Autoliv Inc Q1 FY2025 Earnings Call

Good day and thank you for standing by. Welcome to the Autoliv Inc First Quarter 2025 Financial Results Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Anders Trapp, Head of Investor Relations. Please go ahead.

Thank you, Melanie. Welcome everyone to our first quarter 2025 earnings call. On this call we have our President and Chief Executive Officer, Mikael Bratt; our Chief Financial Officer, Fredrik Westin; and me Anders Trapp, VP Investor Relations. During today's earnings call we will cover several topics including our strong sales and earnings development in the first quarter, market development and tariffs that are affecting the automotive industry, as well as how our strong balance sheet and asset returns provide financial resilience and support the continued high level of shareholder returns. Following the presentation, we will be available to answer your questions. As usual, the slides are available on autoliv.com. Turning to the next slide. We have the statement, which is an integrated part of this presentation and includes the Q&A as follows. During the presentation, we will reference non-U.S. GAAP measures. The reconciliations of historical U.S. GAAP to non-U.S. GAAP measures are disclosed in our quarterly earnings release available on autoliv.com and in the 10-Q that will be filed with the SEC. Lastly, I should mention that this call is intended to conclude at 3 PM Central European Time, so please follow a limit of two questions per person. I now hand over to our CEO, Mikael Bratt.

Thank you, Anders. Looking on the next slide. I am happy to present the solid first quarter showcasing that the company's adaptability and resilience, driven by our diverse product portfolio and strong customer relationships. This achievement lays a solid foundation for 2025. However, we remain cautious about the remainder of the year, as we navigate the complexities of tariffs and other economic factors. It is encouraging that we, based on light vehicle production data from March, outperformed global light vehicle production despite continued significant headwinds from light vehicle production mix shifts, particularly in China. The stronger than expected sales were partly driven by LVP pull forward in Europe and North America. We significantly improved our profit and operating margin compared to a year ago. This strong performance was primarily driven by well-executed cost reduction activities. Our structural cost reduction program reduced our indirect workforce by over 1,500 since Q1 2023 and our direct headcount by 3,700 over the past year. We neutralized tariffs almost entirely in the quarter by agreements with customers. We also achieved record earnings per share for the first quarter, thanks to lower number of shares and high net profit. I am also pleased that we continue to generate a high level of return on capital employed. Our cash flow remains solid despite higher receivables from strong sales towards the end of the quarter, supporting a high level of shareholder returns. In the quarter, we repurchased and retired 500,000 shares for $50 million and paid a dividend of $0.70 per share. Looking now on the next slide. Last night, Autoliv was recognized by the automotive news in the category PACE Pilot Innovation to watch. The prestigious PACE Pilot Award recognizes achievements under development with new materials, fresh ideas, creative processes and bold execution in the automotive and future mobility space. Autoliv received the award for its Bernoulli airbag module, which inflates larger airbags more efficiently by leveraging pressure differential with the small single stage inflator, lowering deployment cost and weight. I want to thank the team for this great achievement. It reflects our collective effort and commitment to excellence and innovation. Looking now on financials in more detail on the next slide. Sales in the first quarter decreased by 1% year-over-year due to negative effects on currency, light vehicle production development and adverse regional and customer mix development. The adjusted operating