Q2 2025 Magna International Inc Earnings Call

Lacey: Hello, and thank you for standing by. My name is Lacey, and I will be your conference operator today. At this time, I would like to welcome everyone to the MAGNA INTERNATIONAL SECOND QUARTER 2025 RESULTS webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Louis Tonelli. You may begin.

Hello, and thank you for standing by. My name is Lacey, and I will be your conference operator. Today, at this time, I would like to welcome everyone to the Magna International second quarter 2025 results webcast.

The conference over to Lewis tanelli, you may begin.

Louis Tonelli: Thanks, operator. Hello everyone, and welcome to our conference call covering our second quarter of 2025 results. Joining me today are Swamy Kotagiri and Patrick McCann. Yesterday, our board of directors met and approved our financial results for the second quarter of 2025 and our updated outlook. We issued a press release this morning outlining our results. You will find the press release, today's conference call webcast, the slide presentation to go along with the call, and our updated quarterly financial review, all in the investor relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. 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.

Thanks, Operator. Hello everyone, and welcome to our conference call covering our second quarter of 2025.

Joining me today are Somi, CLA Giri, and Pat McCann.

Yesterday, the Board of Directors met and approved our financial results for the second quarter of 2025 and their updated outlook.

We issued a press release this morning, outlining our results.

You'll find the press release at the age conference call webcast, this slide presentation to go along with the call, and our updated quarterly financial review—all in the Investor Relations section of our website at Magna.com.

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

Louis Tonelli: Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to the reminders slide included in our presentation that relates to our commentary today. With that, I will pass it over to Swamy.

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

Please refer to today's press release for a complete description of our Safe Harbor disclaimer.

Please also refer to the reminders, slides included in our presentation, that relates to our commentary today with that. I'll pass it over to Swami.

Swamy Kotagiri: Thank you, Louis. Good morning, everyone. I hope you are all enjoying the summer so far, and I appreciate you joining our call today. Let us get started. I am happy to share a few notable takeaways from the quarter that underscore our strong execution in spite of industry headwinds. We are pleased with our strong Q2 results, driven by consistent execution across our business and progress against our performance initiatives. I am proud of our team's focus and ongoing efforts. Despite lower production in our two largest markets, North America and Europe, negatively impacting year-over-year sales, we delivered solid financial results and notable improvements from last year. Adjusted EBIT increased 1%, and EBIT margin was 20 bps better, despite a 40 bps negative impact from tariffs not yet recovered from customers. In addition, adjusted diluted EPS was up 7%, and free cash flow improved by $178 million.

Thank you Luis. Good morning, everyone. I hope you're all enjoying the summer so far and I appreciate you joining our call today.

So, let's get started.

I'm happy to share a few notable, takeaways from the.

That underscore or strong execution in spite of Industry, headwinds, we are pleased with our strong Q2 results driven by consistent execution across our business.

And progress against our performance initiative.

I am proud of our team's focus and ongoing efforts.

despite lower production in our 2 largest markets, North America and Europe negatively, impacting year old year sales

we delivered solid Financial results and notable improvements from last year's.

Adjusted ebit increased 1%.

And ebit margin was 20 basis points better, despite a 40 basis for a negative impact from tariffs, not yet, recovered from customers.

In addition, the diluted EPS was up 7%, and cash flow improved by $178 million.

Swamy Kotagiri: Relative to our expectations, our results for the quarter were better, reflecting strong incremental margins on higher sales. We are also raising our outlook for the year. Stronger sales supported largely by foreign currency translation and also better-than-expected second quarter program mix. Raising the low end of our adjusted EBIT margin range, despite lower expected vehicle production in North America, as we realized on our cost-saving initiatives, and an increase in adjusted net income attributable to MAGNA, mainly reflecting higher expected adjusted EBIT on higher sales and a lower effective income tax rate. We continue to work closely with our customers to mitigate the impact of tariffs. Based on our actions taken and recent updates to tariff rates up to mid-July, we have lowered our estimated annualized tariff exposure to $200 million from $250 million when we reported in Q1.

Relative to our expectations, our results for the quarter were better, reflecting strong incremental margins on higher sales.

We are also raising our outlook for the year.

Stronger sales supported largely by foreign currency translation.

and also better than expected, second quarter program mix.

Raising the low end of our adjusted EBIT margin range despite lower expected vehicle production in North America, as we realize on our cost-saving initiatives.

And an increase in adjusted net income attributable, to Magna, mainly reflecting higher, expected, adjusted ebit on higher sales and a lower effective income tax rate.

We continue to work closely with our customers to mitigate the impact of tax.

Swamy Kotagiri: We have settled with multiple OEMs for substantially all of our 2025 net tariff exposure with them, and we are working with our other customers and suppliers to mitigate substantially all of our remaining exposure, including through recoveries. Lastly, we returned $137 million to shareholders in dividends in the second quarter, bringing our year-to-date return of capital to $324 million. We continue to assess industry conditions, as well as the macroeconomic and trade environment, and remain committed to our long-stated capital allocation strategy, including share repurchases once conditions become less uncertain. Under our normal course issuer bill initiated last November, we have purchased about 5.7 million shares today, representing 2% of our shares outstanding. At MAGNA, we place a premium on delivering innovation and high quality to our customers to differentiate ourselves in the industry, and we have enjoyed some success recently. In J.

Based on our actions taken and recent updates to tariff. Rates, up to Mid July, we have lowered our estimated annualized tariff, exposure, to 200 million from 250 million. When we reported in q1,

We have settled with multiple oems for substantially, all of our 2025, net Arif, exposure with them. And we are working with our other customers and suppliers to mitigate substantially all of our remaining exposure including through recoveries. Lastly, we returned 137 million to shareholders in dividends in the second quarter. Bringing our year to date return of capital to 324 million.

We continue to assess industry conditions.

As well as the macroeconomic and trade environment, we remain committed to our long-standing capital allocation strategy, including share repurchases. Once conditions become less uncertain.

Under our normal course issuer bid, initiated last November, we have purchased about 5.7 million shares to date, representing 2% of our shares outstanding.

Differentiate ourselves in the industry.

And we have enjoyed some success recently.

Swamy Kotagiri: Powers' 39th annual initial quality study, their Platinum Plant Quality Award was recently given to our complete vehicle assembly operation in Graz, Austria. The award acknowledges quality and precision in producing the BMW Z4. Based solely on defects and malfunctions reported by customers, only one plant in the world receives this platinum distinction each year, making it an exceptionally rare and elite achievement. We also earned the Volkswagen Group Award for 2025 in the product category, recognizing MAGNA's technical ingenuity, flexibility, and persistence in developing and launching an innovative battery cover for VW's MEB all-electric platform. Even during this period of uncertainty for our industry, we continue to execute to win new business and advance automotive technologies. We were recently awarded a dedicated hybrid transmission program with a North American-based global OEM for PHEV models launching in 2028.

In Jerry Power's 39th Annual Initial Quality Study, their Platinum Plant Quality Award was recently given to a Complete Vehicle Assembly operation in Graz, Austria.

They award acknowledges quality and Precision in producing the BMW Z4.

Based solely on defects and malfunctions reported by customers, only 1, plant in the world receives this Platinum distinction each year, making it an exceptionally rare and Elite achievement. We also earned the Volkswagen group award for 2025, in the product category, recognizing Magnus, technical Ingenuity, flexibility and persistence in developing and launching an Innovative battery cover for vw's. Meb all electric platforms.

Swamy Kotagiri: We are also coding a similar hybrid product with an additional global OEM. This award is a testament to the building block and platform strategy that we have been speaking about for some time, demonstrating our ability to support our customers to bring power to the wheels across a wide range of powertrain configurations, from ICE through different hybrid variants all the way to pure BEVs. With the increased industry focus on hybrid technologies, we continue to add to our business in this area, and we are advancing vehicle safety innovation with integrated interior sensing systems, including through our child presence detection technology, which has been recognized recently with business awards from OEMs in Asia and North America. The industry continues to face a high degree of uncertainty as a result of the tariff and trade environment.

Even during this period of uncertainty, for our industry, we continue to execute to win new business and Advanced Automotive Technologies. We were recently awarded a dedicated hybrid transmission program with a North American based Global OEM for phev, models launching in 2028,

We are also coding a similar hybrid product with an additional global OEM.

This award is a testament to the building block and platform strategy that we have been speaking about for some time.

Demonstrating our ability to support our customers to bring power to the wheels, across a wide range of power chain configurations from Ice through different hybrid variants, all the way to Pure being easy.

With the increased industry focus on hybrid Technologies. We continue to add your business in this area.

And we are advancing Vehicle Safety Innovation with integrated interior sensing systems including through our child presence detection technology which has been recognized recently with business awards, from oems in Asia, and North America.

Swamy Kotagiri: Despite this uncertainty, we continue to execute against our plan as we have through a variety of challenges in recent years. In terms of recent updates impacting MAGNA, our estimate of annualized tariff exposure is reduced to approximately 200 million from approximately 250 million when we reported in Q1. We have settled with multiple OEMs for substantially all of our 2025 net tariff exposure with them. In our current 2025 outlook, we expect a less than 10 basis point impact to our EBIT margin, as well as a modest increase in working capital based on the timing of recoveries or expected tariff costs late in 2025. We remain highly focused on utilizing government remission programs where appropriate, continuing cost reduction programs already in place, being disciplined with capital spend, and working with our other customers and suppliers to mitigate substantially all of our remaining exposure, including through recoveries.

The industry continues to face a high degree of uncertainty, as a result of the Tariff and trade environment.

Despite this uncertainty, we continue to execute against our plan as we have through a variety of challenges in recent years.

In terms of recent updates impacting Magna.

Our estimate of annualized tariff, exposure is reduced to approximately 200 million from approximately 250 million. When we reported in q1,

we have settled with multiple oems or substantially, all of our 2025, net tariff, exposure with them.

And in our current 2025 outlook, we expect a less than 10 basis point impact to our EBIT margin, as well as a modest increase in working capital based on the timing of recoveries for expected tariff costs late in 2025.

We remain highly focused on utilizing government remission programs, where appropriate?

Continuing cost reduction programs already in place and being disciplined with capital spend.

Swamy Kotagiri: Next, I will cover our updated outlook. While the current environment makes forecasting more challenging than normal, we remain focused on what we can control and continue to adapt to an evolving situation. Relative to our previous outlook, we have adjusted our North American production forecast to 14.7 million units. While this reflects a reduction of about 300,000 units, the majority of the adjustment relates to a refinement in backward-looking data around Q1 production. These changes help align our outlook with current market dynamics. We are holding Europe production unchanged. We are raising our China production to 30.8 million units, all of which relate to an adjustment to estimated Q1 production and our Q2 production outperformance. We also assume exchange rates in our outlook with approximate recent rates. We now expect a higher euro and slightly higher Canadian dollar and RMB for 2025 relative to our previous outlook.

And working with our other customers and suppliers to mitigate substantially all of our remaining exposure, including through recoveries.

Next, I'll cover our updated outlook.

While the current environment makes forecasting more challenging than normal, we remain focused on what we can control and continue to adapt to an evolving situation.

