Good day and welcome to the Aptiv Third Quarter 2020 Earnings Conference Call. My name is Tracy, and I’ll be your conference operator today. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. Elena Rosman, Aptiv’s Vice President of Investor Relations, you may begin your conference.

Thank you, Tracy. Good morning and thank you to everyone for joining Aptiv’s third quarter 2020 earnings conference call. To follow along with today’s presentation, our slides can be found at ir.aptiv.com. Today’s review of our actual financials excludes restructuring and other special items and will address the continuing operations of Aptiv. The reconciliation between GAAP and non-GAAP measures for our third quarter financials are included at the back of today’s presentation and the earnings press release. Turning to the next slide, you can see here a disclosure on forward-looking statements, which reflect Aptiv’s current view of future financial performance, which may be materially different from our actual performance for reasons that we cite in our Form 10-K and other SEC filings, including uncertainties posed by the COVID-19 pandemic and the difficulty in predicting its future course and impact on the global economy. Joining us today will be Kevin Clark, Aptiv’s President and CEO; and Joe Massaro, CFO and Senior Vice President of Business Operations. Kevin will provide a strategic update on the business, and then Joe will cover the financial results and outlook for the remainder of the year in more detail. With that, I would like to turn the call over to Kevin Clark.

Thanks, Elena. Good morning, everyone. Beginning on Slide 3, our strong third quarter results reflect our culture of continuous improvement, which has created a more sustainable business that thrives in any environment. Our portfolio of safe, green, and connected technologies has translated into year-to-date revenue growth, which is 10 points over underlying vehicle production. And our optimized cost structure is a competitive advantage, positioning us to withstand the 50% plus reduction in this year's second quarter volumes and remain EBITDA breakeven. Our culture of flawless execution has allowed us to ramp up production to meet the rapid rebound of customer schedules, while managing through the challenges related to labor availability and a tightening of the global supply chain with zero customer disruptions in a quarter that we experienced a 60% sequential increase in vehicle production. The proactive portfolio and cost structure actions we’ve taken over the last few years to strengthen our business model have positioned Aptiv to outperform in any environment with more sustainable earnings and cash flows, a disciplined improvement approach to value creation, and the flexibility to accretively deploy capital. I'm proud of how our team has performed during this challenging year. And I'm grateful for their commitment to our culture that drives continuous improvement, ensuring Aptiv can outperform in any environment. Moving to Slide 4, the strong rebound in vehicle production combined with solid operating execution contributed to strong financial results in the third quarter. Revenues increased 3% to $3.7 billion, representing 7 points of growth over vehicle production. EBITDA and operating income totaled $581 million and $389 million, respectively, and adjusted earnings per share reached $1.13. Looking at each region, government fiscal policies and improved business conditions boosted vehicle production by 11% in China, and OEMs in North America and Europe are aggressively restocking vehicle inventories, resulting in the strong ramp-up in vehicle production, which translated into a year-over-year decline of only 1% and 8%, respectively during the quarter. The increase in COVID-19 cases during the quarter, especially in Mexico and Eastern Europe created supply chain disruptions, principally related to Tier 2 and Tier 3 electronics and component manufacturers, which resulted in volatile customer schedules leading to some operational headwinds. We're closely monitoring the more recent spike in COVID-19 cases in both Europe and North America and the potential impact on the global supply chain and customer schedules, but it's not reflected in our outlook for the fourth quarter and 2021 global vehicle production. Joe will cover our fourth quarter and full-year guidance in more detail shortly. As shown on Slide 5, third quarter new business bookings totaled $4.6 billion, representing a more normalized run rate for new business awards. Year-to-date bookings reached $10.5 billion benefiting from a meaningful increase in new business win rates, partially offset by the day-to-day operating challenges related to COVID-19. Advanced Safety & User Experience segment new business bookings totaled just over $2 billion year-to-date as a handful of customer awards initially planned for this year have been pushed to 2021. And new business bookings for our Signal & Power solutions segment totaled more than $8 billion year-to-date, including $1 billion of high voltage electrification awards driven by the increased demand for electrified vehicle platforms. For the full year, we now expect new business bookings in the range of $16 billion to $17 billion, roughly flat to 2019 levels when adjusted for our current outlook for lower global vehicle production. The cumulative amount of our new business bookings over the last few years gives us tremendous confidence in our ability to sustain strong above market growth across both of our business segments, validating the strength of our portfolio of market evolving technologies, aligned to the safe, green, and connected megatrends. Looking at our business segments in more detail, beginning on Slide 6, with Advanced Safety & User Experience. As a need for more complex software, hardware, and systems integration expertise increases, our unique ability to offer highly functional, scalable, and optimized solutions across the active safety and user experience domains has driven continued strong revenue growth over