income for Q1 increased by 28% to $255 million from $199 million last year. The adjusted operating margin was 9.9%, 230 basis points better than in the same quarter last year. Operating cash flow was a solid $77 million, despite a temporary working capital build-up. Looking now on the next slide. We continue to generate broad-based improvement. Our positive direct labor productivity trend continues as we reduce our direct production personnel by 3,700 year-over-year. This is supported by the implementation of our strategic initiatives, including optimization and digitalization. Our gross margin was 18.6%, an increase of 160 basis points year-over-year. The improvement was mainly the result of direct labor efficiency and headcount reduction, partly offset by a supplier settlement as communicated last year. As a result of our structural efficiency initiatives, the positive trend for RD&E continued, combined with the gross margin improvement, this led to 230 basis points improvement in adjusted operating margin. Looking now on the market development in the first quarter on the next slide. According to S&P Global data from March, global light vehicle production for the first quarter declined 40 basis points, exceeding the expectation from the beginning of the quarter by 140 basis points. Supported by the scrapping and replacement subsidy policy, we continue to see strong growth for domestic OEMs in China, while light vehicle production in higher content per vehicle market in North America and Western Europe declined by 7% and 10% respectively. This resulted in an unfavorable regional light vehicle production mix of more than 3 percentage points in the quarter, significantly impacting our outperformance negatively. In the quarter, we did see call-off volatility continue to improve year-over-year. We will talk about the market development more in detail later in the presentation. Looking now on our sales growth in more detail on the next slide. Our consolidated net sales were $2.6 billion. This was slightly lower than a year earlier, driven by negative currency translation effects, which reduced sales by almost 4% in the quarter. Excluding currency, our organic sales grew by 2%, including out-of-period compensation of $4 million. The regional sales split reflects the seasonally weak sales in China due to the Lunar New Year celebration. China accounted for 17%, Asia, excluding China, accounted for 20%, Americas for 33% and Europe for 30%. We outlined our organic sales growth compared to light vehicle production on the next slide. Our quarterly sales were robust and slightly exceeded our expectations, driven by strong performance across most regions, particularly in Europe and America. Based on light vehicle production data from March, we outperformed light vehicle production in all regions except China, fueled by product launches and pricing. In China, our sales to domestic OEMs grew by 19%, aligned with the light vehicle production growth. Our growth with the global customers in China was just 1 percentage point below their LVP growth. Due to LVP mix shift that continues, we underperformed significantly in China overall. Among the primary net sales growth drivers for the company this quarter were Chinese OEMs and two were Japanese, highlighting the importance of the Asian market and its customers. On the next slide, we show some key model launches. New launches in the first quarter of 2025 were, as you can see on this slide, mostly in Americas, Europe and South Korea, with few launches in China. The reason for this is that many OEMs are planning to unveil new vehicles in the Shanghai Auto Show in April. We expect a significant number of new launches in China as of Q2, but we are unable to disclose these launches, as the vehicles have not yet been unveiled. The models displayed here feature Autoliv content per vehicle, ranging from approximately $130 to nearly $500. In terms of Autoliv's sales potential, U.S. produced Honda Passport and the Ford Expedition are the most significant. Now looking at the next slide. I will now hand it over to Fredrik Westin.

