Autoliv Inc (ALV) Q3 2026 Earnings Call Transcript

so welcome everyone to our third quarter 2026 earnings call on this call we have our president and chief executive officer nika bratt our chief financial officer monica grama and me under strategy investigation during today's earnings call we will highlight some several key areas including our strong performance in a challenging market environment ongoing mitigation actions to offset cost headwinds we're going to give an update on the latest market developments and our shareholder returns and our full year guidance and the potential impact of ongoing geopolitical and market challenges following the presentation we will be available to answer your questions as usual the slides are available on autolive.com turning to the next slide we have the safe harbor statement which is an integrated part of this presentation and includes the q a that follows during the presentation we will reference non-use gap measures the reconciliations of historical use gap to non-use gap measures are disclosed in our quarterly earnings release available on outlive.com and in the 10 q that will be filed with the sec and at the end of this presentation lastly i should mention that this call is intended to conclude at 3 p.m central european daylight saving time so please follow

a limit of two questions per person i will now hand over to our ceo michael bratt thank you looking on the next slide we delivered a strong third quarter in a tough environment with adjusted operating margin exceeding our earlier indications and reflecting disciplined execution across the business. The progress we achieved during the quarter reinforces our confidence in further profitability improvement through year end. Together with strong customer partnerships and ongoing efficiency initiatives we believe we are well positioned to continue delivering value for our stakeholders our positive sales momentum in asia continued during the quarter in china we once again outperformed like vehicle production driven by strong growth with chinese OEM, where our sales outperformed by almost 20 percentage points. In India we grew safe by nearly 30 percent organically, reflecting mainly the trend of increased safety content in vehicles in India. Adjusted operating margin reached 9.7 percent ahead of earlier indication, reflecting strong operational execution and higher engineering income. I am pleased that our cash flow was strong despite working capital build-up due to strong sales in September. In the quarter we repurchased over 1.2 million shares for 450 million US dollars and paid dividends of 63 million US dollars. Based on what we know today we reiterate our full year 2026 guidance of flat organic sales with continued significant outperformance of light vehicle production, both with Chinese OEMs and in India. Following the first nine months of the year and continued raw material headwinds and higher logistic costs, we have narrowed down our adjusted operating margin guidance to be around ten and a half percent, which is at the low end of the range of around 10.5% to 11%. This reflects the effectiveness of the mitigation actions outlined later in the presentation. Operating cash flow guidance remains unchanged. CapEx is now expected to be around 4% of sales compared with the previous expectations of less than five percent of them. We also have several positive developments to highlight from the quarter both in terms of our footprints and our product offering. Expanding in China is key to strengthening outreach innovation, global competitiveness, and long-term growth. To support this and our growing partnerships with Chinese OEMs, we have opened our second R&D center in China. We also launched the Human Body Model Safety Suite, a virtual safety development platform that helps automakers evaluate occupant protection through advanced trash simulations. By helping customers improve safety performance earlier and shorten development time, it strengthens outleaf value proposition and growth opportunities. Looking now on the next slide. Third quarter sales were virtually unchanged despite light vehicle production declining. This was due to outperformance relative to life vehicle production, including tariff-related compensation and favorable currency effects. Adjusted operating income for the third quarter decreased by 3% to 262 million US dollars. The decline reflects a 15 million supplier compensation which benefited the third quarter of last year. The adjusted operating margin was 9.7%, 30 basis points lower than last year. Operating cash flow was 239 million US dollars, a decrease of 19 million US dollars. Looking now on the next slide, we continue to deliver broad-based operational improvements. Our positive direct labor productivity trend continued during the quarter, supported by execution of our strategic initiatives including automation and digitalization. Gross profit decreased by 26 million US dollars with the gross margin declining from 19.3% to 18.4%. Approximately half of the year over year decline was attributable to the noted supplier compensation recognized in the prior year. Looking ahead we expect fourth quarter gross margin to develop favorably compared to Q4 2025. RD&E net expenses decreased year-over-year driven by higher engineering income. As previously communicated, the increase in engineering income was primarily related to the timing of specific customer development projects. SG&A expense remained virtually unchanged, both year-over-year and sequentially. Returning to the light vehicle market development in the third quarter let's move to the next slide. According to Mobility Global's October forecast global light vehicle production declined by 1.9 percent in the third quarter, approximately 20 basis points below the expectations in July. The weaker than expected production environment was primarily driven by lower volumes in China among global OEMs as well as softer production in North America and Japan. This was partly offset by stronger than expected performance in India and South America. The regional mix of global light vehicle production was approximately 90 basis points unfavorable during the quarter, mainly reflecting stronger production growth in lower content markets relative to other regions. Despite these market headwinds, our sales remained virtually unchanged year-over-year, supported by our continued outperformance relative to light-deafing production, favorable currency effects, and tariff-related compensation. We will talk about the expected market development in the fourth quarter more in detail later in the presentation. Call-off accuracy has deteriorated somewhat compared with the beginning of the year, driven mainly by China, while other regions have returned to almost normal levels. Maintaining high call-off accuracy remains critical, as it enables efficient production planning, inventory management and optimal capacity utilization across our operation. Looking now on our sales growth in more detail on the next slide. Our consolidated quarterly net sales was virtually unchanged despite market handling. Excluding currencies, our organic sales decreased 30 million or by 1%. Based on the latest life-weekend production data from Mobility Global, global, we underperformed the market by almost one percentage point globally. In Asia, excluding China, we outperformed the market by almost three percentage points, driven by continued strong sales growth in India, where we outperformed by 11 percentage Japan also contributed to the outperformance as we outperformed in Japan by almost four percentage points. In China we delivered outperformance of around one percentage point mainly because our sales growth to Chinese OEMs exceeded their life vehicle production growth by almost 20 percentage As a result, Chinese OEMs accounted for 58% of sales in China in the quarter, compared to 46% for the same period last year. While performance in America's overall was in line with light vehicle production, North America delivered stronger results, outperforming light vehicle production by 2% of points. Globally, Chery, Suzuki and Niu were the largest drivers of sales during the quarter. Despite last vehicle production decline in China, China accounted for 20% of sales, Asia excluding China accounted for 20%, America's for 34% and EMEA for only 26% due to summer shutdowns. Moving on to the next slide. The third quarter of 2026 saw a high number of new launches primarily in China but also in America. The strong launch activity in China reflects outweighs continued momentum in this strategically important market and supports our ongoing outperformance relative to the market. Higher content per weekend was driven in part by the adaptation of front-center airbags across many of these new vehicles as well as pedestrian protection systems. From a sales potential perspective the BMW X5 and iX5 were the most significant launches during the quarter. Looking ahead we expect a substantially higher number of launches in the fourth quarter compared with the same period last year, making 2026 a record year in terms of launch activity. This record will not stand for long as we expect a new record launch year again in 2027. Let's continue with the next slide. I will now hand over to Monica.