market. Despite the decline in vehicle production over the last few years and our increasing capabilities in software development and data analytics position us well for future high growth, high margin opportunities in new markets. These industry trends and our unique capabilities underpin our outlook for 8 points of growth over market in our Advanced Safety & User Experience segment this year reaching roughly $3.5 billion of revenues. Turning to Slide 7, our OEM customers continue to launch advanced safety solutions across our vehicle platforms and democratize these features across our vehicle lineups to meet increasing consumer demand. While at the same time, Europe and China NCAP standards are accelerating the adoption of advanced safety solutions. Several OEMs have decided to make automatic emergency braking as well as other ADAS features standard equipment in the U.S by 2022, all of which translates to significant demand from OEMs for Level 2 and 2 plus ADAS solutions, exceeding the next big wave of market penetration, even as the industry experiences lower vehicle production volumes due to COVID-19. Our unique first in industry approach to compute centralization and scalable satellite architecture has strengthened our competitive position and sustained our strong revenue growth. This is validated by the fact that we now provide OEM customers with more than 6 million radars annually compared to only 1 million just 5 years ago. Additionally, our satellite architecture solution will be deployed across 10 million vehicles over the next 5 years. As such, we're confident that we will continue to grow our active safety revenues at a compounded rate of 25% per year over the next few years, reaching over $2 billion by 2022. Importantly, our Gen 2 ADAS platform will further increase our competitive mode with the deployment of next-generation perception systems and a higher level software abstraction that will deliver even more consumer value while enabling new business models for Aptiv and reducing investment for our OEM customers. Turning to our Signal & Power Solutions segment on Slide 8. We're leveraging our industry-leading position in vehicle architecture to become the partner of choice for both our traditional and new emerging OEM customers. By integrating our broad portfolio of low and high voltage solutions, including conductors, connectors, electrical centers, and cable management systems, we're able to reduce the weight and physical size of the electrical distribution system by up to 40%, thereby reducing costs for OEM customers. We are also leveraging our expertise in harsh environment electronics to penetrate adjacent markets, such as commercial vehicles, data centers, and industrial sectors. Our momentum in our Signal & Power Solutions segment gives us confidence in delivering revenue growth of 9 points over vehicle production this year, reaching $9 billion of revenues. Moving to Slide 9, we continue to see an acceleration of powertrain electrification driven by both more stringent CO2 regulations, principally in Europe and China, and increasing consumer demand globally. Our complementary high-voltage distribution and connection systems, as well as cable management solutions, leverage our low voltage core competencies, including vehicle architecture optimization, system level expertise, and global manufacturing and supply chain management to enable the acceleration of powertrain electrification by significantly reducing the weight and mass of the vehicle architecture through smarter, more efficient design. This perfectly positions Aptiv to benefit from the two-fold increase in addressable content at a high voltage electric vehicle. Our unique holistic approach to designing, developing, and manufacturing system level solutions for electrified vehicles makes Aptiv the partner of choice for OEM customers and has contributed to continued strong new business awards with both traditional high-volume OEMs where we've recently been awarded new business on a series of conquest pursuits, including with a leading major European OEM for innovative, long-range electrical vehicles that will begin launching in 2022. It is non-traditional battery electric vehicle-focused OEM customers where we increased our share of wallet with an industry leader who has been expanding both their vehicle offering and their global reach. As a result, high voltage electrification continues to be our fastest-growing product line, with revenues increasing at a compounded rate of 40% for the next few years, reaching roughly $1 billion by 2022. Turning to Slide 10, Aptiv's mission of enabling a safer, greener, and more connected world has never had more meaning than it does today. The COVID-19 pandemic has led to a much broader perspective on how the global community views safety both inside and outside of the vehicle. We've all become more sensitive to our environment and have had a glimpse of a greener world with fewer cars on the road and planes in the sky. And every day, we're reminded of just how connected the world is and how much more it could be as more of us work remotely. We are proud of the progress we've made this year on our enterprise wide commitment to corporate social responsibility, which can be explored in our 2020 sustainability report that was published in September. This includes our sustainability framework, new 2025 commitments for each of our foundational pillars, which include people, product, platform, and newly adopted GRI and SASB reporting standards that supplement our adherence to the United Nations sustainable development goals. Our ability to meet these commitments to sustainability is built on a cultural foundation of always doing the right thing the right way. We believe that our long-term success and ability to create value for all our stakeholders are directly linked to building a more sustainable business and the directly related positive impact we have on our people, our portfolio, and our planet. I'll now hand it over to Joe Massaro for an overview of our financial results.