Thank you, Mikael. I will now discuss the financial details over the next few slides. This slide presents our key figures for the first quarter of 2025 compared to the first quarter of 2024. Our net sales amounted to $2.6 billion, reflecting a 1% decrease. Gross profit rose by $35 million, with the gross margin up by 1.6 percentage points. Adjusted operating income increased from $199 million to $255 million, and the adjusted operating margin improved by 230 basis points to 9.9%. The reported operating income was $1 million below the adjusted figure, primarily due to capacity alignment costs. Adjusted earnings per share rose by $0.58, driven by $0.48 from higher operating income and $0.13 from a reduced number of shares. Our adjusted return on capital employed stood at a solid 26%, and our adjusted return on equity reached 29%, supported by share buybacks affecting total equity. We declared a dividend of $0.70 per share for the quarter and repurchased slightly over $50 million worth of shares, retiring 0.5 million shares. Moving on to the adjusted operating income bridge on the next slide, our adjusted operating income grew by $56 million in the first quarter of 2025. Operations contributed $46 million, mainly due to increased organic sales and enhanced operational efficiency, aided by improved call-off accuracy. The net currency effect was a negative $5 million, as the positive impact from the Mexican peso against the U.S. dollar was countered by translation and revaluation impacts. Raw materials had an approximate negative impact of $5 million. Out-of-period cost compensation grew by $4 million compared to last year. SG&A and R&D costs slightly decreased, despite higher SG&A personnel costs. The recycled accumulated currency translation differences from divesting our idle operations in Russia totaled $12 million. The year-over-year impact from the supplier settlement in 2024 was around a $2 million negative. Now, examining the full-year results on the next slide, the operating cash flow for the first quarter of 2025 fell by $45 million year-over-year to $77 million, primarily due to increased receivables following strong sales at quarter-end. Capital expenditures net dropped by $47 million, with capital expenditures relative to sales at 3.6% versus 5.4% the previous year. The reduced debt level is largely attributable to pricing shifts in Europe and America. The free operating cash flow was negative $16 million compared to negative $18 million during the same period last year, as lower operating cash flow was balanced by decreased CapEx. The cash conversion over the last 12 months, defined as free operating cash flow relative to net income, was approximately 72%, slightly below our target of 80%. Now, turning to our trade working capital development on the next slide, trade working capital decreased by $56 million compared to the previous year, driven by $11 million in higher accounts receivables, $17 million in lower accounts payables, and $84 million in lower inventories. Relative to sales, trade working capital declined from 12.8% to 12.4%. The improvement in trade working capital is due to our multi-year working capital improvement program and enhanced customer call-off accuracy, allowing for more effective inventory management. Now, onto our debt leverage ratio development on the next slide. Autoliv has consistently focused on maintaining a strong leverage ratio, demonstrating our prudent financial management and commitment to a robust balance sheet. This strategy has allowed the company to navigate economic fluctuations, invest in innovation, and continue providing value to our stakeholders over time. Our leverage ratio remained virtually flat year-over-year at 1.3 times, despite nearly $700 million in shareholder returns. Compared to the end of last year, our debt leverage ratio increased by 0.1 times as our net debt rose by $242 million, alongside a $55 million increase in the 12-month trading adjusted EBITDA. I will now hand it back to you, Mikael.