Thank you Mikael. I will talk about the financials more in detail on the next few slides. Turning to the next slide. This slide highlights our key figures for the third quarter of 2026 compared to the same quarter of 2025. Our net sales were $2.7 billion, representing an 0.5% decrease. Gross profit decreased by $26 million and gross margin decreased by 90 basis points. The driver behind the lower gross profit was mainly the $12.5 million supplier compensation in 2025, as Mikael mentioned, as well as higher costs for raw materials. This was partly offset by positive ethics effects and supplier cost reduction. The adjusted operating income decreased from $271 million to $262 million, and the adjusted operating margin decreased from 10.0% to 9.7%. The reported operating income of $254 million was $8 million lower than the adjusted operating income, mainly related to capacity alignment activities. The adjusted earnings per share diluted, decreased by $0.13 to $2.19. The main drivers were $0.16 from higher taxes, $0.09 from lower operating income, partly offset by $0.11 from lower number of outstanding shares diluted. Our adjusted return on capital employed and adjusted return on equity were solid 24% and 25% respectively. We repurchased shares for $150 million and paid a dividend of $0.87 per share. Looking now on the adjusted operating income bridge on the next slide. In the third quarter of 2026, adjusted operating income decreased by $9 million year-over-year. Operational contributed $34 million despite slightly lower sales, primarily driven by cost reduction activities. RD&E and SG&A net had a $17 million positive effect, mainly reflecting $26 million higher RD&E reimbursements. This includes $2 million of unfavorable foreign exchange translation effects. This was partly offset by the $15 million supplier compensation that positively impacted last year's result. Raw material costs had a gross negative impact of $42 million in the quarter, with non-ferrous metals and oil-related components accounting for the majority of the increase. During the quarter, we achieved customer compensation covering more than 80% of tariff costs. However, tariff-related headwinds still reduced our adjusted operating margin by around 35 basis points, including dilutive effects. Looking now at cash flow on the next slide. Operating cash flow decreased by $19 million to $239 million compared to the prior year, mainly because of lower net income. Trade working capital in relation to sales was 13.5% at the end of the quarter compared to 13.9% a year ago. The improvement was mainly driven by higher payable in relation to sales, while inventories and receivables to sales were relatively unchanged. Preoperating cash flow was positive $124 million compared to positive $153 million in the prior year. Capital expenditure net increased by 9 million year-over-year. Capital expenditure as a percentage of sales rose to 4.3% compared with 3.9% in the prior year, mainly reflecting increased investments in production and RD&E equipment. The cash conversion was 80%, in line with our target of at least 80%. Year-to-date, operating cash flow decreased by $15 million to $598 million compared to the prior year. Now, looking on the next slide. Over the years, Autolive has consistently demonstrated its ability to generate strong cash flow across a variety of market conditions. Over the last 12 months, we returned approximately $760 million to shareholders through dividends and share repurchases. Looking at the past five years, we have returned a total of $2.9 billion directly to shareholders, while at the same time strengthening our balance sheet and improving our leverage profile. This includes more than $1.7 billion in share repurchases and nearly $1.2 billion in dividends. During this five-year period, we reduced our outstanding share numbers of approximately 18%. As of quarter end, approximately $1.9 billion remained available for repurchase under the current board authorized share repurchase program out of the total of 2.5 billion U.S. dollar original authorization. Our capital allocation decisions are guided by a disciplined assessment of our balance sheet, cash flow outlook, leverage, credit ratings, and market conditions with a continued focus on delivering long-term shareholder value. Now looking on our debt leverage ratio development on the next slide. Autolive's balanced leverage strategy reflects our prudent financial management, enabling resilience, innovation, and sustained stakeholder value over time. Our leverage ratio was 1.3 times at quarter end compared with 1.2 times a quarter ago. The increase was driven by a roughly 64 million increase in net debt during the quarter, combined with a modest 6 million decrease in trailing 12-month adjusted EBTA. Despite a quarter-over-quarter increase, our leverage remains at a low level and well within our targeted capital structure. On to the next slide. I will now hand it back to Mikael.