Relative to our previous outlook, we have adjusted our North American production forecasts to 14.7 million units.

While this reflects a reduction of about 300,000 units, the majority of the adjustment relates to a refinement in backward-looking data, around first quarter production,

These changes help align our Outlook with current market dynamics.

We are holding Europe production unchanged.

We are raising our China production to 30.8 million units, all of which relate to an adjustment to estimated Q1 production and our Q2 production output performance.

We also assume exchange rates in our Outlook are approximate recent rates.

Swamy Kotagiri: We increased our sales range as a result of foreign exchange translation due to the higher euro relative to the U.S. dollar, as well as better-than-anticipated program mix, particularly this past quarter. We raised the low end of our adjusted EBIT margin range and now expect to be between 5.2% to 5.6%, reflecting our strong Q2 results supported by continued execution around our cost-saving programs. Recall that we indicated over the past two reports that we expected approximately 40% of our EBIT to be generated in the first half of 2025, and we are forecast to end up slightly ahead of that. We also said we expected our 2025 earnings to be lowest in the first quarter of 2025 and to improve meaningfully in the second quarter, which we have also delivered on.

We now expect a higher Euro, and slightly higher Canadian dollar and RMB for 2025 relative to our previous outlook.

We increased our sales range as a result of Foreign Exchange translation due to the higher Euro relative to the US dollar, as well as better than anticipated program, mix, particularly this past quarter.

We raised the low end of our adjusted EBIT margin range and now expect to be between 5.2% and 5.6%, reflecting our strong Q2 results supported by continued execution around our cost-saving programs.

Recalls that we indicated over the past 2 reports that we expected approximately 40% of our ebit to be generated in the first half of 2025.

And we are forecast to end up slightly ahead of that.

Swamy Kotagiri: Looking forward to H2, based on some timing updates and revised vehicle volumes, we now expect to generate approximately 35% of our full-year EBIT in the fourth quarter of this year. The most significant margin drivers sequentially from H1 to H2 are expected to be commercial recoveries, lower engineering spend, net tariff recoveries, lower warranty expense, and a step up in the benefits from our operational excellence activities. We are excited about our progress in operational excellence, and while there is more work ahead, we continue to see additional potential upside to margin from these initiatives over time. We reduced our tax rate to approximately 25% from approximately 26%, mainly due to favorable FX adjustments recognized for U.S. GAAP purposes in Q2 and changes in our reserves for uncertain tax positions.

We also said, we expected our 2025 earnings to be lowest in the first quarter of 2025 and to improve meaningfully in the second quarter, which we have also delivered on.

Looking forward to H2 based on some timing updates and revised vehicle volumes. We now expect to generate approximately 35% of our full year. Ebit in the fourth quarter of this year.

The most significant margin driver sequentially from H1 to H2, are expected to be commercial. Recoveries lower engineering, spend net tariff recovery.

Lower warranty expense, and a step up in the benefits. From our operational excellence activities.

We are excited about our progress in operational excellence. And while there is more work ahead, we continue to see additional potential upside to margin from these initiatives over time.

Swamy Kotagiri: We modestly increased our net income attributable to MAGNA, reflecting higher expected EBIT and the lower effective income tax rate. We are reducing our capital spending range by $100 million compared to our May outlook, reflecting our continuing efforts to defer or reduce capital wherever possible. Offsetting this CapEx reduction are modest increases in working capital related to tariffs and in other asset spending, resulting in an unchanged free cash flow range. Lastly, our interest expense range is unchanged from our last outlook. To summarize, we are confident in our outlook for the remainder of the year, supported by strong Q2 execution and ongoing operational discipline despite ongoing industry challenges. We remain on track to deliver the outlook shared in February, which is a testament to strong execution throughout the organization. With that, I pass the call over to Pat.

We reduced our tax rate to approximately 25% from approximately 26%, mainly due to favorable FX adjustments recognized for us for GAAP purposes in Q2 and changes in our reserves for uncertain tax positions.

Be modestly increased. Our net income attributable to Magna reflects higher expected EBIT and a lower effective income tax rate.

We are reducing our capital spending range by $100 million compared to our May outlook, reflecting our continuing efforts to defer or reduce capital wherever possible.

Offsetting this CapEx reduction or modest increases in working capital related to tariffs.

And in other asset, spending resulting in an unchanged free cash flow rate.

Lastly, our interest expense range is unchanged from our last Outlook.

To summarize. We are confident in our outlook for the remainder of the Year, supported by strong, Q2 execution, and ongoing operational discipline despite ongoing industry challenges.

Patrick McCann: Thanks, Swamy, and good morning, everyone. As Swamy indicated, we delivered strong Q2 earnings, better year over year, and ahead of our expectations. Comparing Q2 2025 to Q2 2024, consolidated sales were $10.6 billion, down 3% compared to a 1% increase in global light vehicle production, which included 6% and 2% declines, respectively, in North America and Europe, our two largest markets. Despite the lower sales, adjusted EBIT was up 1% to $583 million, and adjusted EBIT margin was 5.5%, up 20 basis points year over year, despite a 40 basis point negative impact from tariffs. Adjusted diluted EPS came in at $1.44, up 7%, and free cash flow generated in the quarter was $301 million, up $178 million year over year and ahead of our expectations. Let me take you through some of the details.

We remain on track to deliver the Outlook shared in February, which is a testament to strong execution throughout the organization with that. I passed the call over to pass.

Thanks balmy and good morning everyone.

As Swami indicated, we delivered a strong second quarter, with earnings better year-over-year and ahead of our expectations.

Comparing the second quarter of 2025 to the second quarter of 2024.

Consolidated sales were 10.6 billion down, 3%, compared to a 1% increase in global light, vehicle production.

Which included a 6% and a 2% decline, respectively, in North America and Europe, our two largest markets.

Despite lower sales, adjusted EBIT was up 1% to $583 million, and the adjusted EBIT margin was 5.5%, up 20 basis points year-over-year, despite a 40 basis point negative impact from tariffs.

Adjusted diluted EPS came in at a $144 up 7%.

And free cash flow generated in the quarter was $301 million, up $178 million year-over-year and ahead of our expectations.

Let me take you through some of the details.

Patrick McCann: North American and European light vehicle production decreased 6% and 2%, respectively, and production in China increased 5%, adding to a 1% increase in global production. On a sales-weighted basis, light vehicle production declined 3% from Q2 2024. Our consolidated sales were $10.6 billion compared to $11 billion in Q2 2024. On an organic basis, our sales decreased 4% year over year for a negative 1% growth over market in the quarter. The decline in our total sales largely reflects negative production mix from lower D3 production in North America, 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, and normal course customer price givebacks.

North American and European light vehicle production, decreased 6% and 2% respectively and production in China. Increased 5% netting to a 1% increase in Global Production.

On a sales-weighted basis, light vehicle production declined 3% from Q2 2024.

Our Consolidated sales were 10.6 billion compared to 11 billion in the second quarter of 2024.

On an organic basis, our sales decreased 4% year over year.

For a negative 1% growth over Market in the quarter.

The decline in our total sales, largely reflects

Negative production, mix from lower D3 production in North America.

A decline in complete vehicle assembly volumes, including the end of production of the Jaguar, and iPads in growth Austria.

The end of production of certain other programs.

Patrick McCann: These are partially offset by the launch of new programs, the favorable impact of changes in foreign exchange rates, and customer price increases to recover certain higher production input costs. Adjusted EBIT was $583 million, and adjusted EBIT margin was 5.5%, up 20 basis points from Q2 2024, largely due to our ongoing cost savings and efficiency initiatives. The higher EBIT % in the quarter reflects positive 50 basis points from operational items, reflecting operational excellence activities and lower launch costs, partially offset by higher new facility costs. Positive 20 basis points related to higher equity income as a result of higher net favorable commercial items, higher earnings due to favorable product mix and higher sales and lower launch costs, all with respect to certain equity accounted investments.

The divestiture of a controlling interest in our metal forming operations in India, and normal course customer price givebacks.

These are partially offset by the launch of new programs.

A favorable impact of changes in foreign exchange rates and customer price increases to recover certain higher production, input costs.

Adjusted EBITDA was $583 million, and the adjusted EBIT margin was 5.5%, up 20 basis points from Q2 2024.

Largely due to our ongoing cost savings and efficiency initiatives.

The higher EBIT percent in the quarter reflects positive contributions of 50 basis points from operational items, reflecting operational excellence activities and lower launch costs, partially offset by higher new facility costs.

Patrick McCann: Positive 10 basis points in net discrete items, including supply chain premiums incurred in 2024 and lower warranty and restructuring costs, partially offset by lower net favorable commercial items. These were partially offset by negative 40 basis points for tariff costs incurred but not yet recovered from our customers and volume in other items, which impacted us by negative 20 basis points, largely reflecting reduced earnings on lower sales. Below the EBIT line, interest was modestly lower than last year. Our adjusted effective income tax rate came in at 20.5%, lower than Q2 of last year, primarily due to favorable FX adjustments recognized for U.S. GAAP purposes and favorable changes in our reserves for uncertain tax positions, partially offset by lower non-taxable items, losses not benefited in Europe, and a change in the mix of earnings.

Positive 20 basis points related to higher equity income, as a result of higher net favorable commercial items, higher earnings due to favorable product mix and higher sales, and lower launch costs. All with respect to certain equity-accounted investments and positive 10 basis points in net discrete items, including supply chain premiums incurred in 2024 and lower warranty and restructuring costs.

Partially offset by lower net. Favorable commercial items.

These were partially offset by 40 basis points for tariff costs incurred, but not yet recovered from our customers, as well as volume and other items.

Which impacts us by -20 basis points, largely reflecting reduced earnings on lower sales.

Below the EBIT line, interest was modestly lower than last year.

Our adjusted effective income tax rate came in at 20.5%, lower than Q2 of last year.

Primarily due to favorable FX adjustments recognized for us, gaap purposes and favorable changes in our reserves for uncertain tax positions.

Partially offset by lower non-taxable items, losses not benefited in Europe, and a change in the mix of earnings.

Patrick McCann: Net income was $407 million, $18 million higher than Q2 2024, mainly reflecting higher EBIT and lower income taxes. Adjusted EPS was $1.44, 7% better than last year, reflecting higher net income and 2% fewer diluted shares outstanding. The fewer shares outstanding largely reflects share repurchases in the fourth quarter of 2024 and first quarter of 2025. Turning to a review of our cash flows and investment activities. In the second quarter of 2025, we generated $762 million in cash flow operations before changes in working capital and used $135 million in working capital. Investment activities in the quarter included $246 million for fixed assets and a $94 million increase in investments, other assets, and intangibles. Overall, we generated free cash flow of $301 million in Q2, higher than we were forecasting and $178 million better than the second quarter of 2024.

Net income was 407 million 18 million higher than Q2 2024 mainly reflecting higher evit and lower income taxes.

And adjusted EPS was a $1.44 7% better than last year reflecting higher net income and 2% fewer diluted shares outstanding.

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

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

In the second quarter of 2025, we generated $762 million in cash from operations before changes in working capital and used $135 million in working capital.

Investment activities in the quarter included $246 million for fixed assets and a $94 million increase in investments related to other assets and intangibles.