Thank you very much, Fredrik. On to the next slide. In recent years, our business has faced significant challenges from COVID, disrupted global supply chains, component shortages, inflation and the changing LVP landscape. Our company has adapted quickly, found new ways to mitigate risk, and maintaining profitability. Now facing a challenging tariff situation, we are well equipped with a diversified customer portfolio, a broad regionalized footprint, a strong balance sheet and a single focus on automotive safety and saving lives. Autoliv has a diversified customer and model mix in North America. This diverse model mix base helps Autoliv mitigate risks associated with slowing import of certain vehicle models from Mexico and Canada. The company has multiple production and assembly facilities across North America, ensuring timely delivery of airbags, seatbelts, and steering wheels. Our largest production hub is in Mexico. However, not all products made there meet USMCA standards due to customer-specific components or the unavailability of certain materials like magnesium and leather for steering wheels. Our logistics in North America are complex. While some of our Mexican production supports local vehicle manufacturing, the majority is still destined for U.S. vehicle assembly plants. For products sent to the U.S. customers managed about one-third of the transportation and import, and these shares continue to grow. Driving from past experiences, Autoliv has developed the strategies to navigate tariffs. Over the years, we demonstrated that our methods for navigating challenging environments are effective. On to the next slide. The instability and overall magnitude of the tariffs have placed the automotive industry in a challenging position. Tariff costs need to be passed on to the end consumers, which would lead to higher vehicle prices and potentially impact consumer demand and light vehicle production. To mitigate the effects of U.S. tariffs on our operations and materials, we have implemented several strategic measures. We established a task force early in the year with a focus on minimizing the impact of tariffs. We are engaged in ongoing discussions with our customers to find setups that are mutually beneficial while negotiating compensation for the transition period. Our large existing footprint in the U.S. enables us to navigate the challenges posed by tariffs effectively. It gives us opportunities to ramp up production in the U.S., should that be the best option when evaluating future production locations together with our customers. We are committed to increasing our compliance with the USMCA regulation, working closely with our customers and suppliers to achieve this through increased local sourcing of components and changing of specifications. On to the next slide. The outlook for global light vehicle production in 2025 has become significantly more uncertain since January, with regional variation influenced by tariffs, slowing economic growth and other factors. In North America, the production outlook may be significantly downgraded due to trade risk and higher vehicle prices from import tariffs. This reduction is likely to affect vehicles produced in Mexico and Canada more severely. In Europe, production is expected to increase slightly short-term due to adjustments in EU regulations and higher demand in some Eastern European markets. China is also growing, driven by government policies supporting the new energy vehicle market. Japan and South Korea are potentially facing declines due to the impact of lower exports to the U.S. Overall, while some regions are still expecting growth, the global auto industry remains cautious, navigating the complexities of tariffs and other economic factors. Now looking on the business outlook on the next slide. We expect 2025 to be a challenging year for the automotive industry. However, our ongoing focus on efficiency is expected to further enhance our profitability. We anticipate a significant improvement in our sales performance in China. Additionally, our strong cash conversion and solid balance sheet provides financial resilience and the robust foundation for maintaining high shareholder returns. We expect cost pressures from labor in 2025, but still we expect some pressure coming mainly from labor, especially in Europe and America. However, the ongoing tariff situation could add inflationary pressure. Certain raw material prices have increased, and we expect headwinds for the year, mainly in the U.S. We successfully navigated the new tariff environment in the first quarter. This gives us confidence that it's possible to continue on that course, but there is significant uncertainty. Contrary to the past three years, we do not anticipate a gradual quarter-by-quarter adjusted operating margin increase as the inflationary environment differs from recent years. However, the fourth quarter is still expected to be the strongest of the year. Turning to the next slide. This slide shows our full year 2025 guidance, which excludes effects from capacity alignment, antitrust-related matters, as well as no further changes to tariffs or trade restrictions that are in effect as of April 15, 2025, as well as no significant changes in the macroeconomic environment or changes in customer call-off volatility or significant supply chain disruptions. The business environment uncertainty makes it difficult to predict the remainder of 2025. However, based on the strong first quarter performance and overall outlook, operating cash flow is expected to be around $1.2 billion. Our positive cash flow and strong balance sheet support our continued commitment to a high level of shareholder returns. Our full year guidance is based on a global light vehicle production decline of around 0.5%, a tax rate around 28% and that the net currency translation effect on sales will be around minus 3%. We are monitoring the situation closely and are prepared to be as agile as needed to adjust to any changes. Looking on the next slide. We are pleased to invite you to the Autoliv Capital Markets Day on June 4, 2025, in Stockholm, Sweden. Join us to learn more about our journey towards achieving our targets, capturing growth opportunities and translating these into attractive and sustainable shareholder returns. We will showcase that Autoliv is strategically securing a strong position with successful OEMs in the market, supporting our medium-term and long-term growth in a rapidly changing market environment. You will also have the opportunity to see our latest innovations and technologies. I personally look forward to seeing you all in Stockholm. Now turning the slide. This concludes our formal comments for today's earnings call, and we would like to open the line for questions from analysts and investors. I will now hand it back to Marlene.