Thank you, Monica. I will talk about the outlook for the remaining of 2026 more detailed on the next few slides. Turning to the next slide, Mobility Global now expects global life vehicle production to decline by 1.9 percent in 2026. Almost two percentage points downgrade from its January forecast, primarily driven by weaker outlooks for China and the Middle East. As we enter Q4, the industry continues to face the effects of the conflict in the Middle East and soft demand in China, partly offset by resilient vehicle things in other markets. For the fourth quarter, Mobility Global forecasts globalized vehicle production to decline by approximately 4.5% year over year. The expected decline is largely driven by lower production in China, where softer domestic demand is only partially offset by continued strength in exports. As a result, Mobility Global has reduced its fourth quarter outlook for Chinese light vehicle production to a 9% decline. In the Americas, light vehicle production is expected to decline by approximately 2%, reflecting inventory adjustments in North America. In Europe, production is expected to decrease by around 1% as automakers continue to face increasing competitive pressure from Chinese manufacturers. In contrast, Mobility Global has significantly upgraded its Japan outlook to 2% growth from 12% decline. This is driven by production recovery following Q3 plant disruptions caused by natural disasters and continued strong exports of fuel efficient hybrid vehicles to the US and Europe. Despite the expected year-over-year decline in global life vehicle production in Q4, production is forecast to increase sequentially by more than one million units or approximately 5% now looking on the fourth quarter development more in detail on the next slide as we look ahead to the reminder of the year we remain focused on managing a dynamic external environment we are closely monitoring the potential impact of your political development in the Middle East which continues to affect supply chain, raw material costs and overall vehicle demand. Despite this uncertainty, we expect our financial performance to strengthen in the fourth quarter versus the third quarter. Margin expansion is supported by higher sales volume, increased engineering income and customer compensation related to raw material inflation. In addition, In addition, our ongoing cost efficiency initiatives, including greater optimization and digitalization across our operations, are expected to further enhance profitability and operating leverage. Combined, these actions are expected to result in a meaningful, stronger margin profile by year end. Despite market headwinds, we expect strong free cash flow generation to continue throughout the year, supporting the ongoing execution of our share reproach program and dividends. Looking at our full year guidance, there are several factors expected to weigh on the adjusted operating margin, throughout the year we have taken proactive measures to mitigate the additional headwinds impact in 2026. These are presented in more detail on the next slide. When our original full year 2026 guidance was set in January, our assumptions reflected a significantly more favorable cost environment than what we see now since then the business has faced additional headwinds amounting to approximately 170 to 180 basis points to address these headwinds we have taken a broad range of commercial operational and cost efficiency actions including improving direct labor productivity through optimization digitalization and continuous improvement initiatives, accelerating value engineering and value analysis initiatives, implementing SG&A cost reduction measures and tighter spending controls, securing raw material recoveries through customer negotiations and indexation, delivering savings through commercial negotiations Through disciplined execution of these initiatives, we expect to offset most of the incremental headwind. As a result, the next impact on our full year adjusted operating margin is expected to be limited, demonstrating the resilience of our business model and our ability to proactively manage a challenging cost environment. Looking now on the next slide, this slide shows our full year guidance, which excludes effects from capacity alignment and antitrust related matters. It is based on no material changes to tariffs or trade restrictions that are in effect as of October 15, 2022, as well as no significant challenges in the macroeconomic environment or changes in customer call of volatility or significant supply chain disruption. We expect to outperform light vehicle production by around two percentage points, as our organic sales is expected to be flat, while global light vehicle production is expected to decline by 2%. The currency translation effect on sales is expected to be around 2.5% positive. While market headwinds have prompted a slight adjustment to our outlook, the change is relatively minor. The guidance for adjusted operating margin is now narrowed to around 10.5%, the low end of our range of around 10.5% to 11%. Operating cash flow is expected to be around 1.2 billion US dollars. We expect CAPEX to be around 4% of SAFE, compared to previous guidance of less than 5%. Our strong cash flow generation and disciplined capital spending support our continued commitment to delivering attractive shareholder returns. We expect a tax rate of around 30%. Looking on the next 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. But before I do that, I would like to make a small correction there to my comment when it comes to the sales growth and regional sales split in the Q3. I accidentally said that we underperformed the market by almost one percent. It should of course be we outperformed the market by almost one percentage points globally in the third quarter. So with that correction, I would now like to hand it over to Madeleine, our operator.