Thanks, Kevin, and good morning, everyone. After the challenging second quarter, global automotive manufacturing has continued its recovery in the third quarter against the backdrop of improving customer schedules and increasing launch activity, resulting in the strong financial results shown on Slide 11. Revenues of $3.7 billion were up 3% over last year as vehicle production declined 4%. Due to the benefits of our flexible operating model, adjusted EBITDA was $581 million, roughly flat compared to the prior year, reflecting robust sequential improvement in production volumes, strong cost management, and cost reduction activities partially offset by the ongoing operating costs associated with COVID. In light of the stronger recovery and a need to ramp capacity quickly in the third quarter, we concluded our short-term austerity measures implemented earlier in the year, resulting in less than $5 million of benefit in Q3. Earnings per share in the quarter were $1.13 and reflected lower operating income, promotional JV results, and increased share count as a result of the June equity issuance, partially offset by favorable tax expense. Operating cash flow was strong at $559 million, reflecting working capital management and cash conservation efforts, partially offset by higher cash restructuring costs. Lastly, capital expenditures were $117 million, reflecting a year-over-year decrease of roughly $50 million. Looking at third quarter revenue in more detail on Slide 12, globally, we benefited from both stronger vehicle production as well as increased demand for active safety systems and electrical architecture. North American revenues declined 3% primarily due to year-over-year program launch timing. We continue to see demand for core SUV and truck platforms and expect to return to strong growth and growth over market in the fourth quarter. In Europe, the trend of strong double-digit market outgrowth continued as the production rebound benefited from active safety and high voltage electrification programs. Lastly, China growth outpaced the market and our expectations as a sharper recovery in sales led to production upside with our major customers. Moving to the segments on the next slide, Advanced Safety & User Experience revenues increased 3% in the quarter, reflecting 7 points of growth over market with all product lines contributing. AS and UX EBITDA declined 24% driven by the costs associated with new launches and the inefficiencies associated with lower vehicle production volumes, as well as price declines in the quarter. As a reminder, for compatibility purposes, the automated driving spend that is now part of Motional, the Aptiv Hyundai joint venture is excluded from the prior year results. Turning to Signal & Power Solutions, revenues were up 2%, reflecting 6 points of growth over market. Strong growth across the segment, particularly in Europe and China, was driven by new launches, increased electrification, and industrial end market recovery. EBITDA in the segment declined 2%, which included the additional COVID operating costs as well as costs associated with launches and production ramp. Turning to the next slide and the outlook for the rest of the year. Looking at the fourth quarter specifically, we expect continued variability in customer schedules and operational inefficiencies related to volume absorption similar to what we saw in the third quarter. This is reflected in our outlook for vehicle production in the fourth quarter of down approximately 3% year-over-year and does not assume any meaningful extended COVID related disruptions or shut downs. North America and Europe are both expected to be down low to mid single digits as inventory rebuilds and improved levels of demand support current production rates. In China, we expect the pace of underlying demand to continue with modest production growth in the quarter. As a result, we now expect 2020 global vehicle production to be around 76 million units. However, despite improved visibility and customer schedules, the threat of plant closures and potential customer supply chain disruptions remain. Turning to Slide 15, based on these improved customer schedules, we are reintroducing and providing guidance for the full year and fourth quarter. Starting with the fourth quarter on the left, we expect revenues up 3% on an adjusted basis at the midpoint, similar to what we saw in the third quarter. EBITDA in the range of $575 million to $625 million, reflecting a 16% EBITDA margin at the midpoint. Operating income of $385 million to $435 million is expected to yield a 10.9% operating margin at the midpoint and EPS in the range of $0.85 to $1. Moving to the full year, that translates into revenues in the range of $12.5 billion to $12.7 billion, down approximately 11%, reflecting the shutdowns in the first half and 9 points of growth over market with equally strong contributions from both segments. EBITDA in the range of $1.52 billion to $1.57 billion, reflecting a 12.2% EBITDA margin rate at the midpoint. This includes over $100 million in COVID-related operating costs and approximately $150 million in austerity saving measures, which helped to mitigate the impact of lower first half volumes. Operating income in the range of $775 million to $825 million and EPS is expected to be $1.65 to $1.80, reflecting a 10% to 11% effective tax rate for the full year. Operating cash flow is now expected to be almost $1.1 billion and includes approximately $200 million of restructuring cash as we continue to rationalize our fixed costs in light of the lower production environment. And CapEx is $600 million, consistent with our post-COVID revised estimate for the year. Turning to the next slide, looking ahead to 2021, our sustained focus on shareholder value ensures we continue to execute our long-term strategy consistent with the financial framework we have previously communicated. Despite the very challenging first half and lower production environment overall, we have demonstrated our ability to deliver on this framework. Our industry-leading growth portfolio has sustained strong above market growth while the work we have done in the last several years to optimize our cost structure and improve efficiency has positioned us to mitigate the effects of lower industry volumes and grow earnings going forward, while effectively deploying capital and enabling further growth in the recovery. While it's still early in the planning process for 2021, we are confident in our ability to outgrow the market. As of today, we assume the market will be up approximately 10% in 2021 taking global vehicle production to 83 million to 84 million units. To put this into perspective, this is roughly 10 million units less than what we saw in 2019 and reflects an 8-year low at levels last seen in 2012. However, the long-term secular growth drivers remain intact, which contribute to growth over the market in the range of 6% to 8%. As a result, we would expect to return to double-digit operating margins in the range of 10% to 11% driven by higher volumes year-over-year and the assumed absence of COVID-related shutdowns, and our relentless focus on optimizing our cost structure to adjust to lower industry volumes while balancing our overall capacity utilization as the recovery unfolds. Additionally, we will continue to effectively deploy capital with a focus on value-enhancing M&A and investments to add scale and leverage to key product lines to further position the company for accelerated growth and margin expansion. The consistent execution of our strategy is a major differentiator for Aptiv and an important lever for shareholder value generation going forward. We will give our official 2021 guidance when we report fourth quarter 2020 results. With that, I'd like to hand the call back to Kevin for his closing remarks.