Our first question comes from Colin Langan at Wells Fargo. Please go ahead, your line is open.

Hello great. Thanks for taking my question. I know mid-quarter, you were trying to size the USMCA exposure. Do you have any better clarity now on how much of your sales are non-USMCA compliant that are at risk? Because I didn't see any actual impact on the walks on margin or sales, so I assume it was pretty small in March. But at any run rate you could kind of help so we could frame the potential risk?

Yes. We haven't given any detail around the split there with the USMCA compliance or noncompliance here because it's, I would say, with the current circumstances here, it's pretty fluid. And giving too much details in this environment, I think would more confuse than support. I think the bottom line here is that we are well-positioned with the footprint we have described here. We have a regionalized setup, so meaning Americas for Americas. However, now with this focus on the U.S. side, it means the tariffs imply impact us mainly for the Mexican flow. But as we have mentioned here, that production we have in Mexico is, to a large extent, for OEMs in Mexico, where our customers are. They also have pickup points in Mexico, meaning that they are carrying them over, and then a smaller part of that is also carried by us over the border into the customers' plant in the U.S. We are working with our customers here to see what we can do to improve that. But the reason why we have USMCA non-compliant components here is because, to a very large extent, there is no available supply in the region. And we mentioned, for example, leather, we mentioned magnesium for the steering wheels. We have also uniqueness when it comes to certain directed components concerning electronics in the steering wheels, etc. So we are working to find alternatives with our customers, but that will take time. But wherever we are impacted by there is what we'd pass on to the customer here through surcharges. So I think we are as good as we can get in this environment right now, and we monitor it carefully going forward to see what we can do.

And the vast majority was passed on to the customer in the quarter already?

Yes, yes.

Okay. And just as a follow-up, in your comments, you mentioned that the profit trajectory is not going to resemble prior years. Is that correct? It will be strongest in Q4. How should we interpret this? I know you typically don’t provide quarterly guidance, but can you give us any rough insights for Q2? Are we now anticipating that it won’t increase sequentially? And what would be the reason for that?

No, I mean we are more back to the normal free inflationary environment here where you typically have a weaker Q1, a stronger Q4, and Q2 and Q3 are more average in between. I believe that’s what we’re trying to convey, that we are not experiencing the same inflationary pressure resulting in the sequential development we witnessed over the last three years. It’s more returning to normal.

All right. Thanks for taking my question.

Thank you. We’ll now move on to our next question comes from the line of Erik Golrang from Sweden. Your line is open.

Thank you. I have three questions. Firstly, on Europe, if you can give some more color on that big outperformance, what's behind that? And then the second question on the size of tariff compensation in Q1 to the extent you would share that. And then thirdly, continuing on the tariff topic. Just some more sort of color on this. I mean you've covered yourself fully in Q1. It seems that you are confident that you'll be able to continue to do so. Just thinking why wouldn't this burden be shared across the value chain? Thank you.

Thank you. In Europe, we are seeing the benefits of our position with local OEMs, and the mix we have there is positive, especially in relation to European regulations. On tariffs, I'm confident that these costs will have to be passed on to our customers and ultimately to the end consumers. It’s up to the OEMs to decide how to handle this, but I believe there’s no reason for the supply chain to absorb these additional costs. This is a cost of doing business that can arise suddenly, and while we will see how long and how significant this will be, the supply chain cannot bear such large additional expenses. Therefore, these costs will need to reach the end consumer. We're beginning to address this issue while also working with our customers to explore ways to meet regulatory requirements without incurring tariffs. However, any significant adjustments, like relocating production from Mexico or other sites to the U.S., require stability and predictability in the tariff situation. We believe we have the right conditions to justify such business decisions and are well-positioned with our existing footprint in the U.S. Additionally, regarding MCA compliance outside the U.S., we face challenges that are beyond our control, relying on industry cooperation. Stability and predictability are necessary before making major changes, and while we haven't disclosed specific tariff figures because they’re constantly changing and complicated, it's important to recognize the overall complexity of the situation.

Thank you. And if I could just follow up. You mentioned the business case to relocate production probably early days, but do you see that is there sort of an investment that you could do in the U.S. where the total cost to bring your product to the market and your customers doesn't go up or is actually a beneficiary? Or do you think that you'll stay where you are based on the current level of tariffs?

It's way too early to have any firm views on that because, as I said, we need to know what the landscape will be for the foreseeable future. You can actually do a business case around it. And for certain, the cost in the U.S. will go up. I mean there is a reason why we are in Mexico. So the question is what that would be and what everybody is prepared to do there. So it is too early to have any opinions about future scenarios.

Okay, thank you.

Thank you. We’ll now move on to our next question. Our next question comes from the line of Emmanuel Rosner from Wolfe. Please go ahead, your line is open.

