, our intent is to pass it onto the customer study.

Swami Kotagiri: So now, anything that is remaining past all those efforts, yes, our intent is to pass it on to the customers.

Speaker Change: Yes.

Speaker Change: Okay understood.

Tamy Chen: Okay, understood. And yeah, on that, with respect to increasing USMCA compliance, and also I'm curious, if at this point, well, I think first of all, you said a lot of discussions around that, you know, increasing USMCA compliance with your customers. I'm also wondering, most recently, after we've got a little bit of relief and clarity earlier this week, do you also believe your customers may be thinking more about increasing US content, not just USMCA compliance? And can you talk a little bit more about between the two of them? What that means for you, incremental capital investments?

Speaker Change: Yes on that.

Speaker Change: With respect to increase in the U S. One pay compliance and also I'm curious.

Speaker Change: At this point well I think first of all you said lot of discussions around that increasing U S. MCA compliance with your customers.

Speaker Change: Also wondering.

Speaker Change: Most recently after we got a little bit of relief in clarity earlier. This week do you also believe your customers may be thinking more about encouraging U S contact not just you.

Speaker Change: Usmc compliance can you talk a little bit more about between the two of them.

Speaker Change: What that means for you incremental capital investment what do you what do you need to do how does that impact you. If both of those things continue from here.

Swami Kotagiri: What do you, you know, what do you need to do? How does that impact you if both of those things continue from here? Yeah, I think, Tamy, it's only fair to say that all scenarios have are being considered. But from what we're hearing, even in my discussions, I think it is not a knee jerk reaction. Given the capital allocation and the magnitude of what's being discussed, they're looking at very carefully. If there is a rebalancing possible, I think that is the first option. If there is a resourcing, that is also an option. I haven't heard in all the discussions that I'm having with all the customers that anybody is looking at a knee-jerk reaction.

Speaker Change: Yes, I think tammi its only fair too.

Speaker Change: Say that all scenarios are being considered.

Speaker Change: From what we are hearing given in my discussions I think it is not a knee jerk reaction.

Speaker Change: Given the capital allocation and the magnitude.

Speaker Change: What's being discussed there.

Speaker Change: Looking at very carefully.

Speaker Change: There is a rebalancing possible I think that is the first option.

Speaker Change: The Resourcing that is also an option.

Speaker Change: Haven't heard all the discussions that I'm, having with all the customers that anybody is looking at <unk>, they're looking at it and they've been very collaborative and sharing data with us.

Swami Kotagiri: They're looking at it, and they've been very collaborative in sharing data with us, so that's on one side of things. Magna has a footprint in Canada, in Mexico, and in the United States. As you can imagine, there is not. capacity available at any point of time, but is there a possibility of rebalancing some of the things? Yes, that we continue to look at. But again, we cannot do it unilaterally, we have to work with our customers to make those changes. So that's, that's how we are proceeding to mitigate any impacts that are there.

Speaker Change: So that's.

Speaker Change: On one side of things.

Speaker Change: I'm going to have that footprint.

Speaker Change: In Canada and Mexico.

Speaker Change: States.

Speaker Change: As you can imagine there is not.

Speaker Change: Capacity available at any point of time, but is there a possibility of rebalancing some of the things.

Speaker Change: Yes that we continue to look at but again, we cannot do accumulate actually them to work with their customers.

To make those changes.

Speaker Change: So that's how we are proceeding to mitigate any impacts that are out there.

Speaker Change: Okay.

Speaker Change: Okay got it and my last question is on your share buyback could.

Tamy Chen: Okay, got it.

Tamy Chen: And my last question is on your shared buyback. Could you confirm at this point, I think you'd said earlier that a month or so ago, you've paused it. I just want to understand at this point, how are you thinking about the buyback? Is that still on pause given the macro uncertainty? Is it also related to where your leverage currently is at and where you expect that going forward? Thanks.

Speaker Change: Could you confirm at this point I think you had said earlier.

Speaker Change: Nick a month or so we'll go you've paused. It I just wanted to understand at this point how are you thinking about the buyback is that still on pause given the macro uncertainty is it also related to the leverage currently is at and where you expect that going forward. Thanks.

Swami Kotagiri: So, Tamy, yes, you're right. We talked about pausing and we've always talked about it as a strategy, right, in managing our balance sheet. To answer your question very directly, yes, it is paused given the uncertainty that we have in the market. But as you know, we had the NCIB about to purchase 28.5 million shares approximately. If uncertainty goes away and there is a lot of clarity, there is always the possibility to look at it later in the year. For now, given where the market is and given where uncertainty is, yes, we are pausing.

So Tammy yes, you are right we talked about pausing.

Speaker Change: We have always talked about it as a strategy.

Managing our balance sheet to answer to your question very directly yes. It has passed given the uncertainty.

Speaker Change: <unk> in the market.

Speaker Change: As you know we had the NCAA be about to purchase $28 5 million shares approximately.

Speaker Change: If uncertainty goes away and there is a lot of clarity there is always the possibility to look at it later in the year for now given where the market is.

Speaker Change: Yes.

Speaker Change: Okay. Thank you guys I'll also add I mean, the leverage ratio as Pat mentioned is on track.

Pat McCann: Thank you. Also, Tamy, the leverage ratio, as Pat mentioned, is on track, and, you know, we continue to make good progress as discussed, and I think we're just a little bit ahead compared to where we're planning, as Pat mentioned in the comments.

Speaker Change: We continue to make good progress as discussed and I think we're just a little bit ahead compared to where we are planning as Pat mentioned in the comments.

Speaker Change: Okay.

Speaker Change: Great. Thank you.

Speaker Change: Yeah.

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

Dan Levy: And your next question comes from the line of Dan Levy with Barclays Dunn. Please go ahead. Hi, good morning. Thanks for taking the question. Wanted to first just ask on advanced program launch activity. What have you seen there? Has there been any change in the activity or behavior of automakers on this front? Maybe you can just, you know, conclude in that.

Dan Levy: Hi, good morning, Thanks for taking the questions.

Dan Levy: Wanted to first just ask an advanced program launch activity what have you seen there has there been any change in.

Dan Levy: Activity behavior of automakers.

Dan Levy: On this front.

Dan Levy: Maybe you can just included in that and what's the tone and tenor of commercial discussions with the automakers right now.