Patrick McCann: We continue to return capital to shareholders, paying $137 million in dividends in Q2. Our balance sheet continues to be strong with investment grade ratings from the major credit agencies. During the second quarter, we successfully raised Euro 575 million and U.S. Dollar 400 million in the form of senior notes, principally to repay $650 million of debt in September of this year. At the end of Q2, we had over $5 billion in liquidity, including about $1.5 billion in cash. Currently, our adjusted debt to adjusted EBITDA ratio is at 1.87, excluding excess cash held to repay debt coming due, better than we had anticipated coming into the quarter and compared to our target ratio of between 1 and 1.5 times. In summary, we delivered strong financial performance in the second quarter, which exceeded our expectations and showed meaningful improvements to the bottom line on a year-over-year basis.

Overall, we generated free cash flow of $301 million in Q2, higher than we were forecasting and $178 million better than the second quarter of 2024.

And we continue to return capital to shareholders, paying $137 million in dividends in Q2.

Our balance sheet continues to be strong with investment grade ratings from the major Credit Agencies.

Notes.

Press play to repay. 650 million of debt in September of this year.

At the end of Q2, we had over 5 billion in liquidity, including about 1.5 billion dollars in cash.

Currently, our adjusted debt to adjusted IBAA ratio is at 1.87.

Excluding excess cash held to repay. Debt coming due.

Better than we had anticipated coming into the quarter and compared to our target ratio of between 1 and 1.5 times.

In summary, we delivered strong financial performance in the second quarter.

Patrick McCann: We have also updated our outlook to reflect this continued momentum, including higher sales supported by favorable foreign currency translation and better-than-anticipated program mix, particularly in Q2, raising the low end of our adjusted EBIT margin range and increasing adjusted net income, largely due to higher expected adjusted EBIT and lower effective income tax rate. In addition, we are proactively working with our customers to mitigate tariff impacts. Our annualized direct tariff exposure has been reduced since last quarter. We have settled with multiple OEMs for substantively all of our 2025 net tariff exposure with them, and we are working with our other customers and suppliers to mitigate substantively all of our remaining exposure, including through recoveries. Our operational excellence initiatives continue to contribute positively to margins despite a challenging industry backdrop, and we expect further contributions from these activities into 2026.

Which exceeded our expectations and showed meaningful improvements to the bottom line on a year-over-year basis.

We have also updated our Outlook to reflect this continued momentum including higher sales supported by favorable foreign currency translation and better than anticipated program, mix particularly in Q2.

Raising the low end of our adjusted ebit margin range and increasing adjusted. Net income. Largely due to higher expected, adjusted ebit, and lower effective income tax rate.

In addition, we are proactively working with our customers to mitigate tariff impacts.

Our annualized direct terror exposure has been reduced since last quarter.

We have settled with multiple OEMs for substantively all of our 2025 net tariff exposure with them. We are working with our other customers and suppliers to mitigate substantively all of our remaining exposure, including through recoveries.

Our operational excellence initiative, can continue to contribute positively to margins, despite a challenging industry backdrop and we expect further contributions from these activities into 2026.

Patrick McCann: Lastly, we returned $137 million to shareholders in the quarter in the form of dividends, and we continue to assess industry conditions as well as the macroeconomic and trade environment and remain committed to our long-stated capital allocation strategy, including share repurchases once conditions become less uncertain. Thanks for your attention this morning. We'd be happy to take your questions.

Lastly, we returned $137 million to shareholders in the quarter in the form of dividends, and we continue to assess industry conditions.

As well as the macroeconomic and trade environment and remain committed to our longstanding Capital, allocation strategy, including share repurchases. Once conditions, become less uncertain.

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

Lacey: At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Tamy Chen with BMO Capital Markets. You may go ahead.

At this time, I would like to remind everyone in order to ask a question. Please press star then the number 1 on your telephone keypad. We will pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Tammy Chin with BMO Capital Markets. You may go ahead.

Tamy Chen: Hi, good morning. Thanks for the question. First, I just want to confirm for the BES segment, were there any one-time items, or really this strong margin result was largely just on the much better program mix?

Hi, good morning. Uh, thanks for the questions. Um, first, uh, I just want to confirm for the bees segment. Um, like, were there any 1-time items or really? The strong margin results was largely, just on the much better program. Mix.

Louis Tonelli: Morning, Tamy Chen. I don't think there was no real significant one-time result of the extraordinary. It really was being driven by operational excellence and, as you said, positive mix on a year-over-year basis. The only thing we did have last year, we did have a supplier issue at one facility down in Mexico, and that's behind us. So that's a little bit of the improvement in margin, but it's not significant.

Uh, morning Tammy. Um, I don't think there was no real significant 1-time result of the extraordinary. It's, it's really was being driven by operational excellence. And as you said, um, positive, mix on a year-over-year basis. Uh, the only thing we did have last year, we did have a supplier issue at 1 faculty.

Tamy Chen: Okay, thanks for confirming that. On tariffs, thanks for the update on all of that. I just want to confirm, are you expecting to receive the recoveries for your this year tariff impact by Q4 of this year? Given you are saying already by this point, you have settled for a substantial amount of this tariff impact, I am wondering, have you been able to establish a more formal mechanism with your OEM customers to receive recoveries going forward at a more timely basis, or will those still be quite lumpy?

Okay, thanks for confirming that. Um, and then on tariffs. So, um, thanks for the update on all of that. I just want to confirm, are you expecting to receive the recoveries for your tariff impact this year by Q4 of this year? And, um, given you're saying, you know, already by this point you've settled for a substantial exposure amount of this tariff impact, I'm wondering, like, have you been able to establish a more formal mechanism with your OEM customers to receive recoveries going forward at a more timely basis, or will those still be quite lumpy?

Swamy Kotagiri: Good morning, Tamy Chen. A few things. I think mitigation of tariffs, part of it is recoveries, part of it is internal efforts to increase USMCA compliance, working through rebalancing and so on and so forth. We have signed agreements with a few customers, and there is a framework in place to finish with the other customers. We have been focused on working through a mechanism rather than a lump sum payment. So in short, to your question, we expect a cadence of recovery. But with that said, I think still in Q4, we will have some tariffs coming in. It's a timing issue, but we feel comfortable with the outlook that we have given.

Good morning, Tammy. A few things I think: mitigation of tar is part of it, recovery is part of it, and internal as well.

Uh, efforts to increase USMCA compliance are working through, you know, rebalancing and so on and so forth.

In Q4, we will have some, uh, you know, tasks coming in. It's a timing issue, but we feel comfortable with the outlook that we have given.

Tamy Chen: Got it. Last one here, a bit of a two-part just on impact you since the tariffs come in. First, we've seen some of your major customers increase production in their U.S. plants and either lower production or idle in their Canadian or Mexican plants. I'm just wondering, for those ones that have been announced, how have they affected your assets in North America? Is it all net negative for your Canadian-Mexican plants, or is it a bit of a wash and you're just shipping to those OEMs' U.S. plants? Second, I'm wondering if the topic of reshoring now, if it is coming up a bit more in your discussions with OEMs. Thank you.

Got it. And last 1 here, bit of a 2-part just on uh impact to you since the tariffs come in like first. We've seen some of your major customers increase production, and their us plants, and other lower production are idle and their Canadian Mexican plants. And just wondering for those ones that have been announced house, day affected your assets and North America. Like, is it on net negative for your Canadian Mexican plans? Or is it a bit of a wash and you're just shipping to those? Oems us plants. And second I'm wondering if the topic of reshoring now, if it is coming up a bit more in your discussions with oems. Thank you.

Swamy Kotagiri: Yeah, Tamy, I think the discussions are definitely there to look at rebalancing based on the USMCA compliance and upcoming program planning. But the good thing is that we have the footprint in all three regions. So as far as the rebalancing of the production is concerned, we would be in a good position. Still, it's a variable to be addressed as the planning goes forward. The good thing is we have a seat at the table through the planning process with the OEMs. But with the tariffs on the rest of the world, if that changes or increases local production, it would be an opportunity for MAGNA.

Yeah. Tammy I think the discussions are definitely there. Uh to look at rebalancing based on the usmca compliance and upcoming program planning. Uh but the good thing is that we have the footprint in all 3 regions. So as far as the rebalancing uh of the production is concerned, we would be in a good position.

Uh, but still, it's a variable to be addressed as the planning goes forward. The good thing is we have...

A seat at the table, um, through the planning process with the OEMs.

Uh, but with the tariffs on the rest of the world for if that changes or increases local production, it would be an opportunity for Magna.

Louis Tonelli: I think the other thing to consider, Tamy, is our sales in Canada are about $4.5 billion, and 70% of those sales are already coming into the U.S. Increased production in the U.S. versus Canada really is not impacting our Canadian ops at this point.

And I think the other thing to consider, Tamas, is that our sales in Canada are about $4.5 billion, and 70% of those sales are already coming into the U.S. So, increasing production in the U.S. versus Canada really isn't impacting our Canadian operations at this point.

Swamy Kotagiri: Most of it is USMCA compliant. That is the key thing, right, for us.

And and most of it is usmca compliant, that is the key thing, right? For us.

Tamy Chen: All right, thank you.

Alright, thank you.

Lacey: Your next question comes from the line of Dan Levy with Barclays. You may go ahead. Dan Levy, your line is open.

Your next question comes from the line of Dan Levy with Barclays. You may go ahead.

Dan Levy: Oh, sorry. I was on mute there. Thank you for taking the questions. I wanted to first ask about the step up into the second half and appreciate the commentary about a number of drivers, the commercial recoveries, lower spend. Maybe you could just unpack of those items where you have a clear line of sight versus where it is going to require a little bit more work. Just as a follow-up to that, you are going to have a 6% margin in the second half. Is that the right jumping-off point as we start to think about what 2026 will be?

Dan Levy? Your line is open.

Oh sorry. I need their uh, thank you for taking the the questions wanted to first ask about, uh, the step up into the second half and appreciate the commentary about, you know, a number of drivers, the commercial recovery is lower spend, but um, maybe you could just unpack all of those items where you have clear line of sight versus where, you know, it's going to require a little bit of more work and

Just as a follow-up to that, so you're going to have a 6% margin in the second half. Is that the right?

Jumping off point, as we start to think about what 2026 will be.

Swamy Kotagiri: I would give it a good morning, Dan. A few points, and Pat, you can add some. I think if you look at H1 to H2, part of it is the launch cadence that we talked about of new programs into the second half of 2025 going into 2026. I would say a large number of these programs are also coming with new economics. You mentioned the cadence of tariff recoveries, which had a negative impact in the first half. As I said, with the framework agreements, the payments are coming in the second half of the year. Usually, on commercial recoveries based on our discussions, they tend to be back-ended. Overall, I would say we have pretty good visibility on what we have included in the outlook. There's always some puts and takes, but we feel the visibility is pretty good.

I'll give you a good morning. Dan a few points and Pat, you can add some

I think if you look at H1 to H2, I think part of it is the launch cadence that we talked about of new programs into the second half of 2025 going into 2026.

I would say a large number of these programs are also coming with new economics.