Great. Thank you so much. My first question is your decision to reiterate the guidance. Can you elaborate a little bit about this? Is it mostly a function of just a lot of uncertainty, so it is really difficult to know what to assume for any changes? Or is it strong confidence in the ability to offset future challenges? Is it both? Can you just comment a little bit more about it?

Sure. No, I think first of all, we feel comfortable with the guidance here when we look at our own ability to move forward here. I think we had a strong first quarter here. And we continue to see also when we look into the horizon that we have with call-offs that we continue to see a healthy level of light vehicle production moving into the second quarter with the horizon we have there. And as I said, our own activity level controlling what we are delivering is in a good way. So I think that we are steadily moving forward in the right direction there. So we have no reasons, I’d say, to change our guidance here. We feel comfortable with what we can see. Then of course, what you are pointing to here, we are absolutely fully aware of the risks that are out there connected to the tariffs and overall uncertainty there. But today, we don't have any data points pointing to dramatic changes to that. Plus that we also, in our guidance, has a range mentioned there that can absorb some movements as well. So yes, we've been comfortable with the guidance we've given here today with what we know.

Thank you. If I could just ask this sort of like a different way, and then I have a quick follow-up. But for example, this morning, I think you are based on the March S&P file, but this morning, S&P cut the global production a little bit deeper than the down 0.5% that you're assuming. So all else equal, is that something that we should be flowing through your guidance essentially saying, look the production is lower than assumed, therefore it is actually sort of like a lower outcome? Or are you essentially saying that you have offset or the Q1 was so much stronger than expected that all in, even with sort of like this somewhat weaker outlook, you still good with your guidance?

I mean, as we said here, we have based our guidance on the 0.5% negative. So we were already, from the beginning, more negative than S&P Global. Now they have made an adjustment. I would say that's ballpark figure around where we are at also, I mean, 1% lower than what we have. So I mean, I would say it is within the margin of error when you look at light vehicle production. So it doesn't change the picture for me here.

That's great. And then the quick follow-up is your capital allocation strategy and in particular, the shareholder returns. Are you still comfortable with your existing strategy? Or is the current uncertain environment make you want to potentially slow down the cash returns to shareholders or changes in any other way?

No, I think, I mean our strategy and commitment here lays firm, to be a shareholder-friendly company, return liquidity to our shareholders. We continued in the first quarter here with our buyback, even though at a slightly lower pace, but we'll hold on to it. And what we will do going forward, of course, we can't comment here, but our commitment still stands.

Thank you so much.

Thank you.

Thank you. We’ll now move on to our next question. Our next question comes from the line of Edison Yu from Deutsche Bank. Please go ahead. Your line is open.

Hi, thank you for taking our questions. Regarding the tariff-related costs in the near term, it seems you managed to absorb them or pass them on quickly. Do you expect this process to continue at that pace, in terms of when you pass on costs and when they impact your P&L?

Yes. I think it needs to be quickly. I mean, you remember when we have described our negotiations when it comes to the inflationary compensation, that was related to a very detailed and complicated negotiations on a component-by-component, plant-by-plant level across the whole globe. The tariffs are very, I would say, clear and obvious when you have to pay them and, let's say, the evidence to prove that you have had this cost is much more simple. Therefore, the negotiations would go much faster absolutely.

Okay. So just to check, let us say, tariffs continue on for the next couple of quarters, you would expect to recover that pretty much intra-quarter going forward?

I mean I will not promise anything here. But as I said, we stand firm in our opinion here that the tariff cost needs to be passed on, and we will continue to do so. And I think we have a well-established way of doing it with our customers.

Got you. And then longer-term, on automation, I know it's a bit early to decide whether to necessarily relocate a lot back to the U.S. But I think you've discussed in the past, you've done a lot of automation overseas in China and it has been very successful. So if you had to automate, do you have a playbook? Do you have kind of a system that you can implement based on your learnings?