Swami Kotagiri: And what's the tone and tenor of commercial discussions with the automaker? Good morning, Dan. From an overall planning launch perspective, we have not seen any change, right? But in terms of sourcing, there is a lot of scenarios being discussed and thought through. And I think we are fortunate in a way to say that most of our major customers have had discussions with us because of the footprint and capacity and our ability. So we are getting a viewpoint on that. So I wouldn't say it has slowed, but I think there is a deliberation on the footprint and the cadence of the decision making.

Dan Levy: Good morning, Dan.

Dan Levy: From a overall planning.

Dan Levy: Launch perspective.

Dan Levy: We have not seen any change right, but in terms of sourcing there is a lot of scenarios being discussed and talked through.

Dan Levy: And I think we are fortunate in a way to say that most of our major customers have been discussions with us because of the footprint and capacity and our ability. So we are getting a viewpoint on that so I wouldn't say it has slowed but I think there is deliberation on the footprint and the <unk>.

Dan Levy: Cadence so.

Dan Levy: The decision, making but we have not really seen a big.

Swami Kotagiri: But we are not really seeing a change in what we are going after in terms of business and how it's being sold.

Dan Levy: They change and what we are going after in terms of business.

Dan Levy: So.

Dan Levy: Okay. Thank you.

Dan Levy: Okay, thank you.

Swami Kotagiri: And then as far as the complete vehicle segment, if you could just give any color on the outperformance in the quarter, but also, how should we assess the risk for complete vehicles given G-Wagon is a central program and there's some questions on the demand in the tariff environment as those are all exported. Yeah, Dan, I think part of the old performance has been based on how our complete vehicle assembly segment has the terms, right? So there is commercial recoveries as volumes go, you know, change because of how the terms are there. So that's one. And over the last year, we've been talking about restructuring and getting the cost structure of that facility to the current volume scenarios and the programs that we have had.

Dan Levy: And then as far as the complete vehicles segment.

Dan Levy: If you could just give any color on the outperformance in the quarter, but.

Dan Levy: Also how should we assess the risk for complete vehicles given G wagon.

Dan Levy: Our central program.

Dan Levy: Some questions on the demand.

Dan Levy: In the tariff environment those are all export it.

Dan Levy: Yeah.

Dan Levy: Dan I think part of your performance has been.

Speaker Change: Based on how our complete vehicle Assembly segment has the term strike. So there is commercial recoveries.

Dan Levy: As volumes go.

Dan Levy: Because of how the terms aren't there so that's one.

Dan Levy: And what was the last year, we've been talking about restructuring and getting the cost structure of that.

Dan Levy: Facility.

Dan Levy: The current volume scenarios in the program.

Swami Kotagiri: We talked about some of the programs ending and some coming to an end in the 2026 towards the end of 26. So we have proactively taken steps to restructure the cost base and we continue to see that flow through. On the Mercedes G Wagon, I won't comment for our customers, obviously, but you've seen the public statement of holding the price. But if there is a demand reduction for that vehicle in North America, I'm sure there will be an impact. But you've got to keep in mind the margin profile of that business is substantially lower than the normal magma average.

Dan Levy: We talked about some of the program spending and some coming to an end in the 2026 towards the end of 2006, So we have proactively taken steps to.

Dan Levy: Restructure of the cost base, and we continue to see that flow through.

Dan Levy: On the Mercedes G Laggan I won't comment for our customers, obviously, but you've seen the public statement of <unk>.

Dan Levy: Adding the price, but if there is a.

Dan Levy: Demand reduction for that vehicle in North America.

Dan Levy: I am sure they regain impact, but you've got to keep in mind there.

Dan Levy: Margin profile of that business is substantially lower than the normal Magna average.

Dan Levy: The only thing I would add that as it comes back to the contracts. While he is talking about there are fixed coverage.

Pat McCann: The only other thing I'd add, Dan, is it comes back to the contracts while he's talking about there are fixed recoveries in it. So even if the volumes fall, we do have that fixed recovery for Carlos. And we continue to have discussions, as mentioned, with different OEMs for. getting on additional programs and they seem, I would say, pretty encouraging, Dan.

Dan Levy: So even if the volumes fall, we can have that extra coverage, regardless and we continued.

Dan Levy: Discussions have mentioned.

Dan Levy: Different Oems.

Dan Levy: Sure.

Dan Levy: Getting on additional programs in this room.

Dan Levy: I would say a pretty encouraging them.

Dan Levy: Okay, thanks. If I could just squeeze one in just to clarify the pieces of the business that are not USMCA compliant, those are which products are in which segment? Dan, I think it's across. We haven't seen any significant point to make on one specific segment, right? I would say it's all across, but there is Not a marked difference from one to the other, so it's kind of a cross magna.

Dan Levy: Okay. Thanks, if I could just squeeze one in just to clarify the pieces of the business that are not.

Dan Levy: MCA compliance, those are or which products or which segment.

Dan Levy: Dan.

Dan Levy: I think it's across we haven't seen any.

Dan Levy: Significant point to make on one specific segment right I would say it's all across.

Dan Levy: But.

Dan Levy: Not a marked difference from one to the other so it's kind of a cross magnum.

Dan Levy: Great. Thank you.

Dan Levy: Great, thank you.

Speaker Change: And your next question comes from the line of Doug <unk> with Evercore ISI. Please go ahead.

Doug Dutton: And your next question comes from the line of Doug Dutton with Evercore ISI.

Doug Dutton: Doug, please go ahead. Yeah, hey, Swami. Hey, team. Just looking at the body and exterior segment here, you know, margins were particularly weak. They were down from for most of last year from all of last year, actually. I understand there's some FX volume effect there. But in terms of timing, is this likely to be a first half or first quarter phenomenon? Or is this something that could persist with the uncertainty that we're seeing? You know, how do you see those margins progressing throughout the course of 25?

Speaker Change: Yeah, Hey, it's Ron I mean, hey, Tim just looking at the body and exterior segment here margins were particularly weak they were down from most of last year from all of last year actually I understand theres. Some FX volume effect there, but in terms of timing is this likely to be a first half or first quarter phenomenon or is this something that could persist with.

Speaker Change: The uncertainty that we're seeing you know how do you see those margins progressing throughout the course of 'twenty five.

Speaker Change: Hey, Doug it's fast.