Um, you mentioned the Cadence of character, recoveries, uh, which had a negative impact in the first half and as I said with the framework agreements, the payments are coming in the second half of the year and usually on Commercial recovery is based on all discussions. They tend to be back-ended.

Overall, I would say we have pretty good visibility on what we have included in the Outlook. There's always some puts and takes, but we feel the visibility is pretty good.

Swamy Kotagiri: In terms of looking at it, we particularly mentioned, as we did at the beginning of the year, that 40% of our earnings were coming in the first half. We were a little bit ahead of that. For this cadence of the second half, I would say about, I think we mentioned roughly 35% of our earnings will come in the fourth quarter, right? That should give you that. We also talked a little bit of the operational activities taking traction, which we have been working for years, and with the incremental volumes that are starting to show the incremental flow through into our margins. We talked about a 150 basis points improvement in our margin from 2024, 2025. About 110 basis points of that is behind us, on track to finish the remaining quarter this year.

Uh, in terms of looking at it, we particularly mentioned, as we did at the beginning of the year, that 40% of our earnings were coming in the first half. We were a little bit ahead of that.

um, and for the Cadence of the second half,

I would say about, I think we mentioned, roughly 35% of our earnings will come in the fourth quarter, right? So that should give you that. Now, we also talked a little bit about the operational activities gaining traction.

Which we have been working for years.

And with the incremental volumes that is starting to show uh the incremental flow through into our margins.

Uh, we talked about a 150 basis points improvement in our margin from 2425.

Swamy Kotagiri: We also see a similar cadence of about 35 basis points going into 2026. All in all, if the volumes hold and if the assumptions that we talked about in February stay, we feel pretty good about operationally of what's in our control. If nothing changes again, right, on the outside wall, we feel pretty good about 2026 outlook that we talked about in February.

So it's about 110 basis points of that is behind us uh on track to finish the remaining 40 this year.

Basis points going into 26. So all in all if the volumes hold and if the assumptions uh that we talked about in February stay we feel pretty good about operationally of what's in our control if nothing changes again based on the outside world, we feel pretty good about 26 Outlook that we talked about in February.

Dan Levy: Great. That's very helpful. As a follow-up, I wanted to ask about seating specifically. First, maybe you could just address, there is a fairly material implied ramp in seating margins in the back half of the year. I know that first quarter was dragged by warranty, and we saw probably a more appropriate run rate in the second quarter. You do have a big step up, I think, in terms of like implied 5% margin in the second half, which you haven't done in a while. If you could just talk to that. Then just broadly, do you feel comfortable that within the context of your broader ROIC targets and how you're managing the portfolio, that seating is still earning in excess of its cost of capital and that this business still fits well within the type of return profile that's needed at MAGNA?

Great. That's that's very helpful.

um, as a follow-up, wanted to ask uh, about seating specifically in person, maybe you could just

You know, there is a fairly material implied ramp in seating margins in the back half of the year. I know that the first quarter was dragged by warranty and, you know, we saw probably a more appropriate phone rate in the second quarter. But you do have a big step up; I think it's almost like implied 5% margins.

A second half which you haven't done in a while. If you could just talk to that and then just broadly do you feel comfortable that within the context of your broader? Um, you know, roic targets and how you're managing the portfolio that seating is still earning in excess of its cost of capital uh and that this business still fits well within the type of return profile, that's needed at Magna.

Swamy Kotagiri: Again, Dan, I think the more tactical question on seating, you have to remember that there is a tariff impact in the first half of the year in seating, but with agreements in place, you will see the recoveries come in the second half. So that is something to consider. But as we look into the second half, based on what we see in terms of releases and volumes and so on and so forth, it looks pretty good. That is what we have included in the outlook.

Uh, again Dan. I think the more tactical question on seating, uh,

You have to remember that, there is a tariff impact in the 12 half of the year in seating, but with agreements in place, you know, you'll see the recoveries come in the second half.

Um, so that's something to consider, but.

Louis Tonelli: No, I think you mentioned the tariff impact. It is disproportionately hitting our P&B segment and our seating segment. Just the tariff impact alone on seating is in the range of about 60 bps in the first half of the year. The margin, the warranty impact was about 110 bps. That is the bulk of the step up from H1 to H2, Dan.

Swamy Kotagiri: To the second part of your question, look, we've always talked about looking at portfolio from the guiding principles. From a returns perspective, seating has been a good business, you know, in terms of ROIC, it definitely clears the bar for our financial metrics for returns. We have seen the operational improvements that we've talked about. We are starting to see that going from year to year, except for the warranty issue in the first quarter. We are seeing the path. But again, like I said, we continue to look at the portfolio every year, and you know, we have to assess.

As we look into the second half, based on what we see in terms of releases and volumes and so on and so forth. Uh, it looks pretty good, that's what we've included in the Outlook, add anything to add there. No, I think, the you mentioned the, the Tariff impact is, it's disproportionately hitting our p&v segment and our seating segment. So, just the Tariff impact, um, alone on seedings in the range of about 60 basis points, in the first half of the year and the margin, uh, the warranty impact was about 110 basis points. So that's the bulk of the the Step Up from H1 to H2 Dan.

So, and and then, to the second part of your question, look, we always talked about looking at portfolio from The Guiding principles.

And returns perspective, seating has been a good business, you know, in terms of Roi can definitely you know, clear the power for our financial uh metrics for returns.

and,

We have seen the operational improvements that we've talked about. Um, we are starting to see that going from year to year except for the warranty issue and the first quarter uh we we are seeing the path but again like I said we continue to look at the portfolio every year and you know we have to assess

Dan Levy: Great. Thank you.

Great. Thank you.

Lacey: Your next question comes from the line of Chris McNally with Evercore ISI. You may go ahead.

Uh, Chris McNally with evercore isi, you may go ahead.

Dan Levy: Good morning, team. Apologize for being a little monotonous, but I am going to follow Dan and Tamy's question, but ask about the second half of the P&B segment. Again, looking at the second half implied ramp versus the first half, I think what we are all trying to think about is volumes are going to be lower in the second half, but there is a heavier tint here to international. You talked about, Swamy Kotagiri, some of the launches that you have. Could you just apply that to P&B? Because margins have been all over the place over the last year or two. I would love to know if there is a natural progression here that we can take into 2026.

Uh, good, good morning team. Um, uh, apologize for being a little monotonous, but I'm going to follow Dan and Jamie's question, but but ask about the second half of the pnv, uh, segment. Um, again, you know, looking at the second half implied, ramp versus the first half. Um, I think what we're all trying to think about is, you know, volumes are going to be lower in second half. Um, but there's a heavier tint here to to International. He talked about a Swami, some of the the launches that you have could you just apply that to to to pnv because margins have have been, you know, all over the place over the last year or 2. So would love to know if there's a a natural progression here that we can take into 2026?

Swamy Kotagiri: I would say the tariff comment applies to the P&B, Chris, definitely going from the first half to the second half. If you exclude that part of it, I think, again, from a performance perspective, P&B is doing well. The cadence of launches I talked about is not specific to P&B. It is all across MAGNA, as you can imagine. Going back to the operational initiatives that are in place, we are starting to see the benefits coming through as we talk about it. Again, if you just go back to what I talked about, the improvements in 2024, 2025, what is to be seen in 2026, I would say we feel pretty good going into what we talked about in 2026.

I would say the type of comment applies to the pnv. Uh Chris uh definitely going from the first half to the second half. Uh if you exclude that part of it, I think again from a performance perspective pnv is doing well.

Uh, the Cadence of launches, I talked about is not specific to pnv, it's all across Magna as you can imagine.

Um, so again, going back to the operational initiative that are in place. We are starting to see the benefits

Swamy Kotagiri: Again, the big big assumption is the volume staying, and the assumption we have for 2026 volumes is roughly in the same level as what we are talking about in 2025.

Yeah, I would say we feel pretty good going into what we talked about in 26. Again, the big big assumption is the volume stain. And the Assumption we have for 26 volumes is roughly in the same level as what we're talking about in 25.

Dan Levy: is great. So, Swamy Kotagiri, maybe that is the best way to think about a base-off growth for PowerVision is really more think, again, about the full year rather than a second half versus first half. Then as we grow it in 2026, a lot of the actions, the better contracts, but then we need some volume to grow it at your typical incrementals, whatever that be, 20% or greater. Is that a fair way to think about it? Use that full base, the full year base of roughly low fives for P&B.

That's great. So this is Swami maybe that the best way to think about a base of growth for power vision is really more think again about the full year rather than a second half versus first half. And then as we grow it in 2026,

A lot of the, the the actions, the better contracts, but then we need some volume to grow it. At your typical incremental, whatever that be 20% or greater, is that, is that a fair way to think about use that full base the full year base of of roughly low 5 uh for for for pnb?

Swamy Kotagiri: Chris, you summed it better than I could have.

Chris, you some did better than I could have.

Dan Levy: Excellent. Thanks so much, team.

Excellent. Thanks so much team.

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

You're next question comes from the line of Joe SPAC with UBS. You may go ahead.

Joseph Spak: Thanks so much, everyone. I just want to dig into the 35% of EBIT in the fourth quarter comment again. We have seen, obviously, some lower schedules on some key programs in the third quarter. Is that really what is driving that, Q3 versus Q4 timing you are talking about? Or is it also recoveries? Or is there anything else you could provide on that split?

Uh, thanks so much everyone. Um I just want to dig in to the 35% of ebit in the fourth quarter. Comment again um,

Uh, like we've seen obviously some some lower schedules on some Key Programs and the third quarter. So is that really what sort of driving that, you know, 3Q versus 4q timing? Um you're talking about or is it also recoveries? Or is there anything else you could provide on on that split?

Louis Tonelli: I think, Joe, it's a combination of the two, right? If we go back in history, the seasonality of our business is that Q3 tends to have lower sales with the shutdowns in North America and in Europe. We are seeing some of that, which reflects your comment on the schedules for the next three months. The second part is the commercial recoveries, as we have seen over the last couple of years, have been more in the fourth quarter, and that's still what we are expecting across the board. What we have added this year to some of that volatility, I would say, is the recovery of tariffs. I just want to emphasize, like the questions on P&B and seating, as Swamy Kotagiri said, like the impacts just for MAGNA alone, we have expensed $55 million of tariffs in the first half of the year.

Yeah, I think Joel um It's a combination of the 2, right? So you know if we we go back in history, the seasonality of our business is that Q3 tends to have lower sales with the shutdowns in North America and in Europe. So, we're seeing some of that which reflects your comment on the the schedules for the next 3 months. The second part is the commercial recoveries as we've seen over the last couple of years have been, uh, more in the fourth quarter, and that's still what we're expecting across the board. What we've added this year to some of that volatility I would say is the the recovery of tariffs and and I don't want to

Louis Tonelli: That impact alone is about 25 bps. Our expectation is to recover substantially all of that. We have another swing of close to, say, 20 bps going the other way in the second half of the year. That's another driver of that H1 to H2 improvement.

No, I just want to emphasize like the questions on P and B and seeding as Swami said, like the impacts just for Magno loan, we've expensed 55 million of tariffs, in the first half of the year that that impact the loans about 25 basis points. Our expectation is to recover a substantially, all of that. So we have another swing of

Swamy Kotagiri: That is what we were saying. We have some agreements already signed with the customers and some in place that need to be just signed, but that is the cadence.