Thank you. To ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We are now going to take our first question.

And this question comes from Tom Narayan from RBC. please go ahead yeah thanks for taking the questions um the first one is on the emia underperformance versus the market i know you mentioned there were some summer shutdowns there but i guess i would think that would have impacted the market as a whole not just i believe perhaps it was related to the chinese exports into europe i'm not sure what your indexation is to those but there's some color on on the EMEA under performance in the quarter and then have a follow-up sure thank you for your question no i think first of all um i would say that i mean yes

europe is uh it's a challenging market and and here we we have some swings between the different oems so i mean there are elements of uh customer mix from our point of view um i think we have said before here that our market share ambitions globally is to protect the market share we have. And if you come to the more mature markets, you have more of a stable situation there. And then when you see some shifts between the customers, of course, it gets a bigger impact than normally if you're in a growth mode or so. So I should not read much into those swings you see there. And I would also say that, of course, you are impacting this also when you see export from China coming into Europe. But since we are on most of those vehicles also, you have maybe seemingly a minus in the European business, but we have a plus in China. And that doesn't come through when you look at the numbers region by region like that. And that's why I would say it's not that that's why, but it's one reason why maybe we emphasize more the overall market share development and our performance here than the regional shifts. But of course, key here is to grow for us with the the OEMs that are growing and and taking taking market shares globally which we are doing here and I think that the strong outperformance with Chinese OEMs in the quarter here is another evidence of exactly that with India.

And for my follow-up you know you described the uh the raw material cost increase resulting in the 26 guidance cut and i believe it was a 10 million uh impact to the 26 numbers and i know you're not giving 27 guidance today but just curious how we should think about the raw material cost increase bleeding into 27 is the expectation that you could um that all of that with recoveries in the year or is this a similar dynamic that you know there's a um just kind of a bleeding that happens to to forward

periods like i guess how should we think about this cost increase yeah i mean as you comment here i mean we we don't give any details around 2027 yet it's in connection with the earnings call for Q4 but I would say that I mean when it comes to raw materials I would say that we expect it to be as challenging in 2027 as it has been in 2026 so I would say that's as much as we can comment really on that specifically so I would say no headwind or tailwind coming from that but of course we are seeing 2026 as a very challenging year that that translates and moves into 2027 when when when when we get there but more details to come all right thanks all thank you we are now going to take our next question and this question comes from Emmanuel Rosner from Wolfer Research.