Swami Kotagiri: Hi Doug, it's Judge Straub, I forgot my numbers here, but I think your thesis, broadly speaking, is correct. You know, we're operating where we expect it to operate in the BES group. So we came in at and an EBIT number of 5.8 percent. We're seeing that increase. as we progress through the year. And it'd be consistent with what we had seen last year. Remember, we're still in a situation where a lot of our commercial upgrades tend to be recovered in the back half of the year. That's probably going to be amplified this year, given all the volume uncertainty.

Speaker Change: Correct My numbers here, but I think your thesis broadly speaking is correct.

Speaker Change: We're operating where we expect it to operate in the Pds group. So we came in at.

Speaker Change: And EBIT number of five 8% were seeing that increase.

Speaker Change: As we progressed through the year and it will be consistent with what we had seen last year.

Speaker Change: Remember, we're still in a situation where a lot of our commercial upper east tends to be recovered in the back half of the year.

Speaker Change: Probably going to be amplified this year, given all the volume uncertainty.

Swami Kotagiri: So I think we're still expecting a strong margin performance in Q4 compared to the first three quarters of the year. So it might be a cadence, but operationally and foundationally, this segment BES is really doing well and continues to perform at the level that we can expect. No difference in the operations from where we had last year versus now except volume and other things I just talked about.

Speaker Change: So I think we're still expecting.

Speaker Change: Our strong market performance in Q4 compared to the first three quarters of the year, so it might be a cadence, but operationally and foundational Lee.

Speaker Change: Segment would be us.

Speaker Change: Really doing well and continues to perform at the level of debt.

Speaker Change: NSA.

Speaker Change: No difference in the operations from where we had last year versus now except one in Manhattan.

Speaker Change: Just talked about.

Speaker Change: Okay. That's helpful. And then that's a good segue into my next question here on Slide 17, you mentioned those tariff costs that had been paid and not recovered from customers as a headwind is this going to be the norm going forward, where those tariff costs are treated similarly to your cost recoveries from your customers basically it's magna fronting.

Pat McCann: Okay, that's helpful. And then that's a good segue into my next question here. On slide 17, you mentioned those tariff costs that have been paid and not recovered from customers as a headwind. Is this going to be the norm going forward where those tariff costs are treated similarly to your cost recoveries from your customers? You know, basically, it's Magna fronting any incremental cost, and then you will be reimbursed in the future. Is that the correct way to think about this incremental tariff cost? Yeah, I think, Doug, this is an accounting issue. It's not really the commercial side of it.

Speaker Change: Any incremental costs and then you will be reimbursed in the future is that the correct way to think about this incremental tariff cost.

Speaker Change: Yes, I think that this is an accounting issue, it's not really.

Speaker Change: Under the accounting rules until you have a legal agreement with your customer to recover and you have to expense those costs.

Pat McCann: Under the accounting rules, until you have a legal agreement with your customer to recover, you have to expense those costs. The costs in the corridor are about $10 million gross, for perspective. Obviously, we're pushing to close as quickly as we can, but that is, expect that same cadence as other commercial Awesome.

Speaker Change: Costs in the quarter were about $10 million gross offer perspective.

Speaker Change: Obviously, we're pushing it.

Speaker Change: Those as quickly as we can but that is expect that same cadence of all the commercial.

Jamie: Awesome. Thanks, Jamie.

Pat McCann: Thanks, team.

Doug: Thanks, Thanks, Doug.

Joe Spak: Thanks, Dr. And your next question comes from the line of Joe Spak with UBS.

Speaker Change: Yeah.

Speaker Change: And your next question comes from the line of Joe Spak with UBS Joe. Please go ahead.

Joe Spak: Joe, please go ahead. Thank you, everyone. And thanks for the the tariff impact color. Sorry to go back because I just want to understand some of the math here. The $2 billion of goods that cross the border. I get, you know, 25% of that's the 500 million. Then you're saying 25% of the parts are non-USMCA compliant. So how do you get to a $250 million impact? Is that because compliance that that percentage you gave is parts based not dollar weighted so you really mean only half the dollars are exempt and then just to be very clear I know you're not assuming the any volume impact but in the guidance are you assuming in the revenue guidance that you recover that 250 I'm sorry the the half of that on an annual basis.

Joe Spak: Thank you everyone and thanks for the the tariff impact color.

Speaker Change: Sorry to go back because I just wanted to understand.

Joe Spak: Some of the math here, the 2 billion of goods.

Joe Spak: That cross the border I get 25% of that is the $500 million. Then you are saying 25% of the parts are non U S. MCA compliant. So how do you get to a $250 million impact is that because.

Joe Spak: The compliance.

Joe Spak: Percentage you gave as park space not dollar weighted so you really mean only half the dollars are exempt.

Joe Spak: And then just to be very clear I know youre not assuming the.

Joe Spak: Any volume impact, but in the guidance are you assuming in the revenue guidance that you recover that 250 I'm sorry.

Joe Spak: The half of that on an annualized basis.

Joe Spak: So.

Swami Kotagiri: So I think to clarify, right in the map, there is also remission programs from governments, right? For example, on the Canada. So that would offset some of the things that are there. And net of that remission is how you get to the two hundred and fifty approximate number that you're seeing, Joe, and we're not including the volume impact, right? Is that your question? Well, yes, I agree. The the remissions would further. Right. I guess what I'm saying is just very simple math. If you're saying, no, five hundred across. The remissions are included is what I'm saying after remission.

Joe Spak: No.

Joe Spak: To clarify writing the math.

Joe Spak: There is also a emission programs from government site for example on the Canada, So that offsets some of the things that out there.

Joe Spak: And metal sector emission is how you get to the 250 approximate number that youre seeing Joe.

Joe Spak: And we are not including the volume impact is that to your question.

Joe Spak: Alright.

Joe Spak: The remissions would further right I guess, what I'm, saying is very simple math, if youre, saying no no 510 process.

Speaker Change: Remington Turing Cuda is what I'm, saying after emissions yes.

Swami Kotagiri: We are having the 250.

Speaker Change: Yes, having the $2 50.

Speaker Change: Alright, and maybe you can take it offline but.

Joe Spak: All right, maybe we could take it offline. But because again, if 25% is not compliant. I would have thought the impact would have been 125 before remissions and remissions would bring it down further. I think, Joe, we can take it offline, but don't forget that it's not all 25% across the board. We are importing parts from China and other parts of the world that have a higher tariff than 25%. Fair enough. And I know the volume... Yeah. Okay. I know the volume...