Joseph Spak: Yeah, I guess maybe to follow up on that. I know this gets super confusing because, you know, there's, it's the, like you said, the timing issue. But you know, if I take a face or what you said, the margin impact was in the quarter, it sounds like maybe $40 million or so wasn't recovered. You are saying now $200 for the year. You said 10 basis point margin hit for the year. So that's like another $40 million. You are saying $40 million hit for the year. So, I mean, I understand like what you get next quarter might not be for the tariffs in that quarter and everything.

Supposed to say 20 basis points going the other way. In the second half of the year, that's another driver of that H1 to H2 Improvement. And that's what we were saying. You know we have some agreements already signed with the customers and some in place that needs to be just signed but you know that's the Cadence.

Yeah, I I guess maybe to follow up on that. I know this gets super confusing because um you know there's there's it's the like you said the timing issue but you know, if I if I if I take it, say sort of what you said, the margin impact was in the quarter. It sounds like maybe

Joseph Spak: But overall, is what you are saying is like on a net basis, you do not expect that, you know, whatever the tariff hit is versus sort of the recoveries to be as big an issue in the back half versus this quarter. I know that's a convoluted question. Hopefully, hopefully you followed.

Louis Tonelli: Yeah, no, I absolutely get it. Tariffs will be a pickup in the second half of the year as opposed to a headwind. Remember.

40 million or so wasn't recovered and you're saying now 200 for the year you said 10 basis point margin hit for the year so that's like another 40 million you're saying 40 million hit for the year. So I mean I it I understand like what you get next quarter. Might not be for the tariffs in that quarter and everything but like, but oh, overall is what you're saying is like on a, on a, on a net basis, as you, you don't expect that, you know, whatever the Tariff hit is versus sort of the recovery, is to be as big, an issue in the back half versus this quarter. I know that's a con a convoluted question, but hopefully hopefully you followed

Joseph Spak: will recover more than you actually incur.

Louis Tonelli: Correct. We are going to have a pickup in EBIT related to tariffs in the second half of the year, as Swamy Kotagiri said, based on the signed agreements to date, plus the frameworks that are in place with most of our other customers.

Yeah, I know, I absolutely get it. It's actually tariffs that will be a pickup in the second half of the year, as opposed to a headwind. Remember, you'll recover more than you actually enter.

Correct. We're going to have a pickup and EBITDA related to tariffs in the second half of the year, as Swami said, based on.

the signed agreements to date plus the Frameworks that are in place with, um,

Joseph Spak: Okay. Maybe one last quick one. GM sort of had put out a release about bringing back some production to the U.S. It looks like you do have some facilities, including in seating, that support those production facilities. Is that business you would look to sort of go after that you don't have today? Or how are you thinking about that opportunity?

most of our other customers.

Okay, um, maybe 1 last Quick 1. Um, you know, um, GM sort of had, you know, put out a release about

um, bringing back some production to the US. Um, it looks like you do have some, you know, facilities, including in seeding of support those. Um, those uh, facil, those production facilities is that, is that business? You would look to to sort of go after that, you don't have today or how, how are you thinking about that opportunity?

Swamy Kotagiri: Yeah, I think there's many discussions ongoing, Joe, right? We have to look at one, rebalancing as the OEMs are thinking about it. The other one is given our footprint of where we are as part of the overall rebalancing. As I said, if there are other OEMs that are trying to increase their local production in the U.S., we have to take all of that into account. I would say if it is a rebalancing between Mexico and Canada, we are in a good place, but it will not be an upside to sales, but it helps us think through. If it is an increase in local production, we are in a better place to add further to what we have.

Yeah I think there's many discussions ongoing your right. Um you know we have to look at 1 Robalo of where we are as part of the overall rebalancing.

Swamy Kotagiri: The key thing for us right now, where we are focused, is on capital and investments. We are really focused to understand long-term what the plan is before we go do anything in terms of investments. The customers have been very collaborative in sharing the plans and working with us.

Uh, I I would say if it's a rebalancing between Mexico and Canada, we are in a good place, but it won't be an upside to sales, but it helps us think through, but if it's an increase in local production, we are in a better place to add further to what we have.

the key thing for us right now where we are focused is

On Capital and Investments. Really, really focus to understand long-term what the plan is, before we go do anything in terms of Investments,

And and the customers have been very collaborative in sharing the plans and working with us.

Joseph Spak: Thanks for that, Swamy.

Thanks, Brad Swami.

Lacey: Your next question comes from the line of Tom Narayan with RBC. You may go ahead.

Your next question comes from the line of Tom Narayan with RBC. You may go ahead.

Dan Levy: Hey, thanks for taking the question. The first one, there has been some thought that the tariff deals that are struck between the U.S. and other countries, it seems to be this 15% level for Europe, Japan, Korea, but there could be a more favorable one for Mexico, Canada. Given your program mix, just curious, would a situation where volumes benefit in the North American OEMs versus European, Japanese, Korean, would that be a net positive for you or a net negative? Then I have a follow-up.

Hey, thanks for. Uh, thanks for taking the question. Um, the first 1, you know, there's been some thought that, you know, the Tariff deals that are struck, uh, between the Us and other countries, you know, it seems to be the 15% level for Europe, Japan Korea, but there could be a more favorable 1 for, you know, Mexico Canada, given your program mix. Just curious with a situation where volume is benefits in the North American oems versus, you know, European Japanese Korean, would that be a net positive for you or a net negative and then have a follow-up

Swamy Kotagiri: Yeah, I think, good morning, Tom. If you look at the net import from Europe, it is roughly 800,000 units. I would say half a million of that are coming from BMW and Mercedes. With that said, the total exports for these OEMs into the U.S. is about 10% or lesser. That might have an impact in Europe sales, right, if you are supplying there. On the other hand, as they think of localizing in the U.S., us being part of the ecosystem would be an uptick, hopefully there. As I said before, if there are OEMs in North America rebalancing between Canada, Mexico, and the U.S., we are at the table. We have the footprint, but that is just a matter of working through the planning process with them. That remains to be seen.

Yeah. Okay. Good morning. Tom, if you look at uh,

The net import from the Europe. It's roughly 800,000 units. I would say half a million of that are coming from VW PMW Mercedes?

But with that said, the total exports for this, oems into US is about 10% or lesser.

uh, so that might have an impact in

Europe sales, right? If you're supplying there, but on the other hand, as they think of localizing in us as being part of the ecosystem would be a uptick, hopefully there.

and as I said before,

if the oems in North America rebalancing between Canada, Mexico and us. We are at the table, we have the footprint but that is just a matter of

You know, working through the planning process with them.

Swamy Kotagiri: Since we have the footprint on all three areas or all three regions, I would say we are in a better place to address the planning changes as the OEMs are going through.

Um, so that remains to be seen. Since we have the footprint on all three areas, or all three regions, I would say we're in a better place to address the planning changes as the OEMs are going through.

Dan Levy: Got it. Another question on this H1, H2 dynamic. I know that the tariff dynamic, it is kind of like a double swing, right? I get that it is a pretty big benefit to seating and P&V. You also called out the commercial recoveries as something you have expected based on prior years. Is that just based on kind of what you would expect based on prior years, or is this actually stuff that has already been negotiated? Just how much confidence, I guess, do you have in that? You have already negotiated the tariffs with them, with these OEMs. Just curious as to how confident you are in getting that. Thanks.

Got it. Um, and then another question on this H1 H2, uh, Dynamic. Um, I know that the, the Tariff Dynamic, uh, it's kind of like a double swing, right? So I get that, it's a pretty big benefit to seating and tnv, but you also called out the commercial, recoveries, um,

As something you've expected based on prior years, but is that just based on kind of what you'd expect there's some prior years or is this actually stuff that's already been negotiated. Um just how how much confidence I guess do you have in that you've already negotiated the tariffs with them with these oems now that the recovery is just, you know, just curious as to how how confident you are in getting that thanks.

Swamy Kotagiri: I think, Tom, when we talked about commercial recoveries, some of them are based on, you know, normal cadence that we've done over years, and it is part of the overall discussions in terms of LTAs and, you know, new programs and so on and so forth. Difficult to say binary that it's 100% or zero, but given where we stand with our discussions and looking historically over the last, I don't know, decades of work, right, I think I would say we are very comfortable, and that's what we make a pretty good judgment, and that's what we include in the outlook.

I think, uh, Tom when we talk about commercial recovery, is there. Some of them are based on, you know, normal Cadence that we've done over the years and it is part of the overall.

Uh, discussions in terms of lkas and you know, new programs and so on and so forth. Um, difficult to say binary that it's 100% or zero. But given where we stand with our discussions and looking historically over the last, I don't know, Decades of work, right? Um, I, I think I would say we are very comfortable and that's what we make, a pretty good judgment and that's what we include in the Outlook.

Louis Tonelli: Just to be clear, Tom, these are not placeholders. These are specific program-related commercial items that were in discussions with the customers already. I just want to right-set everybody as well. Our implied guide, our implied range for H2 of 2025, is in line with what we had in 2024 and in 2023. The cadence is there. I think we have confidence, whether it is on the tariffs or the other commercial. We have traction. Where we are, we have not changed our second half of the year from our own expectations. I think we are tracking to where we expect to be.

And just to be clear Tom, these these aren't placeholders, these are specific program related commercial items that were in discussions with the customers already. So and I just want to write set everybody as well. Like our our implied guide, our implied range for H2 of 2025 is in line with what we had in 2024 and in 2023. So you know the Cadence is there, I think we have confidence whether it's on the tariffs or the other commercial. So we have traction so where we are, we haven't changed our second half of the Year from our own expectations. So I think for tracking to where we expect to be,

Dan Levy: Yeah, it's actually, if I could, just a quick follow-up to Dan Levy's question on the portfolio discussion. I think in the past you said, you know, there was some macro uncertainty, right, with everything that's been happening. It feels like maybe that uncertainty is dissipating a little. As you examine the portfolio of the different businesses you have, would you say that the macro situation is now less of a hindrance in your evaluation, or is that still a factor? Thanks.

It's actually, if I could just a quick, follow up to Dan.

Uh discussion, um, I think in the past, you said, you know, there was just some macro uncertainty right with everything that's been happening. It feels like maybe that uncertainty is dissipating. A little, as you as you examine the portfolio of the different businesses you have is, would you would you say that the macro situation is now less of a hindrance in your evaluation. Um, or is that still a factor? Thanks.

Swamy Kotagiri: Yeah, Tom, I think the keyword that you said is the macro fluidity. I think it is a little unchanged. To me, it still remains very uncertain. Yes, there is visibility on things that we can control for sure, but a lot of other macroeconomic variables are still very fluid. So the uncertainty still prevails. With that said, we continue to look at the entire portfolio all the time. But volatility and uncertainty add a further complexity now to make any decisions.

Yeah, Tom. I think the key word that you said is the macro fluidity. I think it is still somewhat unchanged to me. It still remains very uncertain. Yes, there is visibility on things that we can control for sure, but a lot of other macroeconomic factors are still in play.