Yes, I'm not concerned about the process of relocating or establishing capacity in the U.S. The main issue is the business case. The reliability of the environment gives us confidence in making investments. If that reliability is lacking, then there’s a problem. It really comes down to our calculations on whether we can offer a more competitive cost domestically than with tariffs, essentially focusing on break-even analysis.

Understood, thank you.

Thank you. We’ll now move on to our next question. Our next question comes from the line of Chris McNally from Evercore. Please go ahead. Your line is open.

Thanks so much team. And I apologize if I missed this in the prepared remarks, but just in terms of the call-offs you're seeing through early April, do they align with some of the March projections around Q2? I think we are all sort of anticipating basically any day now that we'll get major Mexico and Canadian shutdowns basically permanently until tariffs are changed. So just curious if some of that is reflected in what you've seen in that call-offs over the last 2 to 3 weeks?

As I indicated before here, we see that the call-offs is holding up well, and no other indications that we are moving forward here with the horizon we have from the call-off.

And maybe just to follow up on that because I think you've answered the other question really helpfully. It basically seems like production is the primary variable here. There will be a little bit on raw materials, but you are expecting to get repaid for any tariffs from the suppliers. I think we've heard that from every supplier. I'm just a little surprised. I mean, basically if there was no change in call-offs, particularly for Mexican and Canadian facilities, it would sort of imply that the Detroit 3 were continuing to build, which means they weren't planning to cross the border, which does not seem to be the case. So could you help us reconcile that? Because you would imagine we would see weakness based on everything that we know if shutdowns were to be coming soon because they are building inventory at the border essentially.

No. I mean, I can't, of course, comment or speculate in what our customers are doing here specifically. But I mean the totality of the call-offs that I referred to here when we look at the Autoliv order book, so to speak, is as I said, holding up well here as we move forward into the second quarter with what we can see in the time horizon we have.

Okay. So it's sort of a global order perspective and maybe we'll hold off on giving very specific Canadian-Mexican facility as a lot of that stuff is live. Thanks so much for the comments. We’ll appreciate it.

Yes. Thank you.

We’ll now move on to your next question. Our next question comes from the line of Hampus Engellau from Handelsbanken. Please go ahead, your line is open.

Thank you very much. Two questions for me. Starting-off on the capacity line program. I guess the question, are you happy where you are on these levels? Or are you going to go ahead fully to the 8,000 that you previously indicated in terms of headcount reduction? Second question is more related to the mix. I was also surprised by the very outgrowth in Q1. And if we look at the quarters ahead, on the LVP outlook, should we assume any big changes in mix in the quarter from what you see now? I know you are not going to guide on the quarter, but just the sense for us to model. Thank you.

Yes. Regarding your first question about the headcount reduction, we are making good progress. We have now reduced our indirect or salaried headcount by over 1,500, which is an improvement since the Q4 report. We also anticipate an additional $50 million in savings for the year, which is on track. On the direct labor side, our total headcount is down by 6%, while organically, we achieved a 2% sales growth. This indicates positive developments in operational excellence and productivity, supported by improved call-off volatility at around 93% in the first quarter, continuing the positive trend from Q4. In terms of product mix, we experienced a 3 percentage points negative mix in the first quarter, which will likely persist into the second quarter. However, we expect a more favorable trend in the second half of the year, particularly regarding our sales performance compared to LVP development in China. We still foresee a negative mix for the entire year, remaining above 1 percentage point.

Okay, fair enough. Thank you.

Thank you. We’ll now move on to our next question. Our next question comes from the line of Agnieszka Vilela from Nordea. Please go ahead, your line is open.

Thank you so much. So my first question is on the pull forward impact that you saw in Q1 when it comes to car production. I wonder if you can just tell us about what has been happening. And also, did you only see that on the kind of car production? Or did you also see that OEMs are stocking up your products?

Yes. I mean it's very difficult for us to say what volume deviation here that we saw in the first quarter, which was favorable and the volumes in the first quarter were better than we had expected going into the quarter. But to quantify a pull-ahead effect of that is incredibly difficult for us and was even impossible. But as Mikael already pointed out here that we see the call-off continuing at a good level also here in the second quarter. So it's not that we see them falling off yet, so that would indicate that either the pull-ahead effect continues or it was smaller in the first quarter.