Speaker Change: Because again, if it's 25% does not compliance I would've thought the impact would have been.

Speaker Change: 125, before remissions in remission to bring it down further.

Joe Spak: I think Joe we can take it offline, but forget doses.

Speaker Change: Forget that it's not all 25% across the board we are importing parts from China and other parts of the world that have a higher cure.

Speaker Change: Okay Fair enough, Okay, and then sorry, I noticed the Permian question.

Speaker Change: Yes, okay.

Speaker Change: <unk>.

Pat McCann: I'll start, go ahead. Sorry, you also asked about the volume impact from tariffs not included, but is the recovery of that, you know, let's say three quarters of that $250,000 included in the revenue out? We've, we've assumed in our work that at the EBIT level, we have zero impact from tariffs, any residual, it's going to be recovered from the customer. It's not included in rep. It's just as a cost recovery. Okay, so it's not in the revenue, but then you assume but in reality, it would be but then it's zero impact. I can't. It's going to depend, Joel, on how we structure those agreements with the customer.

Speaker Change: Oh, sorry go ahead.

Speaker Change: You also asked about Oh, sorry.

Speaker Change: The volume impact from tariffs not included but is the coverage of that let's say three quarters of that $2 50 included in the revenue outlook.

Speaker Change: We've assumed in our outlook that at the EBIT level, we have zero impact from tariffs any residual can be recovered from the customer it's not included in graphics.

Speaker Change: Just as a cost recovery.

Speaker Change: So it is not in the revenue, but then you assume but in reality it would be but then it's zero impact to EBIT.

Joe Spak: I can't go it's going to depend Joe on how we structure those agreements with the customer it's going to be more complicated than just yet.

Pat McCann: It's going to be more complicated than we can answer just yet.

Joe Spak: Okay.

Speaker Change: Okay.

Joe Spak: And then I guess just on the, you know, when you look at some of the margin revisions by segment, you know, was mostly in BS and seeding. And I know Swami just said the tariff impact is um you know mostly uh or across sort of all all segments so is that really just uh a result of um some of the the softer one cue result So I am. Just broadly speaking, Joe, if you look at the revenue changes from our outlook in February to our current outlook midpoint to midpoint we're seeing roughly about a $1.5 billion increase just related to bond exchange and that's spread out quite evenly across our four sectors.

Speaker Change: And then I guess just on the.

Speaker Change: When you look at some of that margin.

Revisions by by segment.

Speaker Change: It was mostly in BFS in seating and I know Tom you just said the tariff impact is.

Speaker Change: Mostly.

Speaker Change: Our across sort of all segments. So is that really just a result of.

Speaker Change: Some of the softer <unk>.

Speaker Change: <unk>.

Speaker Change: Sorry.

Joe Spak: Just broadly speaking Joe when you look at the revenue changes from.

Joe Spak: Our outlook in February to our current outlook midpoint to midpoint, we're seeing.

Joe Spak: Roughly about a $1 5 billion dollar increase is related to foreign exchange and thats spread out quite easy.

Joe Spak: Evenly across our four.

Joe Spak: Both segments.

Joe Spak: When you look at the pure volume declines, as you know, just manufacturing activity, the bulk of that decline is in BES, and we're seeing weakness in seeding. And the seeding is primarily related to announced shutdowns in April and May already.

Joe Spak: When you look at the pure volume declines.

Joe Spak: Just manufacturing activity the bulk of that decline is in the us and were seeing weakness in seating and the seating is primarily related to announced shutdowns.

Joe Spak: In April and May already.

Joe Spak: Okay I appreciate it thank you.

Joe Spak: Okay, I appreciate it, thank you.

Joe Spak: Welcome.

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

Adam Jones: And your next question comes from the line of Adam Jones with Morgan Stanley. Adam, please go ahead. Thanks Swami and Pat and everybody.

Speaker Change: Thanks, Swamy, and Pat and everybody I wanted to offer life cycle.

Adam Jones: I wanted to offer my my condolences for the loss of Vince. He was a really talented, kind... It was a humorous and gentle soul who left the world a better place than he found it. And I was lucky enough to know him. His memory is a real blessing. And I think if he were listening to this call from up above, he'd be saying, you know, just all right, back to work. Keep your head down and get through the challenges and the opportunities of the day. And I think he would have great confidence in the team.

Speaker Change: My condolences for the loss of events.

Speaker Change: Was a really talented tie ins.

Speaker Change: Humorous and gentle fall, who left the world a better place than it sounded.

So I was lucky enough to have them.

Speaker Change: His memory is a real blessing.

Speaker Change: We were also listen to this call.

Speaker Change: Yeah, just alright backdoor.

Speaker Change: Desktop and the challenges in the Apple changed the day and I think you'd have great capital to maintain the life I just wanted to offer my condolences to the Magna, formerly Anthozoan, formerly <unk>.

Adam Jones: And I just want to offer my condolences to the Magna family and his own family and children as well.

Speaker Change: Children as well and that's all I want to say I don't have any questions.

Adam Jones: And that's all I want to say. I don't have any questions. So get back to the call. Thank you. Thanks, Adam. Thank you, Adam. I appreciate it. I'll pass it on to Joanne and the family.

Speaker Change: Thank you.

Speaker Change: Thank you Adam I appreciate and pass it onto Joanne independently.

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

James Picariello: And your next question comes from the line of James Picariello with BNP Paribas. James, please go ahead. Hi, good morning, everybody. My question is on, Swami, you mentioned in your prepared remarks that the 1Q exceeded internal expectation. and the 2025 EBIT range is unchanged. Just curious, do you still expect the first half to represent about 40% of the full year? Right, this would imply something modestly above $500 million for the second quarter. I know tariffs, the timing of recoveries could swing the answer, but if you were to get full recovery in the second quarter, which I imagine it's pretty reasonable given that the parts rebate mechanism is now in place for OEMs and given Magna's critical role as a supplier to your customers.

James Picariello: Hi, good morning, everybody.

James Picariello: My question is.

Speaker Change: The stronger you mentioned in your prepared remarks is that the once you've exceeded internal expectations and the 2025 EBIT range is unchanged.