Uh, variables are still very fluid. So the uncertainty is still prevails with. That said we continue to look at the entire portfolio all the time. But you know, volatility and uncertainty adds a further complexity. Now to, you know, make any decisions.

Dan Levy: Got it. Thank you.

Got it. Thank you.

Lacey: Your next question comes from the line of James Picariello with BNP Paribas. You may go ahead.

Your next question comes from the line of James piccirillo would be in pibas. You may go ahead.

Dan Levy: Hey, good morning, everybody. Just wondering on your North America production outlook, right? If you could speak to the visibility into the third quarter, because for North America LVP to be down 5% this year, and there's a rather dramatic falloff, likely in the fourth quarter, right? If we just use IHS as a blueprint there, is there anything you're seeing cautionary-wise in the third quarter, or is it just embedded conservatism for the fourth quarter?

Hey, uh, good morning, everybody. Um, just wondering on on your North America production Outlook, right? If you could just, if you could speak to the visibility into the third quarter, you know, because for for North America lvp to be down 5% this year.

And there's there's a, a rather dramatic fall-off, you know, likely in the fourth quarter, right? If we just use uh IHS

As a blueprint, is there anything you're seeing, you know, cautionary-wise in the third quarter, or is it just embedded conservatism for the fourth quarter?

Swamy Kotagiri: Good morning, James. I think as we look at it, when we, if you go back into the last quarter when IHS was trying to model the impact of tariffs, I think they decreased the North American volume significantly. We kind of used what we knew from the releases and customer discussions and so on. I think at that point, we were higher than what IHS was looking at, and that is kind of narrowed down or is converging now. If you look at H1 to H2, I would say H2 is a little bit softer than H1. Compared to our anticipated numbers, H1 came a little bit higher. I do not think H2 is significantly off. We have taken a little bit of a pull-forward effect.

Uh, good morning, James. I I think as we look at it,

When we?

If you go back into the last quarter of an IHS, we were trying to model the impact of terrorists.

Uh, I think they decreased the North American volume significantly, and we kind of used what we knew from the releases and customer discussions and so on. And I think at that point we were, uh, higher than what I had just was looking at.

Uh, and that is kind of narrowed down or is converging. Now, uh, if you look at H1 to H2, I would say H2 is a little bit softer than H1, uh, and our.

Swamy Kotagiri: Beyond that, obviously, we are not taking any secondary, you know, impacts or tariffs or other where the sales of the vehicles might not be there or, you know, the OEMs might decide to pass on our increase. Those effects are not in place. Otherwise, I think H2 is a little softer than H1, but we do not see a precipitous fall, you know, in.

Compared to an anticipated numbers, uh, H1 became a little bit higher. Uh, I don't think H2 is significantly off. We have taken a little bit of a pull forward effect. Uh, but beyond that, obviously we are not taking any

Louis Tonelli: Just to put data to Swamy Kotagiri's statements, James Picariello, the first half of the year, we had seven, just under 7.5 million units, which leaves with our guidance about just over 7.2 million for the back half of the year. That is down slightly from what we expected in May when we gave the guidance. The 7.2 is roughly in line with IHS.

Secondary or, you know, impacts of terrorists or other where uh sales of the vehicles might not be there or, you know, the oems might decide to pass on or increase. So those effects are not in place but otherwise I think H2 is a little soft to the niche 1 but we don't see a precipitous fall you know in and and just to put data to Swami's. Um,

Dan Levy: Understood. Okay, thank you. My follow-up on CapEx allocation: How are you thinking about buybacks in the second half if the year does progress toward your updated outlook here? On the reduction to this year's CapEx, now at 4% of sales, I believe your 2026 targets had captured the idea of lower year-over-year CapEx. Can this still be the case, or are certain investments getting pushed from this year to next? Thanks.

Statements James, the first half of the year. We had 7, just just under 7.5% with our guidance about just over 7.2 million for the back half of the year and that's down slightly from what we expected. Um, in May when we when we gave the guidance and the 7.2 is roughly in line with IHS, it is in

understood. Okay, thank you. And then uh my follow-up on cap allocation.

How are you thinking about Buybacks in the second half? If the year does progress toward your updated outlook here and then on the reduction to this year's capex now at 4% of sales I I believe you're 2026 targets had captured the idea of lower year-over-year capex. Can this still be the case or are are certain Investments getting pushed from this year to next

Swamy Kotagiri: James, I think on the CapEx question, we typically talked about getting back to the low fours, I would say, over collective years in terms of CapEx to sales ratio. Given all the discussions that are on, like I said, we are being very deliberate and looking at every dollar of investment that's going in. As a result of that, we've been able to reduce the range by $100 million, and we continue to look at it going forward. I think overall, going into 2026, the focus on capital investment will stay, and we are still focusing, I would say, in the four to low four CapEx to sales ratio. On the capital allocation strategy, no change. I think our current focus is completely on capital discipline and free cash flow generation so we can return value to the shareholders. As we talked about, we bought about 5.7 million shares.

Thank well. James I think on the capex question we typically talked about getting back to the low Force. I would say you know over Collective years in terms of capex to sales ratio uh given all the discussions that are on like I said, we are being very deliberate and looking at every dollar of investment that's going in. So that as a result of that we've been able to reduce the range by 100 million and we continue to look at it going forward. Uh I think overall going into 2026 the

Would say in the 4 to Low, 4 capex to sales ratio.

Uh, on the capital allocation strategy, no change. I think our current focus is completely on.

Capital discipline and free cash flow generation show week, so we can return value to the shareholders.

Swamy Kotagiri: We have an NCIB in place. Last time when we spoke, we talked about uncertainty being the reason for pause. Those conditions haven't changed yet, but if we see better visibility, we can act on the existing NCIB, and we still have time left.

As we talked about, we bought about 5.7 million shares. We have an NCIB in place. Last time, when we spoke, we talked about uncertainty being the reason for pause.

Those conditions haven't changed yet, but if we see better visibility, uh we can act on the existing ncib and we still have time left.

Dan Levy: Thanks.

Thanks.

Lacey: Your next question comes from the line of Emmanuel Rosner with Wolf Research. You may go ahead.

Your next question comes from the line of Emmanuel, Rosner. With wolf research, you may go ahead.

Dan Levy: Great. Thanks so much. I just wanted to come back again to the first half to second half margin improvements. At midpoint of your full-year guidance, the revenue is probably not all that different in the first half to second half, but obviously, the margin would take a fairly meaningful step up. You mentioned commercial recovery, lower engineering spend, the tariff fees, warranty, and then operational excellence. Some of the pieces you quantified on the tariff, for example, the $55 million in the first half, can you just give us a sense, specifically for this year, or maybe based on history, how should we think about the magnitude of improvement of some of the other stuff, maybe based on what you've historically been able to achieve or anything that you're able to quantify for this year?

Oh great. Thanks so much. Um,

Just wanted to come back again to the um first half to second half margin um improvements. So you know I guess that's midpoint of your

Full year guidance, you know, the revenue is probably not all that different, uh, you know, first half to second half. But obviously, the margin would take a fairly meaningful step up. Um, you mentioned commercial recovery, lower engineering spend, the tariff fees, warranty, and then operational excellence. Uh, some of the pieces you quantified on the tariffs, for example, the $55 million in the first half. Can you just give us a sense, either specifically for this year or maybe based on history?

Dan Levy: Just curious how impactful some of these buckets could actually be because obviously, tariffs only get you a small part of the way.

You know, how should we think about the magnitude of improvement of some of the other stuff, maybe based on, you know, what you historically have been able to achieve or anything that you're able to quantify for this year? Just curious how impactful some of these pockets could actually be, because obviously, Paris only gets you a small part of the way.

Louis Tonelli: We are not going to quantify. The items that we talked about are all impactful. Otherwise, we would not have talked about them. We are not going to get into dissecting how much is in each, give me the tariff amount, but the rest are, and it is implied in our guidance, but we are not going to break down the details.

Yeah we're not going to quantify. I mean we the ends that we talked about are all impactful, otherwise we wouldn't have talked about them we're not going to get into that affecting. How much is in each? Give me the terrifying amount but the rest are and it's implied in our in our guidance but we're not going to break down the details.

Swamy Kotagiri: Okay, but is it different than the, is there something that is more pronounced this year than historically? I understand the tariff is a new dynamic, but are there any drivers this year where commercial recovery should be so much more less and loaded than in the second half than historically, or the engineering spend, or just anything compared to history would be helpful? I think, Emmanuel, short answer, there is no outlier or nothing that stands out in terms of the key buckets that Louis talked about that would stand out this year compared to the previous history other than tariffs. The engineering spend, CapEx, and a few of those things are controllable and very visible, right, for us. So that is the reason why we are saying, you know, the others are discussions based, you know, on many other variables.

okay, but this is a different than

The the is there something that is more pronounced this year than than historically? I understand the therapist is a new Dynamic. But is there any um are there any drivers this year where commercial recovery should be so much more, thanks and loaded. And in the second half then historically or the engineering span or just anything compared to history would be helpful.

I think Emmanuel, uh, short answer is no outlier or nothing that stands out in terms of the key buckets that Louis talked about that would stand out this year compared to the previous history, other than tariffs, uh, like the engineering, spend capex and a few of those things are.

Swamy Kotagiri: So all in all, nothing significantly different than a historical, you know, trend.

Controllable and very visible right for us. So, that's the reason why we are saying, you know, the the others are discussions based, you know, on many other variables. So, all in all

Louis Tonelli: If you look at the segments that we disclosed, you know, what we had last year for our various segments, and you look at the back half, then you look at where we are, given the range that we provided for the back half this year, they are not really that far. They are pretty much in the same kind of ranges at the midpoint anyway. So it gives you some comfort that we have been there. We have been in this, we have been able to do this recently.

Nothing significantly different than historical, uh, you know, Trend. And I think if you look at the segments that we disclose, you know, what we had last year, for our various segments, and you look at the back half, and then you look at where we are, given the range that we provided for the back half this year. They're not really that far. They're pretty much at the same kind of ranges at the midpoint anyway. So I think gives you some comfort that we've been there. We've been in this. Uh, we've been able to do this.

Recently.

Swamy Kotagiri: Got it. Okay. Understood. Just, it is a clarification, but I think you were trying to give a quantification of some of the operational excellence piece of the opportunity. Can you just go back over the math around that, the extra 40 basis points that you mentioned for this year and into next year? There is a mix of many things. As we talk through it, there is material savings. It is purchasing initiatives with our own supply base. It is reshoring. There are some vertically integration activities. Over the past few quarters, or actually maybe a year and a half, I have talked about specific initiatives on digitization and automation. We have started seeing the results yield with incremental volumes coming. The flow-through is much better, which is what we expect. All of this continues.

Got it. Okay. Um,

Understood and then just, I, um, it's just a clarification, but I think you you're trying to give a quantification of some of the operational. Excellence piece of the opportunity. Um, uh, can you just

uh go back over the matter around that the uh the xr40 basis point that you mentioned, you know, for this year and then you know into next year

Yeah. I mean, they they are a mix of many things, uh, you know, as we talked through it is material savings, it is uh, you know, purchasing initiatives with our own Supply base. Uh it is re-shoring. There is some vertical integration activities and over the past.