Understood. Thank you. And then maybe just if you could help us to understand the impact on the P&L from getting compensation from tariffs and overall tariff impact. Does it filter through sales and your cost? Or how should we think about it when you get the compensations for tariffs?

Yes. The majority filters through sales, but in the first quarter, it was not such a large magnitude that it would have any meaningful effect on the top-line.

Thank you. We’ll now move on to our next question. Our next question comes from the line of Jairam Nathan from Daiwa Capital Markets America. Please go ahead, your line is open.

Hi, thanks for taking my question. Just wanted to understand in terms of the cost reduction or your operational excellence, can you make any enhancements or increase the cost reduction potential if things worsen from here, and what kind of flexibility would you have?

No, I believe we have already demonstrated our high flexibility to manage significant changes in demand. Currently, the results we are seeing in the first quarter stem from our strategic roadmap activities aimed at achieving our mid-term targets. If there were to be dramatic changes in the market, we have various measures we can implement to reduce costs and decrease labor, among other things. So, in short, we can certainly do more if necessary.

Okay. As a follow-up, we are noticing that many Japanese OEMs are attempting to shift production back to the U.S. I would like to understand how this might affect margins between Japan and the U.S., and whether the U.S. facilities would have the necessary capacity.

Yes, we have noticed that as well. If there are platforms we use that change locations, we have a process in place for that. This has happened before, so it's not unusual. It essentially requires us to reset the program and conduct a new calculation. We have a well-defined method to manage that. Additionally, our global presence gives us a significant advantage, allowing us to support customers who wish to relocate to a different region. This situation is not overly concerning for us at the moment. However, it will take some time before we see any significant volume changes as a result. Suppliers need to maintain a long-term perspective on the landscape to make the necessary investments.

Okay, thank you. That’s all I had.

Thank you. We’ll now move on to our next question. Next question comes from the line of Dan Levy from Barclays. Please go ahead, your line is open.

Hi, good afternoon, thank you for taking the question. First, can you just outline what your exposure is within Europe and Asia to vehicles that are exported to North America?

I don't have the exact number available right now, but we can follow up on that. Generally, it's mostly premium vehicles that are being exported, and we might have a heavier focus on those. I will need to check on the precise figure, but you can speak with someone who can provide more details.

Okay. Thank you. And then second question is on the tariffs. And what specifically is not USMCA compliant? How much of this is Tier 2 directed content by the OEMs that is essentially in a position where the other OEMs have to negotiate because they've directed this content as opposed to content that you chose to source on your own and there's maybe a little less of a basis for getting those recoveries.

Yes. We are not breaking it down in the detail to keep to the external content there, especially in a situation like this one, is quite fluid. As I said, I mean the directed ports, as you said, is obviously something we need to support from the OEMs, allow our customers here to find alternatives too. But most cases, when we announce USMCA compliance is because it’s not available in the region under those conditions there. So I think you have to live with it.

Okay, thank you.

Thank you. Due to time constraints, this concludes our question-and-answer session. So I'll hand the call back to Mikael Bratt, President and CEO, for closing remarks.

Thank you, Melanie. Before we conclude today's call, I want to emphasize our commitment to achieve our financial targets. Our focus remains on structural cost reductions, innovation, quality, sustainability, and on tariff mitigation efforts. Despite significant market challenges in key markets, we expect to continue to perform strongly. We remain vigilant about the risks associated with the tariffs and geopolitical challenges, which could impact our cost structure and market dynamics. Navigating these complexities as well as we did in the first quarter will be instrumental in maintaining our momentum throughout the year. Once again, I'm delighted to invite you to our Capital Markets Day on June 4, 2025. I look forward to seeing you there. Our second quarter call is scheduled for Friday, July 18, 2025. Thank you for your attention. Drive safely.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.