Speaker Change: Do you still expect the first half to represent about 40% of the full year Alright. This would imply something modestly above $500 million for the second quarter, I know tariffs and the timing of recoveries could swing the answer but if you were to get full recovery in the second quarter, which.

Speaker Change: I don't think I don't.

Speaker Change: I imagine, it's pretty reasonable given that the parts rebate mechanism is now in place for Oems and given magna's critical role as a.

Speaker Change: As a supplier to your customers.

James Picariello: How are you thinking about that 40-60 split? I think, James, the simple answer is yes, based on all the visibility that we have, April behind us, and, you know, unless something drastically changes, nowadays, that seems to be happening. I would say the 40% in the first half, 60 in the second half is still a good assumption. Yes. Got it.

Speaker Change: How are you thinking about that 40 60 split.

Speaker Change: Thanks.

Speaker Change: I think James the simple answer is yes.

Speaker Change: Based on all the visibility that we have improved behind us and.

Speaker Change: Yes, something drastically changes noticed that seems to be happening.

Speaker Change: I would say the 40% in the first half 60 in the second half is still a good assumption yes.

Speaker Change: Got it. Thank you and then my follow up is just on buybacks I think it was mentioned at a yes.

James Picariello: Thank you.

James Picariello: And then my follow up is just on on on buybacks. I think it was mentioned at a, you know, Magna mentioned at a recent conference. that, you know, typically for the, you know, when you get the authorization for a buyback, you know, you want to, a company would typically want to, you know, buy back at least half of the authorization. That was something, again, mentioned at a conference, you know, not necessarily my words. Just wondering, you know, if volumes overall for the industry, you know, hang in, you get, you know, you get full recovery or most recoveries for the tariff exposure that you have, is that, you know, is that kind of the target, you know, at least half of this authorization gets done?

Speaker Change: Yes.

I mentioned at a recent conference.

Speaker Change: Typically for the when you get the authorization for a buyback.

Speaker Change: You want to.

Speaker Change: Our company would typically want to buyback at least half of the authorization.

Speaker Change: That was something again mentioned.

Speaker Change: At a conference.

Speaker Change: Necessarily my words just wondering.

Speaker Change: If volumes overall for the industry.

Speaker Change: Hanging in you get you get.

Speaker Change: Full recovery or most recoveries for the tariff exposure that you have is that is there.

Speaker Change: Is that kind of the target.

Speaker Change: At least half of this authorization gets done this year.

Speaker Change: I don't know about the comment a little bit.

Swami Kotagiri: I don't know about the comment about the half. I don't think, James, it's from us. But like I said, when we look at sharing purchases, we always looked at it as a tool to give excess liquidity back to our investors and shareholders. But the most important thing is, you know, operationally, how do you maintain liquidity and have the balance sheet and look at possible programs, you know, and. opportunities even that come up in a normal course like additional volume and programs from other places that customers might reach out to us, especially in terms of uncertainty like this.

Speaker Change: The only thing James it from us but.

Speaker Change: Like I said, when we look at share repurchases to be always looked at it as a tool to give excess liquidity back to our investors and shareholders.

Speaker Change: But the most important thing is.

Speaker Change: Operationally, how do you maintain liquidity and have the balance sheet and look at.

Speaker Change: Possible programs.

Speaker Change: And.

Speaker Change: Opportunities that come up in a normal course cyclic additional volume and programs from others.

Speaker Change: That customers might reach out to us, especially in terms of uncertainty like this.

Swami Kotagiri: Beyond that, and that's the reason why we said we are paused. We have to see if everything returns back to normalcy, we would still go back to the NCIB authorization that we have, and we have to assess, you know, our surplus at that point of time, given we are still tracking the way we wanted to for our leverage ratio. I wouldn't say it's half, or our intent when we start is to say we want to get as close as to the NCIB as possible, right? Our intent is always that. You should. Thank you.

Speaker Change: Beyond that and that's the reason why we've said for years past.

Speaker Change: We have to see if everything comes back to normalcy, we would still.

Speaker Change: Go back to the in CIB authorization that we have an emphasis.

Speaker Change: Our surplus at that point of time, given we are still tracking the way we wanted to put our leverage ratio I wouldn't say, it's half or our intent. When we stop is to say, we want to get as close as to the CIB as possible right.

Speaker Change: Tend to as always that.

Speaker Change: Understood. Thank you.

Speaker Change: And your next question comes from the line of Sri <unk> with Wolfe Research. Please go ahead.

Shreyas Patil: And your next question comes from the line of Shreyas Patil with Wolf Research. Shreyas, please go ahead. Hey, thanks so much for taking my questions.

Sri <unk>: Hey, Thanks, so much for taking my questions and my condolences to Vince and his family.

Shreyas Patil: And my condolences to Vince and his family. Wanted to maybe just come back to the guidance for this year. I understand it does not reflect tariffs, but Just to confirm, you have revised it for the latest FX assumptions. I guess just looking at the URL, for example, that alone would be maybe a 650 million benefit to revenue for this year, 35 million or so to EBIT, Canadian dollars, another benefit. And so is that correct? And if so, can you maybe just expand on the offset that you mentioned? I think there were some headwinds on key programs that you noted.

Sri <unk>: Wanted to maybe just come back to the guidance for this year I understand that does not reflect tariffs but.

Sri <unk>: Just to confirm you have revised it for the latest FX assumptions could I guess just looking at the Euro for example that alone would be maybe a $650 million benefit to revenue for this year at $35 million or so the EBIT Canadian and other benefit and so is that correct and if so do.

Sri <unk>: You, maybe just expand on the offsets that you mentioned I think there were some headwinds on key programs.

Sri <unk>: That you noted.

Sri <unk>: So good morning shifts I think.

Swami Kotagiri: So good morning, Chris. I think the effects, what we have taken is as dollar stands with respect to euro and Canadian dollar today, right, which is how we do every time. I don't know the exact number or how much of that is in Europe. Some of it is in Steyr. Some of it is in Europe, for sure. And perhaps maybe we'd have to break it down, but just broadly speaking. The FX impact, including Q1, is $1.5 billion. Right. That's the goal. Then the offsets are primarily where we're seeing some volume. Remember, just broadly speaking, our volumes in North America are down just over 100,000 units.

Sri <unk>: Thanks <unk>.

Sri <unk>: Taken as as Douglas times with respect to Euro and Canadian dollar today, right, which is how we do every time.