Please go ahead.

Great. Thank you so much. Maybe first question focusing on the implied post-quarter outlook implied by your guidance. So this would obviously be a very high margin, around 14%. So can you maybe give us some sort of sense of how much visibility and confidence you have in some of these drivers of margins step up and in particular to the extent you know you know the recoveries there uh you know are those already securities that you know where are you i guess in that negotiation process sure no i think first of all i mean q4 is the stronger quarter in the year as you know and and i think with the with the full year guidance here we are confirming that that's also the case this year and of course one part that makes it stronger is the engineering income

that will be a part also this year. We have alluded to the higher sales and also as Mobility Global sales here now also another million units in Q4 compared to Q3 so support us in the sequential development there. Otherwise, I mean, it is to really drive here the customer compensation and tariff recovery in nine weeks with what we have done throughout the year here. And I think we have a good momentum there. I would say the difference maybe this year compared to other years is that and which is a part of the guidance of course it's nothing on top of there but as we understand that the full-year impact here is of course that this cost pressure continues throughout the year here and makes it very tight to also fix the full effects in the year which more speaks to that we are in the lower end of the range than anywhere else in the range there. But I mean, we move into the fourth quarter here with confidence. I think the Outerleaf team has done a great job maneuvering through this. And as you saw here, I mean, the additional headwind on top of what we expected in the beginning of the year, I mean, between 1.8 percentage points more, it's quite meaningful, I would say, that we have absorbed here through price compensations and also our own cost out activities here.

And that also includes material cost optimization with the suppliers also, of course, that we to our cost there so i think we have a good activity plan uh for for the fourth quarter okay i appreciate the color and then as a second question maybe focusing on china so i appreciate the color on the breakdown between you know in your performance between global and chinese uh you know local oem can you maybe comment on you know what is you know what portion of your business in china is geared towards um exports and um you know any thoughts on to the extent there are some measures being you know put around the world to sort of limit some of these exports whether that

would be you know a good thing for you or you know on a relative basis or or a bad thing something that we should focus on yeah no i think um i mean first of all i think that the at the starting point, the export vehicles tend to, I mean, we don't have a separate supply chain for the export vehicles or the domestic vehicles for our respective customer in China. It's the same models and then the certification may differ, but in most circumstances, I mean, it's the same type of product. So we don't really see that difference, you know, which vehicle goes where in that regard. But as I said, we are managing these dynamics in a good way thanks to our global presence and high market share in the total market. And we have talked about that before, that we have a fairly strong diversified portfolio with a widespread representation among the different customers. So if it moves in between, we are on the platforms that also are gaining some traditional or losing, you could say, in all this. And if there would be more, let's say, restrictions coming up between the regions on, you know, you can't export, you need to localize. With our footprint, we can support a customer that then wants or forced to localize water and to export from another region. So I think that's really a strength without believing here is that we can offer our customers a lot of flexibility. And I mean, if you talk specifically about the Chinese OEMs exporting from China versus Europe, and if you need to localize in Europe, I mean, today we are already, you know, part of the china supply chain for them if they have that set up with ckd for example or if they want to localize then we can support them with local production so i would say we are well prepared for whatever comes in terms of that dynamic thank you thank you thank you we are now going to take our next question and this question comes from chris mcnally from evercore isi please

go ahead uh thanks so much team i i just wanted to to follow on to emmanuel's question maybe just put some some numbers to it um we're all trying to figure out this this chinese algorithm right which kind of gets a little bit more uh the numbers just become less dramatic q4 and and and next year so you know for for the implied q4 are you expecting that china organic growth will go sort of back um to positive uh and then again for for 2027 it's early but we all kind of know that the exports will be up you know whether that's 10 or 20 when you all can you know debate um but is

the expectation that we will still have chinese organic growth um given your sort of you know a customer mix i don't know if i would like to give a number there but what i mean as you said i mean the light vehicle production according to Mobility Global is negative in China. Sorry, but with that said, I have great confidence in our, I would say, future development of continuing to grow with the Chinese OEMs as we move forward. So yeah, I think we are on the right trajectory here. It's the LVP that gives the delta to speak at the end of the day here, but I think you have to wait to see what the net number is. But we are on a good trajectory with Chinese OEMs and expect it to continue to grow. That's my comment to that.

Yeah, so sorry, sort of a paraphrase is that the growth over market should remain a significant driver, but you're, you know, you're focused on the light vehicle, which is obviously pretty negative in Q4. So maybe that's an unfair question. And then 27, so a little bit easier. Okay, perfect. Um, and then if we could just, uh, zone in on the inflation, right? The, the 180 basis points, you have so many pass throughs, right? The, the timing we all, we, we all know that will be somewhat of a pressure into next year, but I would curious of the 180 basis points, How much was actually the Thailand flooding and logistics, right? We heard from GM this week that logistics, you know, was a headwind in Q3, Q4. Because typically those would not be compensated. So I'm just curious if you can call out either or as a bucket sort of those two, because those are kind of one-offs.

Connected to the Thailand flooding, we see, we can call it not material impact in our results in Q4. Of course, this is considering coverage from our property damage and business interruption insurance. And then connected to the logistics cost, we see indeed in some of the divisions double digit cost increases, especially in the North America. To offset this, we have taken logistic optimization initiatives to reduce the mileage. That is partly compensating the cost. As you well know, this is a cost that's very difficult to pass on. So there is a limited impact that, to a large extent, we are looking on other compensating effects to recover and not per se one-to-one in the same area.

Okay, excellent. Great detail. Thanks so much, team.

Thank you. We are now going to take our next question. And this one comes from Winnie Dong from Deutsche Bank. Please go ahead.

Hi, thank you so much for taking my questions. I wanted to just follow up on the years, Guy, understand I use, narrow the margin to the lower end. Was there anything that's more specific? I think you've talked a lot about costs already, but anything specific that pushes you to the low end of that range? And then, to a certain extent, what sort of light do you think carries into 2027?

I think, I mean, as we have alluded to here, is the higher than expected cost pressure that we have seen across the board here. I mean, which we have had on one of these slides. I think the team has done a great job to offset such a large portion of it that we still can be in the range. So good job there. I think what is more, you know, moving into 27 is really what we talked about here before, connected to the raw materials. I would say that we expect that to to continue to be some headwind. So I think that slide is really a good summary of why it's the lower end and not the upper end.

Got it. Thank you so much. Separately, I kind of want to ask about mobility safety solutions. Specifically, I mean, there's a product in terms of safety switch outside of vehicles um you're kind of marketing them for you know battery energy storage etc which seems like you know one of the few ways to get growth that's not tied to to lvp so just um any initial takes on how to frame the opportunities there no i think uh it's a interesting opportunity here in the light of the electrification that is going on in in in society.

So we are having a dedicated team here, of course, to develop that business. And here we're talking about both, you know, high voltage and low voltage, et cetera, to see what we are doing there. And I mean, we have interesting leads and we are also growing this business as we speak. Then we have decided and elected not to give too much details and numbers at this point in time because we believe that it's more meaningful to come back to you when we have meaningful volumes around that and can talk more in detail. It's a little bit of a you could say startup phase right now but interesting opportunities in the midterm for sure.

Great thank you so much. thank you thank you we are now going to take our next question and this one comes from jose asumendi from gpm please go ahead thanks so much uh two quick questions please um can you talk about the level of activity in 27 versus 26 just broadly if you see more product launches coming up in 27 versus 26 and related to this whether you are seeing any substantial production stoppages in europe in the months of november and question two is just simply a confirmation that when you think about the raw material negotiations you're having that you are not in the camp of seeing spillover and negotiations uh of raw materials going into 27 that you're confident with the raw material discussions in 2026. We heard from all suppliers, you know, that we're seeing some spillover of these discussions into 2027, whether you're, you know, confirming that 2026 for materials will be negotiated and closed. Thank you.

Yeah, thank you for your question. I think 2027 and launches here, we expect to see a higher number of launches in 2027. So we see that that continues to increase and I would say we have a high activity level when it comes to closing new orders and new deals here. That gives us this effect. So that's a positive, I think, when we look out for next year and especially then, I guess, in combination with the LBP outlook that the Mobility Global have indicated for next year as well. I think when it comes to the challenge around raw material negotiations here, I wouldn't maybe say specifically raw materials alone. It's in general the cost pressure that we see right now that has been throughout the year also continuing into q4 but that's a part of the guidance we have for the full year so so the answer to your question is not changing that picture that's important to to to remember but that's a part of as i said the lower end of the range here is also the fact that it's difficult to finishing those all negotiations with the cost pressure that we see coming now in November and October, November, to finish that before the year ends. But that's because it's continuing to increase. So it's no indication on more difficult or complicated negotiations. It's just that the regular time between the impact and the closure becomes shorter this year as it continues up. But once again, it's embedded in what we have indicated for four years is nothing on top of, very important. That's super helpful.

On any major pollution stoppages in Europe, you're not seeing anything or are you seeing any elements there?

No, nothing to point out. I think of course we are always watchful for any activities there and as you come closer to the year and depending on inventory levels and so on with the OEM, but we have no visibility or indications at this point in time and i think also looking at the inventory levels in europe as far as we can see it is quite in balance also so there is no indication for any abnormal things there so yeah we should be in shape as an industry thank you we are now going

to take our next question and this one comes from Agnieszka Flela from Nordia. Please go ahead.

Thank you and hi Michael, Monica and Anders. Just one question from me and that's on R&D. I think you mentioned that you received somewhat more engineering income in the quarter than what you expected. Can you quantify by how much and also do you still expect a positive contribution from engineering income in Q4, and then maybe in relation to that, looking forward, what kind of net R&D costs do you expect into 2027, either in relation to sales or on absolute Thank you, Agnieszka, for the question.

Connected to Q4, as we guided, we expect a sequential improvement compared to Q3, and engineering income increase is one of the drivers of this improvement. So, yes, it is a positive contributor further in Q4. And on the long-term range, we expect pretty similar RD&E net of sales as we had in the previous period. So it's no major change that we can announce at this point. This is pretty the trend that we want to maintain and in line with our expectations.

And on the kind of delta that you saw in Q3 specifically, I think you mentioned that it was a bit better than what you expected. on the engineer income side.

As mentioned, it was better compared to prior year. And in the first quarter this year, we suffered of a negative impact compared to prior year. And it was part of the phasing that we anticipated to a large extent.

Thank you. Thank you. We're now going to take the next question. And this one comes from Hampus Ingelau from Handelsbanken. Please go ahead.

Thank you. Just one question for me and that's maybe if Michael if you could just share some if you know of course the launches for 2027, are they like back and loaded, are they front and loaded or should you like expect and like gradually for a year if you have any, any new on that, thank you.

Yeah, I think it's not any dramatic facing on it. It's of course not equally distributed between the quarter. There are some strong quarters. I don't have exactly on top of my head the distribution there, but it's not dramatic. It's not like it's half of them in q1 or something that is it is i would say normal fluctuation as you see the previous year okay so very normal i was expected to be fair enough thank you thank you thank you we are now going to take the next question and this one comes from stephen penamo from bank of america please go ahead yes thanks for taking my question i have two questions please the first one is on your guidance for q4 so your follow-up guidance implies around 400 pips of

outperformance for the last quarter well above your performance delivered in your previous quarters and despite a tougher comp base so what gives you confidence into this acceleration this is my first question and my second question is about your full year guidance adjustment so no you are expecting around 10.5 percent versus between 10.5 to 11 percent so should we read that as a floor or is there any scenario where the free your guy the yes the free your performance could be below ten point five percent that this is my second question thank

you thank you no I think when it comes to the guidance for the fourth quarter I would like to come back to basically what I said earlier here which is that I mean we enter now Q4 with the confidence of the fact that we have very clear activities lined up here for the fourth quarter to support the numbers here. I mean starting with what we see here is on the sequence, I mean first of all Q4 is the stronger quarter, it's always the stronger compared to the previous quarters, also this year, because there is a seasonality to it. What we see now also sequentially here is that, I mean, despite the very challenging quarter that we have been in, the team managed to deliver slightly better than what we expected into the quarter when we were here in July. And that is because we're delivering well on our improvement activities that we have as an incremental part of our strategy to have an earnings growth altogether. So of course when we have all these headwinds, those activities are helping us. So the higher sales is one, the tariff compensation and customer compensation is other cornerstones that is critical here, of course, where we have a good momentum in this, as we have seen. We have the higher sales of the 1 million vehicles, once again, on the sequential development here. And that makes us see that we should be able to deliver on what we have indicated before. And actually, it has strengthened the case for Q4 compared to July, since we deliver so stronger in Q3. So the momentum carries through into Q4 is our expectations here and that's why we have the confidence as you said here to make this step here. Then of course I mean we don't guide for the future years here more than to say that the range for this year was a reflection of the uncertainty in the market and the volatility in the market that we see. But I'm really happy that we are able to stay within this range, and I think that's really a sign of strength here. When we move forward here, I mean our ambition and target is still to get to the 12th. So our earnings growth is something we're working on very hard with the different levers that we have identified and communicated before. So that's still laid as the foundation.

Then, of course, if you come in with the floor or not, it depends, i would say of course on the external circumstances here i mean if you have a pandemic year again i mean who knows so it's a very difficult question to answer rather to say that we believe that we have an earnest growth built into our activity plans under normal circumstances thank you maybe if i can just add a follow-up question regarding the top line coming back to china can you please clarify why China term negative organically in Q3 because so you delivered out performance but when I look at Q1 and Q2 the market was very

challenging and you've delivered positive organic growth so why you term negative in Q3 and why you are more optimistic for Q4 thank you I think I mean what all that is referring to is the light vehicle production development that is quite significant i think so far we have been compensated with the with the exports i mean the domestic sales gone down global export has gone up and and offset the large part of that i think we we see that the export opportunities the limits that the offsetting factor and that's really the lvp growth i think as i said before our own ability to continue to grow and outperform with the Chinese OVM's continues. So we will be comfortable in our own activities and outcome there.

All right. Thank you.

Thank you. We have time for one last quick question. And this question comes from Itain Mikaeli from TD Cohen. Please go ahead.

Great. Thank you, everybody, for squeezing me in. And I'll just do two quick questions. You've done a really good job of mitigating the 180 basis points or mostly mitigating the impact this year. But I'm curious to what degree, if any, are some of these mitigation actions a pull forward from initiatives you were planning for subsequent years? And could that affect the kind of trajectory towards your 12 percent margin target?

I would say no. I mean, what we do is, I mean, we take, I mean, you saw in the last quarter here, well, Q2 here, we announced the Turkey, which is an effort also to continue to strengthen us midterm and longterm. So, I mean, we constantly work with our activities plan to make sure that we have enough activities to secure our growth journey as well as making sure that we can offset the new headwinds that comes our way. So it's never done. It's a constant work on all that. So I would say what we have done now here to offset this is really, as we said there before, and even more strictly control, SG&A activities, enhancing the productivity in our plants and applying new technology. I think that's also very interesting and inspiring is also that when we are on this journey, I mean, continuous improvements, you know, you're never done, is always another 25% potential there. But now with the new technologies, we see that we also can take more leaps, bigger leaps in productivity here to applying things that were not available technically maybe two years ago, but today it is. So the whole optimization journey potential grows as we move forward. And that's really the focus here to keep up the high pace on that to manage the headwinds and our own growth.

That's very, very helpful. As a super quick follow-up, maybe just talk through the drivers of the lower CAPEX to sales guidance this year and how sustainable that might be into next year.

So as mentioned, we are narrowing our guidance for CAPEX to around 4%. It's a phasing of activities. We prefer to prioritize activities that have a higher payback and we continue to invest now more accelerated in Q3. But it's pretty just phasing related to our investments and the prioritization to the higher payback projects.

That's helpful.

Thank you. That was the last question for today. I will now hand the call back to Michael Brett, resident and CEO, for closing remarks.

Thank you, Madeleine. Looking on the next slide, Before we conclude today's call, I would like to invite you to Auto Leaves Investor Day, taking place on 26th and 27th of April next year, 2027, in Shanghai, China. The event will feature management presentations and visit to our operations, combined with the full day at Shanghai Auto Show 2027, the world's leading automotive exhibition. Attendees will also have the opportunity to experience Autolive's latest safety innovations and technologies showcased at the event. We look forward to welcome you to Shanghai for an insightful and exciting two days. Finally, our fourth quarter call is scheduled for Friday, January 29, 2027. Thank you for your attention. Until next time, stay safe.