Um, you know, few quarters are actually maybe 8 and a half. I've talked about specific, uh, initiatives on digitization and automation, uh, we have started seeing, uh, the results yield, you know, with incremental volumes coming. The flow through is much better, which is what we expect.

Swamy Kotagiri: It is difficult to say specifically each one. That is what we mean by operational excellence activities. Some of this is normal course. Some of this is additive. To sum it up, that was the 40 basis points, and we feel pretty comfortable hitting that in 2025. We also see a roadmap for a similar magnitude again in 2026.

In 25, and we also see a road map for a similar magnitude again in 26.

Louis Tonelli: Got it. Thank you.

Got it. Thank you.

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

Dan Levy: Yeah, thanks for taking my question. Not to keep asking the same point, but you commented that margins first half to second half are seasonally stronger. I think that might be true in recent history, but is that referring to just post-COVID? Because I look at pre-COVID, and it looks like margins historically actually fall. Normally, that is because production is weaker. Just making sure I am understanding the comment.

Your next question comes from the line of Colin Langan. When will we hear from Wells Fargo? You may go ahead.

Yeah, not to keep. Thanks for taking my question. Not to keep asking the same point, but you commented that

Margins first, half to second half or seasonally stronger.

Louis Tonelli: You are 100% accurate, Colin. If you go back pre-COVID, the seasonality would be you would have a strong Q1. Q2 would be your strongest quarter. Q3 would be your weakest quarter, and Q4 would be right in the middle. What has changed since COVID and the chip crisis primarily has been the inflation in the system. Now we layer on BEV volatility and production volumes, and now the tariffs, and that is driving costs being incurred on January 1 of each year and recovery negotiations happening throughout the year. Our history is showing that most of those are closed in the second half of the year. That is the biggest change.

I think that might be true in recent history, but is that referring to just post-CO? Because I look at pre-CO and it looks like margins historically actually fall, and normally that's because production is weaker. So, thank you for sharing my understanding that the comments.

You're 100% accurate calling. So if you go back, preco the, the seasonality would be. You'd have strong q1 Q2 would be your strongest quarter. Q3 would be your weakest quarter and Q4 would be right in the middle. What's changed since Co and the chip crisis primarily has been the inflation in the system. Now, we lower layer on Bev,

Volatility and production volumes, and now the tariffs, are driving costs being incurred on January 1st, with recovery negotiations happening throughout the year.

Are history is showing that most of those are closed in the second half of the year. That's the biggest change.

Dan Levy: Okay, got it. That makes sense. The guide does imply sales down about 1%. You said it is not too different than S&P on your forecast, but complete vehicles down. If I look at North America and Europe, which are the largest of your markets, S&P has those down almost 9%. Are you expecting similar half-over-half declines? If that is the case, how are you only down one if some of your largest markets are down that much? Are there big launches hitting? Is there a mix impact that is helping in the second half?

Okay, got it. That makes sense. Um,

And then the guy does imply sales down about 1%.

He said, it's not 2 different than smt on your forecast but completely Vehicles down. And then if I look at North American Europe, which are the largest of your markets S&P has those down almost 9%. Um, so

Are you expecting similar declines? And if that's the case,

Louis Tonelli: is a mix, and there is also foreign exchange. But I think the other thing you have to consider is if you look at our volume projections for the first half of the year and compare those to S&P, there is a difference between what we have. We have seven. We are showing just under 7.5 million units of production. They are showing a higher number. So that is going to factor into the math as well. But there is foreign exchange positive, there is mix, there is launch, and then there is just some math going on between us and S&P.

How are you? Only down 1, if some of your largest markets are down that much, are there big launches hitting? Is there a mix impact that’s helping in the second half? There’s things, and there’s also foreign exchange. But I think the other thing you have to consider is, if you look at our volume projections for the first half of the year and compare those S&Ps there, there is a difference between what we have. We have 7.

We're showing just under 7.5% of the math as well.

But there's foreign exchange positive. There's mix, there's launch, and then there's just some, some math going on between us and S&P.

Dan Levy: Got it. And just lastly, any update on the leverage target? I think you're at 1.87. The target has been to get below 1BI. When is the timeline for that?

Swamy Kotagiri: We talked about getting back into the range that we have always talked about in 2026. We are on track, as we looked at in February and looked at it for the year going into 2026. We are very much on track to that.

Got it. And just lastly any update on The Leverage Target, I think you're at 1.87. The target has been to get below. 1 5. When is the timeline for that?

Yeah. We we talked about uh, getting back into the range that we've always talked about in 2026, uh, and we are on track. Uh, you know, as we looked at in February and looked at it for the year going into 26 and we we are very much on track to that.

Louis Tonelli: Got it. All right, thanks for taking my questions.

Dan Levy: Thank you.

Thanks for taking my questions.

Thank you.

Lacey: Your next question comes from the line of Brian Morrison with TD Cowen. You may go ahead.

Louis Tonelli: Oh, thanks very much. I appreciate the details on the flight plan to 2026 margins and confirming that you can get to the high sixes, maybe low 7%. But if I look back at the 2026 disclosure previously, the progress seems reasonable in each segment, except for Power and Vision. It seems to need the most acceleration to approach higher single digits. I know tariffs are weighing on in the first half of this year, but what needs to jumpstart that segment margin performance? High level, how is Veoneer now performing versus expectations?

Your next question comes from the line of Brian Morrison, with TD Cohen. You may go ahead.

Oh, thanks very much. I appreciate the details on the, on the flight plan to 2026 margins, and confirming that you can get to the high sixes, maybe low 7%. But if I look back at the 2026 disclosure previously, the progress seems reasonable in each segment, except for power and vision, it seems to need the the most acceleration to approach higher single digits. I know tariffs are are weighing on in the first half this year, but what needs to jump? Start that segment margin performance and high.

Level, how is being here? Now performing versus expert expectations

Swamy Kotagiri: Yeah, I think, you know, from a P&B perspective, you touched on the tariffs. That is the significant piece. I think from launch cadence in terms of engineering spend, in terms of operational performance, all are on track going, you know, not just from first half to second half, but, you know, looking forward. Again, volumes need to hold and other assumptions need to be there. From a Veoneer perspective, we are not looking at much as much as Veoneer itself. We are looking at the consolidated, you know, entity. We hit the synergies that we talked about, maybe slightly ahead. We continue to do the optimization in terms of resources and so on and so forth. So all in all, pretty good. You know, the take rates.

Yeah. I I think, uh, you know, from a pnb perspective, you touched on the terrorists, that is the significant piece and I think from launch Cadence in terms of engineering spend, uh, in terms of cooperation and performance all are on track going, you know, in not just from first half the second half, but, you know, looking forward. Again, volumes need to hold and others assumptions need to be there.

Uh, from a veneer perspective, we're not looking at much as much as DNA itself. We're looking at the Consolidated, uh, you know, entity and we hit the synergies that we talked about. Um, maybe slightly ahead, uh, we continue to uh, do the

Pretty good. Uh,

Lacey: happening in the markets and architecture always will have an impact on it. But I would say the rationale is holding.

You know, the take rates and what's happening in the markets and architecture always will have an impact on it. But I would say the rationale is holding.

Louis Tonelli: Thank you.

Thank you.

Swamy Kotagiri: Your next question comes from the line of Jonathan Goldman with Scotiabank. You may go ahead.

Your next question comes from the line of Jonathan Goldman with Scotia Bank. You may go ahead.

Patrick McCann: Hi, good morning, team. Thanks for taking my questions. Swamy, if we sit here today, what is the confidence level in getting the North American production assumptions of 14.7? Do you think that is a reasonable level looking out to the rest of the year? I know you do not have a crystal ball, but just given all the tariff headlines out there and potential downside risks, how confident are you hitting that 14.7 number?

Hi. Good morning team. Thanks for taking my questions. Um Swami if we sit here today like what's the confidence level in getting in North American production, assumptions of 14.7? Um do you think that's a reasonable level looking out to the rest of the year? I know you don't have a crystal ball but just giving all the the power of headlines out there and potential down-side risks.

How confident are you hitting that 14.7 number?

Lacey: Jonathan, good morning. You talked about the crystal ball, so that is what you are asking me to look into. Again, looking at releases, looking at or taking into consideration our discussions with the customers, I would say we are pretty comfortable unless there is a complete dynamic change in the pricing of the vehicles and what happens in the market. You look at the inventory levels, look at the data that is out there and the production today. I would say I am pretty confident with the numbers that we are talking about. Again, this is a little bit of a crystal ball, as you said.

Yeah, Jonathan good morning. You, you talked about the crystal ball so but that's what you're asking me to look into. Uh, again, looking at releases looking at or taking into consideration, our discussions with the customers. I I would say we are pretty comfortable, unless there is a

Complete Dynamic change in the pricing of the vehicles and what happens in the market, you look at the inventory levels. Look at the data that's out there and the production today, I I would say I'm pretty confident with the numbers that we're talking about.

Patrick McCann: Yeah, we've also, the last couple of quarters, taken our numbers down in North America. These last two quarters, the numbers have exceeded what we expected. We continue to kind of look at it and say, this may be some pull forward, but the numbers have been pretty good, and sales seem to be pretty resilient even in July. I think that gives us some confidence.

Again, this is a little bit of crystal ball. As you said, you know, we've also, over the last couple of quarters, taken our numbers down for North America, and in each of the last two quarters, the numbers have exceeded what we expected. So, we continue to kind of look at it and say, well, this may be some pull-forward, but the numbers have been pretty good, and sales seem to be pretty resilient even in July. So,

That gives us some confidence.

Louis Tonelli: No, that's a fair point. Got it. I guess another one, maybe looking at a bit longer term, Swamy Kotagiri, has the outlook for EVs changed with all the rhetoric about renewables, energy, and the new legislation passed in the U.S. and some things we're thinking about now in terms of adoption of EVs? If it's changed, how do you see that impact on your business, whether it's on the top line margins or maybe on the capital piece?

No, that's a fair point. Got it and I guess another 1, maybe looking out a bit longer term, Swami has the outlook for EBS, change to all the rhetoric.

About Renewables energy and the new legislation passed in the US and some things were thinking about, you know, in terms of adoption of EVs. And, and if it's changed, how do you see that impact on your business? Whether it's on the top line margins or maybe on the capital piece.

Lacey: Yeah, Jonathan, we talked about EV take rates going back again five years. I just want to remind, we have been, I would say, conservative compared to the general outlook. As we stand and look at the market today, it is even softer than that. But we still believe BEV is a long-term trend. As I talked about in my prepared comments, the product portfolio is flexible to address the hybrid uptake that we are seeing and the continuing ICE fleet loss. I also want to point out that the investment for our BES in terms of BEV opportunities is behind us. I talked about platform technologies on our PNV, also significantly behind us, right? So if the BEVs come forward, even at the current rate or a little bit higher, I would say it would be a tailwind, because all the heavy lift is behind us.

Yeah. You know, John can we? We we talked about uh, EV take rates going back again, 5 years. I just want to remind we we've been, I would say conservative compared to the general Outlook.

And as we stand and look at the market today, it's even softer than that. Uh, but we still believe that is a long term. Uh,

You know, Trend, but as I talked about in my prepared comments, the product portfolio is flexible to address.

The hybrid optics that we are seeing and the continuing platform investments are important. I also want to point out that the investment for our employees in terms of staff opportunities is behind us.

I talked about platform Technologies on our pnv. Uh, also significantly behind us, right? So, if the best come forward, uh, even at the current rate or a little bit higher, I would say it would be a Tailwind, right? Uh, because all the heavy lift is behind us.

Louis Tonelli: Interesting. That's a good color. I'll get back in queue. Thanks for taking my questions.

Interesting. That's a good color. I'll get back in queue. Thanks for taking my questions.

Swamy Kotagiri: Your next question comes from the line of Mark Delaney with Goldman Sachs. You may go ahead.

You're next question comes from the line of Mark, Delaney with Goldman Sachs, you may go ahead.

Patrick McCann: Good morning. Thank you very much for taking my questions. First is on the industry environment. I am hoping to better understand what MAGNA is seeing in terms of award activity year to date and how you would characterize your expectation about the bookings environment going into Q4. I ask in part because some of the tier ones have talked about strength in areas like hybrid powertrains, digital cockpit. You mentioned some hybrid awards this morning, but we have also heard other tier ones say that the booking environment has been a bit difficult, given some of the policy changes and tariff environment.

Good morning and thank you very much for taking my questions. Uh, first is on the industry environment, uh, hoping to better understand what magnet is seeing in terms of award activity, year to date and how you characterize your expectation about the bookings, environment going into 2 H. And, you know, I asked in part because some of the tier ones I've talked about strengths in areas, like, hybrid powertrains, uh, digital cockpit you, you, you mentioned some hybrid Awards this morning, but we've also heard other tier ones. Say that the booking environment has been a bit difficult, uh given some of the policy changes and tariff environment.

Lacey: Good morning, Mark. Short answer, we are seeing good cadence in terms of our overall expected bookings for 2025. Yes, there are program dynamics in terms of push-out cancellations and so on and so forth. But if I step back and look where we stand, as of now, compared to the past years, we are seeing not a whole lot of change. We are in a good place in terms of hitting our numbers that we had put in our plan.

Uh, good morning Mark. Uh,

Short answer, we are seeing good cadence in terms of our overall expected bookings for 2025. Yes, there are program dynamics in terms of push-outs, cancellations, and so on and so forth. But if I step back and look at where we stand,

uh, as of now compared to the the past years, uh, we are seeing not a whole lot of change. We, we are in a good place in terms of

Getting our numbers that we had put in our plan.

Patrick McCann: Thanks, Swamy Kotagiri. Second question, following up on some of the prior questions around some of the changing policy dynamics, especially for U.S. emissions policy, and just better understanding the net effect to MAGNA. We think about the potential for more ICE vehicles, increased hybrid mix, but lower BEVs. As you think the net of those effects, do you envision those being a net tailwind for MAGNA and your ability to outgrow the market, or more offsetting?

Thanks for me. Um second question and kind of following up on some of the the the the prior questions around some of the the the changing policy.

Better understanding than that, affect to, uh, to to, to magnet. Right? So, so, we think about the potential for more ice Vehicles, increased hybrid mix, but lower bevs, uh, you just as you think the net of those effects, uh, do you envision, those being a net Tailwind for Magna in your ability to grow the market or more more offsetting

Lacey: I think most of the policy impacts are secondary impacts, right? The EV credit is going away, therefore, the consumers may be not buying as many EVs, as an example. I think that might soften the BEV. On the other hand, if it increases hybrid and ICE vehicle sales, then we are part of the equation there, right? That is what we are seeing currently. As that continues, all our cost initiatives, all the work that we have done in terms of footprint consolidation and cost optimization, it will show through in the margins. If the BEVs come back, like I said before, a couple of questions before, the investment is behind us, and we would see that as a tailwind going forward.

Uh, I think most of the policy impacts are secondary impacts, right? Like the EV credits going away and therefore the consumers may be not buying as many EVS as an example.

uh, I I think that might soften the table, but on the other hand, if it increases hybrid and, uh, ice

Uh, vehicle sales, then, you know, we, we are part of the equation there, right? Uh, that's what we're seeing currently. And as that continues.

Our all our cost initiatives, all the work that we've done in terms of footprint consolidation uh and cost optimization it, it'll show through in in the margins if the best come back, like I said before a couple of questions before they investment is behind us.

And we would see that as a Tailwind going forward.

Patrick McCann: Okay. Helpful. Just one last one for me, just trying to understand the bridge of your revenue outlook from the last earnings call until today. I think the midpoint of the revenue outlook is now $400 million higher. You spoke about North America production being lower, China a bit higher. You also said FX is a tailwind. If you could just talk a little bit more on the puts and takes, maybe I missed it, but how much of an incremental tailwind is FX and maybe just other key puts and takes around your customer exposure, growth of our market, etc.? Thanks so much. Yes.

Okay, now for just 1, last 1 for me, just trying to understand that the the bridge of uh your Revenue Outlook uh, from the last earnings call. Until today, I think the midpoint of the revenue Outlook is now 400 million higher. You, you spoke about North America production, uh, being lower, uh, China, a bit higher. You also said,

Tamy Chen: I'd say it's roughly half of it is currency. Roughly half of it is a net of pretty strong, a better mix than we'd anticipated, offset by lower volumes in North America. I think that would be the best way to break down that bridge.

FX is a is a Tailwind. So if you just talk a little bit more on the the the puts and takes uh maybe I missed it but how much of a incremental tail end is FX and and and maybe just other key puts and takes around your your customer exposure or growth of a market, Etc. Thanks so much. I, I say it's

Roughly half of it is currency. Uh, roughly half of it is the the net of pretty strong, A Better Mix than we anticipated offset by lower volumes in North America. I think that would be the best way to

Patrick McCann: Thanks, Alice.

Break down that that bridge.

Thanks.

Swamy Kotagiri: Your final question comes from the line of Michael Glen with Raymond James. You may go ahead.

Your final question comes from the line of Michael Glenn with Raymond James. You may go ahead.

Louis Tonelli: Hey, good morning. I just want to revisit something we talked about more than three plus years ago with this idea of North American reshoring. How has the business case for a Magna Steyr facility in North America evolved? Is this something that could happen at this point in time? Is it something that Magna is considering?

Hey, good morning. So I I just want to visit something. We talked about more, uh, 3 plus years ago with this idea of North Suburban reassuring it. How has the business case for a mega Styer facility in North America? Uh, evolved is, is this something that could happen at this point in time? Is it something that Magnus considering

Lacey: Good morning, Michael. We've always said in terms of looking at complete vehicle assembly in North America, is a decision based on a customer, multiple programs, multiple life cycles, for it to make sense. I think those required assumptions remain the same. Given production capacities and how things are going, we don't see anything active right now. Our criteria for looking at that hasn't changed. It is the same. It has to be multiple customers, multiple life cycles before we look at it. There is nothing on the table as I speak today.

Good morning, Michael. Uh, we've always said in terms of looking at complete Vehicle Assembly in North America is a decision based on

Um, a customer multiple programs, multiple life, um, Cycles, uh, for it to make sense.

Uh, I think the those

Required assumptions. Remain the same.

Uh, but given production capacities and how things are going. We we don't see anything active right now, right? Um, so

Our.

Criteria for looking at that hasn't changed. It is the same. It has to be multiple customers, multiple lives, uh, Cycles before we look at it and there is nothing on the table as I speak today.

Louis Tonelli: Okay. When I sit here and look at your production, your North American production, I would look at 14.7 million, which for me, it's a very low number considering what we used to see. You have very low inventory levels. In the background, there seems to be this creeping dynamic where the Detroit Three are shifting towards or would like to shift towards a made-to-order type model. How do we think about all of this, especially like this dynamic with D3 moving to made-to-order? How does that impact MAGNA? Is it something that you're increasingly seeing?

Okay. And then when when I sit here and look at your production, your North American production Outlook at 14.7 million, which, for me is a like a, it's a very low number, considering what we used to see, you have very low inventory levels in the background. There seems to be this creeping Dynamic where the Detroit 3 are shifting towards, or would like, to shift towards a mate to order type

Model like how do we think about all of this especially like it this Dynamic with D3 moving to made to order. How does that impact Magna? And is it something that you're increasingly seeing?

Lacey: Yeah. I think from a volume perspective, we have to look at the data that we have in terms of programs and platforms. I have to base it on customer discussions and releases. That is how we come up with a number in terms of the 14.7 as we stand today. If the dynamics change there and if that number increases, I hope you are right, it is going to be a tailwind for all of us. We are just basing it on the facts and the same method of calculation every time that we look at it. There is some amount of judgment, but it is, again, it is based on a lot of data. In terms of your, I think the word you used was made-to-buy.

Yeah, I think from a volume perspective, right? We have to look at uh the data that we have in terms of programs and platforms have to base it, on customer discussions and releases.

So that's how we call up with the number in terms of the 1 4. 7 8,

Of judgment. But it's again, it's based on a lot of data.

uh, in terms of your

uh,

Louis Tonelli: Made-to-order.

Lacey: Made-to-order. I do not know. I have not seen a whole lot of that in terms of there is a complexity and variant reduction that the OEMs continue to talk about to simplify the complexity of manufacturing, sequencing, and so on. I think that is good for everyone. But even if it does go that way, I do not think from a product portfolio perspective that we have as Magna would mean a lot, a lot of change here.

I think the word you used was made to buy. It was made to order. Um, I don't know, I haven't seen a whole lot of that. In terms of, uh, it is a complexity and very introduction that the Williams continued to talk about to simplify uh, the complexity of manufacturing sequencing and so on. And I think that's good for everyone. Uh, but even if it does go that way, I don't think from a product portfolio that we have as Magna would mean a lot, a lot of change here.

Louis Tonelli: Okay. Thank you for taking the questions.

Okay, thank you for taking the questions.

Lacey: I guess that was the last question. Thanks, everyone, for listening in today.

I guess that was the last question. Uh, thanks everyone for listening in today.

Swamy Kotagiri: At this time, I would like to turn it back over to Swamy Kotagiri for closing remarks.

at this time, I would like to turn

Lacey: Thank you, operator. I jumped the gun, but thanks for listening to everyone today. We continue to execute despite the high degree of uncertainty in the industry. I have to reiterate that we remain focused on the many initiatives that are driving cost, launch, and capital discipline. Within solid free cash flow generations, we plan to both get back within our target leverage ratio and are committed to our capital allocation strategy. We remain highly confident in MAGNA's future. Thank you and have a great day.

Thank you, operator. Uh, I jumped the gun. But uh, thanks for listening, uh, to everyone. Today, we continue to execute despite the high degree of uncertainty in the industry. Uh, I have to reiterate that we remain focused on the many initiatives that are driving costs launch and capital discipline and with it. Solid free cash flow generation. We plan to both get back within our Target Leverage

Ratio and are committed to our Capital, allocation strategy and we remain highly confident in magna's future. Thank you and have a great day.

Swamy Kotagiri: This concludes today's call. You may disconnect.

This concludes today's call. You may disconnect