Sri <unk>: I don't know the exact number for how much of that is in Europe. Some upward as inspire somewhat produced in Europe for sure.

Sri <unk>: Maybe.

Sri <unk>: We'd have to break it down but just broadly speaking.

Sri <unk>: X impact, including Q1, it's about $1 5 billion Thats. The role then the offsets are primarily.

Sri <unk>: Where we're seeing some volume remember just broadly speaking our volumes in North America are down just over 100000 units and Thats, primarily impacting our BFS segment and our seating segment.

Swami Kotagiri: And that's primarily impacting our BES segment and our seeding segment. And we have taken what we have seen in terms of closures to date. Right. Okay. Yeah, so just just so basically revenues up a billion and a half on FX and then it's all set by by lower volume, that's the primary headwind. That's 95% of the answer, correct? Yes. Okay, understood.

Sri <unk>: And we have taken what we are seeing in terms of closures to date right.

Sri <unk>: Yes.

Sri <unk>: Okay.

Sri <unk>: Yes. So just just so basically revenues up 1 billion and a half on FX and then it's offset by.

Sri <unk>: Thanks, Bye bye lower volume that's the primary headwind.

Sri <unk>: Headwind.

Sri <unk>: 95% of answer correct, yes, okay.

Sri <unk>: Okay understood.

Shreyas Patil: And then just maybe if you could help us just understand mechanically the process by which you would get recovery from the OEM, because I understand your expectation is to get 100%. I guess what we've seen in the past. I think about the semiconductor shortage from 21 and 22 is there is a bit of a lag in recovery. Would you expect this time around if you're looking at tariff costs to incur a lag through negotiation or do you feel like because this is an industry-wide problem that the pace at which you could get recovery is much quicker?

Speaker Change: And then just maybe if you could help us just understand mechanically.

Speaker Change: Process by which you would get recovery from the OEM.

Speaker Change: I understand your expectation is to get 100%.

Speaker Change: I guess, what we've seen in the past.

Speaker Change: I think about the semiconductor shortage from 'twenty, one and 'twenty. Two is there is a bit of a lag in recovery.

Speaker Change: Would you expect this time around if youre looking at tariff costs to incur a lag through negotiation or do you feel like because this is an industry wide problem.

Speaker Change: The pace at which you could get recoveries as much quicker.

Speaker Change: Okay.

Swami Kotagiri: So, Shreyas, even during the semiconductor crisis, yes, there is a little bit of time and it depends. We had three-day conversations, some of it was directly with the customers. And keep in mind that we recovered pretty much 95 plus percent, if not 100 percent of the semiconductor at that point in time. So, we have a process, is what I'm trying to say. And we will set up a process again similar to what we have. So, would there be a little bit of back and forth in terms of timing? Depends on customer and program and the magnitude of it, but we feel pretty confident.

Speaker Change: So she is even doing the semiconductor crisis.

Speaker Change: There is maybe a bit of time and it depends.

Speaker Change: Had three big conversations some opex move directly with the customer.

Speaker Change: Customers.

Speaker Change: And keep in mind that we recover.

Speaker Change: Much 95, plus percent, if not 100% of fees.

Speaker Change: Semiconductor at that point.

Speaker Change: In time.

Speaker Change: No.

Speaker Change: We have a process.

Speaker Change: Is what I'm trying to say.

Speaker Change: And we are able to set up a process again similar to what we have.

Speaker Change: Would there be a little bit of back control in terms of timing depends on customer return program and the magnitude of it but we feel pretty confident.

Shreyas Patil: And I have to say the customers have been. open to discussion and collaborative as we are discussing, but you know, all I have to say is stay tuned. Okay, thanks.

Speaker Change: And I have to say that customers have been.

Speaker Change: Open to discussion and collaborative as we're discussing.

Speaker Change: But.

Speaker Change: I'll have to say stay tuned.

Speaker Change: Okay. Thanks.

Speaker Change: And your next question comes from the line of Mark.

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

Speaker Change: <unk> with Goldman Sachs Mark. Please go ahead.

Mark: Yes, good morning, and thank you very much for taking my questions and please allow me to pass my sympathies on to Magna and ventures family on his passing is very detail oriented and nobody's quite generous with his time. So he will be you will invest for sure.

Mark Delaney: Good morning, thank you very much for taking my questions and please allow me to pass my sympathies on to Magna and Vince's family on his passing. He's very detail-oriented and always quite generous with his time, so he will be... Thank you. I did want to speak a bit on schedules and understand your comments that customer production schedules have been stable.

Speaker Change: Thank you.

Mark: It did.

Speaker Change: Speak a bit on schedules and understand your comments that customer production schedules have been stable.

Swami Kotagiri: When you speak to your broader set of customers on their plans, can you help us better understand what they're indicating they'll do with vehicles being exported and now seeing tariffs, and help us better understand why there wouldn't be a change to those exported vehicles given the tariff dynamic? And then just overall, as you think about the second half, what's the confidence you have in production schedules tracking in line with your prior view for... Mark. It's a little bit of a crystal ball, right? When we made the comments, we are talking about releases that are in the system.

Speaker Change: When you speak to your broader set of customers that are on their plans can you help us better understand what they're indicating they will do with vehicles being exported and now seeing tariffs and help us understand why there wouldn't be a change to to those export of vehicles given the tariff dynamic and then just overall as you think about the second half what's the confidence you have in production schedule.

Speaker Change: Was tracking in line with your prior view for two H.

Speaker Change: Mark.

Speaker Change: It's a little bit of a crystal ball right. When we made the comments we are talking about creators.

Speaker Change: And it also depends on them.

Swami Kotagiri: And it also depends on what programs and platforms we are on, right? So our comments are You know, very much dependent on that, and we haven't seen, I would say, any significant change compared to the normal course of going up and down a little bit. You know, what you're talking about is a little bit macro, if it is what 800,000 units that are imported from Europe into North America, because of tariffs, would that have an impact on those 800,000 units? I think so. But difficult to quantify what that would be depending on, you know, would the customers look at?

Speaker Change: What programs and platforms, we are on right. So our comments are.

Speaker Change: You know very much dependent on that and we haven't seen I would say any significant change.

Speaker Change: The normal course of going up and down a little bit.

Speaker Change: Uh huh.

Speaker Change: Yeah.