Thanks, Joe. I'll now wrap up on Slide 17 before opening it up for Q&A. Despite the challenges we faced in 2020, we remain laser-focused on further enhancing our track record of performance in long-term value creation as we execute our strategy and deliver on our vision of the company, leveraging our unique position at the intersection of the safe, green, and connected megatrends that are transforming our industry. The sequential strong increase in third quarter revenue, earnings, and cash flow reflects the flexibility of our business model and the execution capabilities of our team. As we look ahead, our ongoing efforts to provide technology solutions that solve our customer's toughest challenges, improve our revenue diversification to have a more predictable revenue growth profile, further optimize our cost structure to increase the flexibility of our business model, expand our profit margins to generate more earnings, which can be efficiently converted into increased cash flow, and maintain a strong balance sheet while smartly deploying capital creates a more sustainable business and delivers meaningful shareholder returns as the recovery continues to unfold. Our confidence is underpinned by the dedication and commitment of our employees, our greatest asset. I'm grateful we have an organization that is focused on flawlessly serving our customers while creating value for all of our stakeholders. With that, let's open up the line for Q&A.

Thanks, Kevin. Tracy, we will now take our first question.

We will now take our first question from Rod Lache from Wolfe Research. Please go ahead.

Good morning, everybody.

Good morning, Rod.

Thank you for your insights on the 2021 margins; that was very helpful. I have a couple of questions regarding that. In the past, particularly in active safety, you concluded that increasing R&D spending in the short term was a wise decision because there would be long-term benefits. Can you share your thoughts on how you anticipate this evolving as we approach next year? Additionally, do you foresee a similar situation with the growing electrification pipeline? Does that necessitate further R&D investment ahead of the significant increase we anticipate in the coming years?

Yes. Rod, it's Kevin. So we feel as though, as we said, we continue to feel and actually feel even more strongly now that we have very, very strong competitive positions in areas like ADAS and smart vehicle architecture, and increasingly on the high voltage electrification space. And those are areas that we're going to continue to invest in to further widen our competitive mode. Those investments are reflected in the outlook that Joe has given both for the fourth quarter as well as next year. We think if we continue to invest, we're uniquely positioned based on our capabilities, software perception systems, as well as connectors, cable management, and wire harness capabilities on the vehicle architecture side to really accelerate revenue growth and expand margins. So that's something that we will continue to do, but again, that incremental investment is reflected in the outlook.

Okay. So there is some incremental spending, but it's something that you're managing here with the growth that you've got?

Yes. There's incremental spending, but I think it's balanced. I think it's relatively balanced and again, it's reflected in our outlook.

Okay. And just secondly, I noticed that pricing looked like it ticked up, just above 2%, which is I think the upper bound of what we've seen in the past couple of years, correct me if that's incorrect. But any comment or color on what actually is driving that and how you’re thinking about that going forward?

Yes, Rod. It's Joe. That's a fair observation. I would attribute that to some fluctuations we observed in the commercial side of the business over the past few quarters, similar to bookings in terms of when contracts were signed and deals were completed. So, there isn't a long-term shift in our perspective that we're around 2%, but it did trend a bit higher in the quarter as we cleared a backlog of agreements.

Yes, I think if you look at this, Joe, correct me if I'm wrong, the first half of the year pricing was significantly below our typical sort of pricing range. So I think we'd say, Rod, it's been more of just a normalization for the full year.

Okay, great. Thank you.

Thank you.

We will now take our next question from Adam Jonas from Morgan Stanley. Please go ahead.

Hey, everybody. Just the first kind of …

Hey, good morning.

Good morning. Joe, just a quick one for you. The $150 million austerity measures as I'm thinking '20 to '21, how much of that do you think is sustainable? I know a lot of companies made these very aggressive, nobody travels, cut everything discretionary and some of that maybe isn't repeated. I didn't know if you could give some color on that delta as we run numbers of the $100 million COVID maybe, hopefully not repeated, how much of the austerity continues on the other side?

Yes, I understand, Adam. Thank you. What we were largely able to achieve were significant austerity measures, including furloughs and temporary layoffs, and we reintegrated those costs as we began to ramp up operations. These measures accounted for the majority of the over $100 million in austerity initiatives. There are also expenses like travel that we expect will gradually return in 2021, which I would estimate to be in the range of $30 million to $40 million. Additionally, we are noticing some inefficiencies while managing customer schedules and dealing with the implications of COVID costs. We are addressing these issues, and our best estimates regarding these factors are reflected in our margin outlook for the fourth quarter and the following year. Currently, I would anticipate that the costs associated with a return to normal operations would be around $30 million to $40 million.

That’s very helpful.

I want to emphasize that over the past few years, we have managed to cut overhead costs in this business by nearly $400 million. We have been proactive in addressing our cost structure during this time. Currently, we are grappling with how to evaluate our fixed cost structure and facilities, especially considering the projected global vehicle production of 84 million units. We need to balance this with our outlook for next year, which anticipates revenue growth in the mid-teens. Even though vehicle production is significantly lower compared to 2018 and 2019, if COVID remains under control, we should see substantial revenue growth as we adapt to the capacity that was established for a stronger global vehicle production outlook before the pandemic.

Thanks, Kevin. Just the next one, please. There's an argument that as suppliers roll off ICE legacy and then bring on new EV that it's a zero-sum game at best, maybe a less than zero-sum game, or are you at a point where as you see that transition from some ICE rolling off and being at the margin replaced by higher voltage that that is margin accretive or balanced? Maybe give some color.

It is margin accretive to our SPF segment. So it's from a content per vehicle standpoint, it's over 2x content per vehicle opportunity relative to ICE, and it's margin accretive.

Even at this level of scale, even that scale is still pretty darn low versus multiple players?

Yes, it is. Part of it is that our high voltage portfolio complements the low voltage very well. There is significant leverage of the existing infrastructure with SPF. I mean, we've historically set our product lines breakeven between $350 million to $500 million of revenue, which was the case with active safety and sort of get to segment margins by $750 million to $1 billion. Our high voltage portfolio basically was sort of at segment margins out of the gates. And as you know, as we marched towards sort of this $1 billion of volume by 2022 to 2023, we believe that becomes more accretive. So …

Okay.

And it's, again, it's really just leveraging that very strong low voltage business, the same engineers, the same equipment, that type of thing.

That's a helpful dynamic. If I could squeeze one more in, on mobility and services. I know it's small, but what is the year-on-year growth for that business? For example, in the quarter it's getting a lot of investor attention, even though I know you've said it's well below $100 million kind of revenue right now, but remind us, where is this revenue coming from? Who's paying it? My understanding, Joe and Kevin, is that it has the potential to be regular and recurring revenue coming off the data derived from your fleet customers. Perhaps, right now it's more one-off service revenue. I don’t know if you could just give a little color on the growth and then where it's coming from? That's it.

Well, maybe I'll talk about it and, Joe, you can comment on growth. So today its regular recurring revenue. It's below $100 million, it's regular recurring revenue. Revenues were certainly impacted this year. Based on the impact, I'd say more of COVID quite frankly than vehicle production. Most of our revenues today sit with global OEMs on a pre-production basis. We have some business that's post-production and we have a significant focus on growing our position, not only within automotive, but have made progress outside of automotive in the commercial vehicle and fleet markets.

Yes, it's again lower dollars. I'd call it flattish, Adam, this year. And part of that is because a good percent of that business is pre-production. So they're using the technology in the plants. So obviously, the shutdown, the global shutdowns had a significant impact on that business. They just weren't using necessarily that tech while they were shut down for that 8 to 9 weeks. So to Kevin's point, it's sort of disproportionately impacted by the shutdowns versus vehicle production.

Appreciate it, Joe. Thanks. Thanks, Kevin.

Thank you.

We will now take our next question from Joseph Spak from RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone.

Good morning.

I wanted to follow back on some of the high voltage business. I mean, now that there are more programs launching and certainly more programs being quoted, do you have a sense of whether your win share on those programs is higher than maybe on low voltage? And the reason I ask is it seems like the larger players like yourself that are able to sort of really have been able to invest in that business are probably better positioned than maybe some of the fringe players that exist on the low voltage side.

Yes. So, Joe, that's a great question. So we should start from a high voltage strategy, we're very focused from a pursuit standpoint. So we very much focused on OEMs who have a strong market position, strong global position, and a reputation for technology and a real commitment to building out a high voltage portfolio. That’s both on the traditional OEM side as well as on kind of the new battery electric focused OEMs. So we've made sure that we're positioned to carve a nice position in those with those OEMs grow as they grow their product lines and as they expand geographically, so we can grow with them. When you look at opportunities quoted, call it roughly 15, just a couple of years ago. This year we'll quote on probably close to 40 opportunities and we have a win rate of north of 70%. Now some of that, again, I think is attributed to how we're very focused in terms of where we're allocating resources and making sure that we're positioned with those OEMs who we really feel are going to drive volume in the future.

That's very helpful. Joe, maybe just one on the fourth quarter guide. So at the midpoint it looks like a bit of operating income on sales of a little bit over $3.7 billion. I mean, if we adjust last year for the GM strike and the movement of the JV, sales are at about that level, but it looks like operating income was about $100 million higher. I get that there's COVID costs from a year-over-year basis of $30 million. D&A is higher, maybe $15 million and there's some higher R&D as well, you haven't given that number, but I don't know, maybe it's $20 million, $25 million, still leaves a hole. I was wondering if you could help us understand what some of that other delta might be?

Yes, Joe, I think you're right about the engineering investment, although we are beginning to compare that to some extent. Keep in mind that we started incurring those costs in the fourth quarter of last year. It really relates to COVID and certain launch expenses. We're observing a noticeable increase in launches for the fourth quarter. We had a sort of dip in launches during the third quarter, which you can see reflected in the North American numbers as we prepare for the fourth quarter and first quarter launches next year. As both Kevin and I have mentioned, these schedules can be quite inconsistent. There are inefficiencies tied to customer schedules, which might be attributed to either customer scheduling issues or COVID challenges; they are all interconnected at this point. However, I would say we are managing operations quite well, though it may not be as efficient as it was in previous years, aside from the strike. So that dynamic is in play too. Overall, I'm quite pleased with where we stand in terms of returning to strong instrumentals and the business's performance, given the challenges we face.

Yes, Joe, if I could add just to emphasize Joe's point about operating during COVID and the decision we made to allocate excess resources. We are currently launching the F-150, S Class for Daimler, and Bronco early next year. We want to ensure that these launches do not negatively impact the customer due to factors within our control. Therefore, to highlight Joe's point, we are balancing current supply chain dynamics with the significance of these platforms for the OEMs and a successful launch. We have chosen to allocate additional resources to ensure we meet our delivery commitments.

Thank you.

We will now take our next question from Chris McNally from Evercore. Please go ahead.

Thanks so much, team. Two questions. One just on the short-term and one for medium-term. On the short-term in orders, I think you mentioned some of the shortfall for the full year, if you adjusted for production you'll be roughly flat. Can I just get a clarification? When you're booking those orders, are you making forward production assumptions of a return to normal? It looks like the lifetime value you would use some more normalized for production assumptions.

Yes, Chris, we're adhering to our methodology to ensure consistency across multiple years. We use IHS when we finalize the deal, and we don't revise previous bookings. Kevin mentioned the impact if we looked at the 2019 bookings, but we haven't restated any bookings. We rely on IHS, which is an external service, to maintain consistency both internally and externally, allowing us to explain changes going forward, and we will continue to do so.

Okay. That's great. Looking at the second half, the run rate for Q3 or Q4 is expected to be in the range of $20 billion to $24 billion, especially since IHS has improved. That's really helpful. Regarding the second question, it appears that much will depend on the rate of positive change in the ASUX margin, which is still significantly below your adjusted target of over 10%. Could you clarify whether achieving the 10% to 11% target for next year will require a substantial increase in the ASUX margin year-over-year, or will it take longer due to the investments made?

No, listen, I think it's important to note that I don’t want to go into too much detail. That was more of a framework than a guide. However, I will reiterate that we continue to follow the long-term trajectories we've discussed. Kevin mentioned the $2 billion of ASUX revenue heading into 2022. We've invested more in engineering for ASUX this year, and as I mentioned, we're starting to see the effects of some of that investment in the latter half of this year. Therefore, we have not changed our long-term margin expectations for that business. I am hesitant to provide specifics until we navigate through everything. There’s a lot happening, particularly with some launches on the active safety side where we have increased staffing. So, there are still many moving parts for 2021, but I am certainly comfortable with the framework we discussed.

Okay. Thank you.

We will now take our next question from Emmanuel Rosner from Deutsche Bank. Please go ahead.

Hi, good morning.

Good morning.

I was hoping to get your thoughts on LiDAR. There is a lot of discussion around it, especially with several leading startups entering the market. From your interactions with automakers regarding Level 2 plus and higher levels of autonomy, how significant is LiDAR in the solutions you are discussing with them, and how do you approach this topic? I know you have previously formed multiple agreements with different LiDAR companies. What led you to collaborate with others instead of developing this technology in-house?

Yes. From a LiDAR standpoint, where you begin to see the need for LiDAR and we believe it's necessary from a technology standpoint on Level 3 solutions and higher. We have not seen any as it relates to Level 2 plus Level 3 minus Level 2. So a solid place in Level 3 and above. Having said that, as a radar technology company, we're working very hard to advance our radar technology. Pushing to see if we can advance the technology to the point where you minimize the need for LiDAR technology on Level 3 solutions. So advancing that technology forward. What's driving that is quite frankly the desire from an OEM standpoint to bring down costs of that technology or that solution providing that Level 3 solution. Why we decided not to invest in LiDAR, we have strong capabilities in radar. We've not previously worked on developing LiDAR solutions. There were others out there who were further along. So from a capital standpoint, we made the decision to partner with those who are already in the business and have the capability.

Okay. That's very informative. For my second question, I would like to follow up on the 2021 margin outlook. How should we consider the incremental margins as volume recovers? You are anticipating a 10% recovery in global auto production, but if you were to consider a 14% or 15% recovery as suggested in the guidance, what impact would that have on your margin outlook for next year?

Yes, Emmanuel, as I mentioned to Chris, we're not going to go into too much more detail on 2021. I think that framework, we've got a lot of work to do. I think that framework hopefully is helpful to folks. I do think as you look through incrementals in the back half of the year, I think those are certainly indicative of what we think the business is capable of doing. But again, I'm not going to get too much more specific on 2021. We've got lots of work to do to finalize those numbers.

And that's understandable. Thank you.

We will take our next question from Itay Michaeli from Citi. Please go ahead.

Great. Thanks. Good morning, everyone.

Hi.

Just one more question about incrementals. I know you have previously mentioned a long-term incremental margin in the low 20s. Joe, have you changed your perspective on that long-term incremental?

No, no. I mean, listen, you have to work through when you really clear all of the collective COVID noise. But as we've said a couple of times, the longer we look at it, we've seen nothing at this point other than a short to mid-term disruption. Nothing has changed our longer-term outlook regarding growth over market or the long-term profitability of the business.

Okay.

Yes, Itay, we are aware that there is a lot of disruption related to COVID. The supply chain challenges linked to COVID are affecting costs. Our main priority is ensuring the safety of our employees while serving our customers. This adds additional costs, which should be considered when evaluating incremental margins or negative margins.

Absolutely. Just a follow-up on active safety. Do you quantify the market share gains discussed on Slide 7? Maybe talk about your win rates? And then Kevin, I think you alluded also earlier in your prepared remarks to kind of new business models with inactive safety. I'm wondering if you can expand on that as well.

Yes, our win rates on active safety are exceeding 70%. We are also advancing our second generation ADAS platform, which includes improvements to our satellite architecture program. This will allow for greater centralization of domains, enhanced computing capabilities, and more sophisticated perception systems. We can scale the number of radars used in the system and separate software from hardware. We are in a position to offer the complete platform, part of it, or specific components such as the perception system, hardware, or just the software solutions. This could include underlying Sensor Fusion, software, or specific features. Our goal is to provide our OEM customers with a lower cost solution that offers more flexibility for them and us.

Great. That's very helpful. Thank you.

We will now take our last question from Brian Johnson from Barclays. Please go ahead.

Good morning. I have a couple of questions. First, what are your thoughts on capital allocation for 2021 and 2022, particularly regarding the dividend recommendations to the Board?

I'll start, Joe. We've done an excellent job managing cash flow this year and will continue to focus on increasing it. Our main priorities remain organic investments in our business, such as high voltage systems and the Gen 2 ADAS platform, as well as enhancing our perception system capabilities and smart vehicle architecture. As mentioned in June, we have a substantial pipeline of M&A opportunities in and around engineered components both in automotive and beyond, which is a key focus. Regarding dividends and share repurchase, we prefer to wait a bit longer for the situation with COVID to stabilize before making a final recommendation to the Board.

Yes, I agree with that, Brian. I think our long-term strategy remains intact, which includes a deliberate capital allocation policy. We expect to return to that at some point, but it really depends on timing. We'll proceed when we feel comfortable and have a clearer perspective on the broader impacts of COVID.

Okay. Thanks. Second question. A little bit more strategic. You had a blog post earlier a week or two ago around cybersecurity standards. You're now breaking out connectivity and security as part of your segments. But similar to the LiDAR question, at least I'm not aware of a cybersecurity unit within Aptiv. Is this something that either: A, you're happy with a bunch of solutions on the market and you're bringing it to OEMs as an integrator; or B, you have some internal capabilities and we haven't heard a lot them or see in terms of adjacencies; this is an area you might be looking at?

Yes, so cybersecurity. Obviously given, and I don't need to tell you this, Brian, just given connectivity in the vehicle and the various systems, cybersecurity is a bigger area of focus for OEM customers. To support our product development capabilities, we have, I don't know, 25 or 30 cybersecurity engineers focused on product, focused on our product and focus on the integration of what we develop as well as what we integrate into our solutions from other providers. We've used cybersecurity, quite frankly, it's table stakes. We don't view that as a commercial business. So we tend to do work internally as well as use outside parties that are directed by the OEM. So I hope that answers your question.

So that's not a capability you think about making an acquisition for?

No, it's a capability we have. We don't see it as a viable commercial business for us. We consider it a necessary requirement, and it's part of the solutions we provide to our customers.

Okay. Okay. Thanks.

We will now take our next question from John Murphy from Bank of America. Please go ahead.

Good morning, guys.

Hi, John. Good morning.

I'm not going to beat the dead horse on margins here. I appreciate that the 2021 framework, but is there anything shifting in the business as far as investment or mix that would lead you to believe that you couldn't get back to 12% plus operating margin and maybe even expand from there?

No.

That's great. Okay.

Yes, I think it's important to note that we're facing approximately $30 million in COVID-related costs each quarter. At the same time, we're experiencing disruptions in the supply chain, particularly with Tier 2 and Tier 3 electronics and component suppliers who are likely struggling with labor availability and other issues. Our priority is to ensure that we continue to deliver for our customers, and this is a challenge we are navigating as we deal with COVID.

It makes all the sense. Thanks. Just a second question. When you think about diversification, I was curious if you could talk about the non-auto business in the quarter because the other verticals, in particular, in the commercial vehicle side or not quite as strong as what we're seeing in the light vehicle side. In the short term and then over time, just kind of remind us where you're trying to go with that, what that potentially can mean for margin, 1 to 5 years out?

Yes. Those businesses are still relatively small. We finished the year with about 15% of revenues coming from non-auto, non-light vehicle sectors, specifically commercial vehicle and industrial. These sectors are continuing to perform well and are contributing positively to both market growth and margin, and we anticipate this trend will persist. There are specific areas within the non-auto sector, particularly in telecom, where we've experienced significant growth through the acquisition of Gabocom, as well as organically, exceeding market performance. The military interconnect business remains robust, with a stronger focus on Mil Aero compared to commercial aerospace, which has been beneficial. Looking at the engineered components business, Winchester and HellermannTyton are both positively impacting growth and margin, and I expect that to continue. This is where we are concentrating our investments, both organically and through acquisitions.

Got you. And then just lastly any election game planning around what could happen here on November 3rd or after November 3rd?

Yes, we watch it. We're watching it closely, John. Obviously, it sounds like one administration would be more focused on clean energy here in the United States that could have an impact on our sales of high voltage solutions. We feel like we're well positioned and could benefit from that. Obviously, a lot of the growth that we're experiencing is in Europe and China with those OEMs. And under either party winning, our view is you'll still have a certain amount of regionalization of the supply chain due to impacts on tariffs and trade.

Great. Thank you very much.

You're welcome.

We will take our next question from David Kelley from Jefferies. Please go ahead.

Good morning, Kevin, Joe, and Elena.

Hi, David.

I appreciate you squeezing me in here. I’m doing well. A couple of questions. I really appreciate the active safety slide. Just curious if you could talk about semi-autonomous, maybe what you're seeing there, customer interest in the space, things like on the highway autonomous driving would be great.

Yes. Yes. So L2, L2 plus is today the fastest growing area from an ADAS standpoint. We've actually seen, I'd say a bit of a pause on L3, given cost and given the reset on volumes due to COVID. So I wouldn't say cancellations, but delay of programs with those OEMs who were allocating resources against it. But the fastest growing area from an ADAS standpoint tends to be that L2 plus, L2 plus sort of area. Active safety helps OEM customers sell. When you watch advertising for vehicles today, now it tends to be about active safety solutions. Consumers are demanding it. OEM customers make money off of it. So it continues to be a major area of focus for OEM customers.

Thank you. Regarding that point, Kevin, should we expect to see driver monitoring solutions as part of L2 plus? Is that something you're developing in-house as well?

Yes. Yes, so we've won a number of driver monitoring programs as part of our active safety solution set. Obviously, it gets more advanced when you head to Level 3 solutions where you need to re-engage the driver and certainly even more enhanced when you think about L4, L5. But it's a product area we've been in for roughly 5 years and have a number of programs. Thank you.

That concludes today’s question-and-answer session. I would now like to turn the conference back to the host for any additional or closing remarks.

Thank you, Tracy. As always, we'll be available today and the latter part of this week and into next week for any follow-up questions. And I'll just turn it to Kevin, if you have any final comments.

No. Thank you everyone for your time. We appreciate you participating in our phone call. Please stay safe.

Thank you.

This concludes today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.