Speaker Change: What you're talking about is the liberty macro if it is about 800000 units that are imported from Europe into North America.

Speaker Change: Because of Paris would that have an impact on those 800000 units.

Speaker Change: Think so but difficult to quantify what that would be depending on.

Speaker Change: Yes.

Speaker Change: With the customers look at.

Speaker Change: Keeping the market share managing pricing for the short term.

Swami Kotagiri: Keeping the market share, managing pricing for the short term, there's so many variables here. I would not know how to quantify that yet, but our answers are purely based on the data that we are seeing and based on the conversations we are having with our customers on the programs that we are at.

Speaker Change: So many variables here.

Speaker Change: I would not know how to quantify that yet right.

Speaker Change: The answers are purely based on the data.

Speaker Change: And based on the conversations we're having with our customers on the programs that we are active.

Speaker Change: Thanks for that color Swamy.

Swami Kotagiri: Thanks for that color, Swami. My second question was about EBIT margins. The company had been expecting to achieve 75 BIPs of EBIT margin tailwind over the next two years in total. I'm hoping to better understand if there's been any change in either the magnitude of savings or the timing of which it may flow through, given the current industry background. No, I would say we are on track, right? We talked about roughly 35 basis points in 2025, and similar in 2026. They had visibility for the continuous improvement and other activities. I can tell you the entire organization is focused on all those actions, plus anything else that we have to mitigate.

Speaker Change: My second question was about EBIT margins the company had been expecting to achieve 75 bps of EBIT margin tailwind over the next two years in total I'm, hoping to better understand if theres been any change in either the magnitude of savings or the timing of which it may flow through given the current industry backdrop.

Speaker Change: Thanks.

Speaker Change: No I would say we are on track right, we talked about roughly 35 basis points in 2025.

Speaker Change: Similar in 2026.

Speaker Change: We had visibility for the continuous improvement and other activities.

Speaker Change: Can tell you the entire organization is focused on all of those actions plus anything else that we have to mitigate fundamentally the organization is looking at the cost structure.

Swami Kotagiri: Fundamentally, the organization is looking at the cost structure. to be viable and good at the current levels. And as the volume comes back, we are talking flex up to be able to take advantage and get our incrementals to be better. That's the philosophy, that's the mindset in the entire organization. So we feel pretty good into the Given set of volumes, obviously, you know that has a significant impact. If the volumes continue as they are and slowly come back over time and the uncertainty calms down, we feel pretty good about what we're doing now in terms of actions as well as through 2026, which we are keeping a very close eye on.

Speaker Change: To be viable and good at the current levels and as the volume comes back we are talking flex pump to be able to take advantage and get our incrementals to be better.

Speaker Change: That's the philosophy, that's the mindset and the entire organization. So we feel pretty good into the.

Speaker Change: Given set up volumes, obviously, you know that has a significant impact as the volumes continue as they are and slowly come back over time and uncertainty.

Speaker Change: Comps down we feel pretty good that were of course, we are doing now in terms of collections as well as through 2020 six between keeping a very close eye on.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: And your next question comes from the line of Jonathan Goldman with Scotia Bank. Jonathan. Please go ahead.

Jonathan Goldman: And your next question comes from the line of Jonathan Goldman with Scotiabank. Jonathan, please go ahead. Hi, good morning, guys, and thanks for taking my questions. Most of them have been asked already, but just one for me then. We've seen the light vehicle inventories come down in the past two months. you know, in North America, and maybe that's related to the pull forward and demand.

Jonathan Goldman: Hi, Good morning, guys and thanks for taking my questions.

Jonathan Goldman: Most of them have been asked already but just one for me then we've seen the light vehicle inventories come down in the past two months.

Jonathan Goldman: In North America, and maybe that's related to the pull forward in demand, but in your production outlook for North America does that assume any rebuild of inventories at all this year.

Swami Kotagiri: But in your production outlook for North America, does that assume any rebuild of inventories at all this year? We kind of keep an eye on the inventories, Jonathan. What I would say is where we ended up in December, there was a spike in January, February, what we see today kind of goes back to what December was. But our planning or our production is based on releases, not on where the inventory is, so the assumption whether it's going to fill up or not, right? That's for the customers to make, not us. So, I would say what we're telling you is based on releases in the system.

Jonathan Goldman: Okay.

Jonathan Goldman: We kind of keep an eye on the inventory Jonathan.

Jonathan Goldman: I would say is where we ended up in December there was a spike in January February what we see today kind of goes back towards December ones.

Jonathan Goldman: But our planning our production is based on releases knockdown with inventory so the assumption that it's going to fill up.

Jonathan Goldman: Alright, thats for the customers to make not us so I would say what we're telling you is based on.

Jonathan Goldman: It relieves us in the system.

Flemming: No that's fair I appreciate the color. Thanks Flemming.

Jonathan Goldman: No, that's fair. I appreciate the color.

Jonathan Goldman: Thanks for me.

Jonathan Goldman: Okay.

Speaker Change: Hey, Scott.

Speaker Change: And your final question comes from the line of Michael Glen with Raymond James Michael. Please go ahead.

Michael Glen: And your final question comes from the line of Michael Glen with Raymond James.

Michael Glen: Michael, please go ahead. Hey, good morning. Swami, thank you for the answer with regard to the European export for assembled vehicles, but could you provide some context to Magna's exposure to Mexico, Mexican and Canadian assembled vehicles, what the outlook is there, and maybe what customers are communicating to you in terms of what might happen with those production schedules and any movement we might see? Transcription by ESO.

Michael Glen: Hey, good morning.

Speaker Change: Swamy. Thank you for the answer with regard to the European.

Michael Glen: Export.

Michael Glen: For assembled vehicles, but could you provide some context to magna.

Speaker Change: Magnus exposure to Mexico, Mexican and Canadian assembled vehicles, what the what the outlook is there and maybe what customers are communicating to you in terms of.

Speaker Change: What might happen with those production schedules and any movement, we might see.

Swami Kotagiri: Translation by — Good morning, Michael. Maybe two parts. I'll try to get it and Pat can add color. We, when we talk about phases, obviously, looking Across the North America ecosystem, we are not seeing a change in the platform or the mix at this point in time. And when we talk about tariffs, again, we are taking Canada and Mexico and our content in all these platforms. You know, crossing borders, whether it's the supply in from Canada into Canada vehicles, but those vehicles might be coming over. We are looking at it broadly. I don't know if I can give more color than that at this point of time, or I have more than that to give you.

Speaker Change: Good morning, Michael.

Speaker Change: Maybe two part I'm trying to get at and Pat can add color.

Speaker Change: We when we talk about fees is obviously looking.

Speaker Change: Across the North America ecosystem, we are not seeing a change in the platform part of the mix at this time.

Speaker Change: And when we talked about tariffs again, we are taking.

Speaker Change: Canada, and Mexico, and our content in.

Speaker Change: All of these platforms.

Speaker Change: Crossing borders whether it's the supply chain.

Speaker Change: From Canada into Canada vehicles, but those vehicles might be coming over.

Speaker Change: We are looking at it broadly I don't know if I can give more color than that at this point it took time or have more than that to give you.

Speaker Change: I think Michael we have that data point I, just don't have it handy right OEM production in Canada, and Mexico that ship into the U S. For sale, we have that data. We can follow up with you I just don't have it handy but.

Pat McCann: I think Michael, we have that data point. I just don't have it handy. OEM production in Canada and Mexico that's shipped into the US for sale. We have that data. We can follow up with you. I just don't have it. But from our point of view, we know our sales piece, we have sales of just over $4 billion in Canada. About 70% of that is sold into the US, where the OEMs import a record. And in Mexico, we're about $5.5 billion of sales, and about 25% of that is sold into the US. Your question of what the OEMs are building in those two countries and shifted, we'd have to get back.

Speaker Change: From our point of view, our we know our sales piece, we have sales of just over $4 billion in Canada.

Speaker Change: About 70% of that is sold into the U S, where the Oems importer of record and in Mexico were about $5 5 billion of sales and about 25% of that is sold into the U S. Your question of what the Oems are building at most two countries shifted.

Speaker Change: To get back to you.

Speaker Change: And not.

Swami Kotagiri: And not to put you on the spot with this question or anything like that, but like when you do you believe that the 25% on assembled vehicles from Canada or Mexico into the US will remain in place? You are putting us on the spot and I don't have the answer for you. I know what I wish, but that doesn't matter.

Speaker Change: Not to put you on the spot with this question or anything like that but.

Speaker Change: Like when you do you believe that the 25% on assembled vehicles from Canada or Mexico into the U S will remain in place.

Speaker Change: You are putting a box on a spot and they don't have the answer for you.

Speaker Change: Yeah.

Speaker Change: I know, what I wish, but that doesn't matter.

Speaker Change: Okay, and just some of the re shoring efforts that you might look for to pursue to increase U S. MCA compliant.

Swami Kotagiri: Okay, and just some of the reshoring efforts that you might look for to pursue to increase USMCA compliance. How do you think about the tier two, tier three or tier four supplier base? Do you see this as feasible? I'm just trying to assess your opportunity to reshore some of those components. Yeah, I mean, if you go back to the COVID in the semiconductor crisis, there was a little bit of reshoring, or I would say rebalancing. you know, and looking at the possibilities. Michael, this is no different from that perspective, I would say. All those work streams are in place today.

Speaker Change: How do you think about the tier two tier three or tier four supplier base do you.

Do you see this is feasible like I'm, just trying to assess your opportunity to resource some of those components.

Speaker Change: Yes, I mean, if you go back to the Covid into semiconductor crisis, there was a little bit of a pretty shortly.

Speaker Change: Rebalancing.

Speaker Change: And looking at the possibilities Michael this is no different from that perspective, I would say.

Speaker Change: All of those work streams are in place today.

Swami Kotagiri: Does it mean you can take everything and be sure in the short period of time? I don't think so. But I'm just one voice in the industry. You know, semiconductors you saw, right? So we'll look at it part by part. It depends on that. And you know, obviously, as I said, our goal is to figure out how to increase the USMCA-compliant cost. And then we have to follow how the OEMs are thinking and how they are going to uh optimize or manage their footprint because you know based on logistics and other things we have to kind of work collaboratively and cannot make that decision unilaterally.

Speaker Change: It doesn't mean, you can take everything and be sure.

Speaker Change: In the short period of time I don't think so.

Speaker Change: But I am just one voice in the industry.

Speaker Change: As you know semiconductor SKU song right.

Speaker Change: So we don't look at it part by part and it depends on that end and.

Speaker Change: Obviously as I said, our goal is to figure how to increase the U S MCA compliant.

Speaker Change: And then we have to follow how the Oems are thinking and how they're going to.

Speaker Change: Optimizer manage their footprint because.

Speaker Change: Based on logistics and other things, we have to kind of work collaboratively and cannot make that decision unilaterally.

Speaker Change: Okay.

Swami Kotagiri: I think Swami's point is very, very important because it's a business case that the customer has to agree to behind each of these three short-hauls.

Speaker Change: Thank you swap points <unk> points, very very important because there's a business case that the customer has to a green shoot behind each of these recently at all.

Operator: Alright, so that it's a P it's a it's a granular bottoms up case by case analysis that the customer has to sign off on with commercial terms. That concludes our question and answer session.

Speaker Change: So it's a it's a granular bottoms up case by case analysis that the customer has to sign off.

Speaker Change: With commercial terms.

Speaker Change: That concludes our question and answer session I will now hand, it back over to <unk> for closing remarks.

Swami Kotagiri: I will now hand it back over to Swami Kotagiri for closing remarks. Swami. Thanks, everyone, for listening in today. We all talked about the high degree of uncertainty in the industry that we're all facing, but I want to assure you, we remain focused on execution. All things that we control, including cost and capital discipline, free cash flow is primary focus and getting back within our target leverage ratio. So we remain highly confident in Magna's future and thanks for listening in and have a great day.

Speaker Change: Thanks, everyone for listening in today.

Speaker Change: <unk> always talked about the high degree of uncertainty in the industry that we're all facing but I want to assure you. We remain focused on execution are all things that we control, including cost and capital discipline free cash flow is primary focus and getting back within our target leverage ratio.

Speaker Change: So we remain highly confident in magna's future and thanks for listening in and have a great day.

Speaker Change: That concludes today's call you may now disconnect.

Operator: That concludes today's call.

Operator: You may now disconnect.

Speaker Change: Okay.

Speaker Change:

Speaker Change: Yeah.

Speaker Change: