Good morning, everyone. My name is Jamie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the American Axle & Manufacturing Fourth Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. Operator provided instructions. As a reminder, today's event is being recorded. At this time, I'd like to turn the floor over to Mr. David Lim, Head of Investor Relations. Please go ahead, Mr. Lim.

Thank you, Jamie, and good morning, everyone. I'd like to welcome everyone who is joining us on AAM's fourth quarter earnings call. Earlier this morning, we released our fourth quarter of 2023 earnings announcement. You can access this announcement on the Investor Relations page of our website www.aam.com and through the PR Newswire services. You can also find supplemental slides for this conference call on the Investor page of our website as well. To listen to a replay of this call, you can dial 1-877-344-7529, replay access code 2703442. This replay will be available through February 23rd. Before we begin, I'd like to remind everyone that the matters discussed in this call may contain comments and forward-looking statements subject to risks and uncertainties, which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed. For additional information, we ask that you refer to our filings with the Securities and Exchange Commission. Also, during this call, we may refer to certain non-GAAP financial measures. Information regarding these non-GAAP measures as well as reconciliation of these non-GAAP measures to GAAP financial information is available on our website. With that, let me turn things over to AAM's Chairman and CEO, David Dauch.

Thank you, David, and good morning, everyone. Thank you for joining us today to discuss AAM's financial results for the fourth quarter and full year of 2023. Joining me on the call today are Chris May, our Executive Vice President and Chief Financial Officer. To begin my comments today, I'll review the highlights of our fourth quarter and full year 2023 financial performance. Next, I'll cover our achievements in 2023 on both our electrification and legacy businesses. After Chris covers the details of our financial results, we will open up the call for any questions that you all may have. So let's begin. From a big picture standpoint, AAM's fourth quarter operating results were negatively impacted by the UAW work stoppage. However, our performance was on track with our improvement objectives that we shared with you on the last call, ending a challenging 2023 on a positive trajectory. In addition, we continued to generate positive cash flow and pay down our debt along the way. AAM's fourth quarter of 2023 sales were $1.5 billion. And for the full year, AAM sales were approximately $6.1 billion. From a profitability perspective, AAM's adjusted EBITDA in the fourth quarter was $169.5 million or 11.6% of sales. For the full year, AAM's adjusted EBITDA was $693.3 million or 11.4% of sales. AAM's adjusted earnings per share in the fourth quarter of 2023 was a loss of $0.09 per share. For the full year, AAM's adjusted EPS was also a loss of $0.09 per share. For the full year, AAM's adjusted free cash flow was $219 million. This cash flow was deployed in 2023 to support debt reduction and electrification investments to position us for future growth. Chris will provide additional information regarding the details of our financial results in a few minutes. On slide four of our presentation deck, we are providing an update to our performance objectives overview slides that we initially shared with you in the last quarter. First, we experienced more customer stability in the latter part of the fourth quarter and that trend has continued into the first quarter of 2024, which is a positive. However, it is early in the year, and we remain optimistic but a little cautious. The UAW work stoppage ended in the fourth quarter and impacted plans to resume production, and we now consider this matter closed in its entirety. As for commercial recoveries, we concluded a number of discussions at the very tail end of the year with positive results. We accomplished our primary objectives for 2023 and now have a few customers to close out in the first quarter here in 2024. We are also making steady progress on improving operations at a number of underperforming plants, and we're on track with our objectives and progress has been good. We will continue to allocate the necessary resources to get these plants back to AAM standards in the time frame that we noted on the chart. Overall, we feel very good about the glide path we are on to resolve the aforementioned topics. Let me now talk about business updates and the 2023 highlights, which you can see on slides five and six. New for the quarter, we are very pleased to announce that AAM will supply DongFeng with final drive units for a four-wheel drive plug-in hybrid SUV program in the China market. We're also happy to share that AAM will provide eLocking differentials to a Mahindra SUV program launching here in 2024. And lastly, we have begun shipping electric vehicle components to VinFast for its midsized electric vehicle program from our recent Tekfor acquisition. On the recognition side, AAM's China operations were recently recognized by SAIC-GM for quality excellence and supply chain stability and also earned an excellent Supplier of the Year Award from Chery itself. On slide six, it clearly highlights that 2023 was a challenging year from many perspectives, but it also was an eventful year for us with many accomplishments, and I just want to highlight a few of those accomplishments. After sharing with you our e-Beam awards with EKA Mobility and Jupiter, we announced a significant win with Stellantis, supplying 3-in-1 e-Beam for a future EV program launched in the latter part of the decade. This was soon followed up with an e-Beam award announced with Skywell and Mahindra. In addition, our cutting-edge e-Beam technology is a PACEpilot Award finalist. As you already know, we won multiple PACE awards for electric driving customer collaboration over the years. So I'm excited about what we continue to do in that area. Our technology is certainly being recognized and it gives us further confidence about our competitiveness. In addition, our legacy business continues to gain traction globally. We announced awards with FAW Group, supplying independent front axles for multiple plug-in hybrid vehicle models and with JETOUR providing power transfer units and rear drive modules for multiple all-wheel-drive SUV programs. These awards signify AAM's broad product portfolio that supports multiple powertrain configurations. Finally, in 2023, AAM was recognized with a number of business and DEI awards. In particular, Forbes named AAM one of America's best employers for diversity in 2023. AAM continues to make great strides in diversity, equity, inclusion as well as environmental sustainability, and we look forward to publishing our new sustainability report in the near future. Now let's talk about our strategy. We'll continue to secure our legacy core business, which we've made very good progress on. We're improving and optimizing our operations, we're driving EBITDA and free cash flow performance generation. And as you know, our business model is designed to yield solid conversion with consistent volumes, and those volumes are getting stronger. At the same time, we'll continue to invest in electrification and solidify our position as a global leader in e-Propulsion systems, providing the OEMs with cost-effective, high-value solutions from e-Beam axles and electric drive units to components as well. However, the reality is the industry is in an air pocket as OEMs reassess their respective electrification strategies, driven by many factors, including consumer adoption, electric infrastructure, cost and government regulations, just to name a few. As these factors are being weighed, AAM will continue to run our aforementioned playbook and be ready for any shifts in powertrain needs. Before I turn it over to Chris, let me discuss our three-year business backlog and our 2024 full year financial outlook that was included in our press release this morning. AAM expects our gross new business backlog covering the three-year period of 2024 through 2026 to be approximately $600 million. For the backlog breakdown, please refer to slide seven. About 50% of our backlog stems from electrification, and this is up from last year, which was at 40%. We expect the launch cadence of our backlog to be $300 million in 2024 and $175 million in 2025 and $125 million in 2026. The new backlog nicely encompasses the mix of ICE and electric programs, including pickups, CUV programs in Asia and additional model variants for other sophisticated electric drive units to highlight a few. Our backlog factors in the impact of updated customer launch timing, our latest customer volume expectations and does not include replacement business, just new and incremental business. And the backlog encapsulates recent OEM powertrain trends and timing estimates. From a launch standpoint, we have 19 launches in calendar year 2024, which should drive growth over the next several years. 2024 is a big year for AAM in terms of launch activity. In addition to our healthy $300 million new business backlog this year, we have major replacement business launches taking place already in the beginning of this year, particularly with the Ram heavy-duty truck, the ICE version, and GM midsized CUV platforms. Both of these sizable and popular platforms will continue to help fuel AAM's business into the next decade. So let's talk about 2024 from an end market perspective. We forecast production at approximately 15.8 million units for our primary North American market. We are monitoring multiple factors that can swing production, including interest rates and the health of the consumer. Slide eight illustrates AAM's 2024 financial outlook. AAM is targeting sales of $6.05 billion to $6.35 billion, adjusted EBITDA of approximately $685 million to $750 million, and adjusted free cash flow of approximately $200 million to $240 million. In the longer term, we'll continue to stay focused on securing our core business, generating strong free cash flow, strengthening our balance sheet, advancing our electrification portfolio and positioning AAM for profitable growth. Team AAM looks forward to a positive and productive 2024. That concludes my formal remarks. Let me now turn the call over to our Executive Vice President and Chief Financial Officer, Chris May. Chris?

Thank you, David, and good morning, everyone. I will cover the financial details of our fourth quarter and full year 2023 with you today. I will also refer to the earnings slide deck as part of my prepared comments. So let's go ahead and begin with sales. In the fourth quarter of 2023, AAM sales were $1.46 billion compared to $1.39 billion in the fourth quarter of 2022. Slide 11 shows a walk of fourth quarter 2022 sales to fourth quarter 2023 sales. Positive volume, mix and other was $158 million, driven in part by our backlog and certain platforms not impacted by the UAW work stoppage. The UAW work stoppage had an $84 million negative impact to sales in the quarter. And lastly, metal market pass-throughs and FX lowered net sales by approximately $1 billion with metals lower and FX higher. For the full year of 2023, AAM sales were $6.1 billion as compared to $5.8 billion for the full year of 2022. The primary drivers of the increase were volume and mix, the five-month contribution from our Tekfor acquisition, and AAM's new business backlog, partially offset by the UAW work stoppage and lower metal market pass-throughs. Now let's move on to profitability. Gross profit was $154.9 million in the fourth quarter of 2023 as compared to $167.2 million in the fourth quarter of 2022. Adjusted EBITDA was $169.5 million in the fourth quarter of 2023 versus $157.7 million last year. You can see a year-over-year walk down of adjusted EBITDA on slide 12. In the quarter, volume, mix and other added a net $39 million of adjusted EBITDA versus the prior year. The UAW work stoppage had a $23 million negative impact to the quarter. R&D was slightly higher year-over-year to support product launches and our electrification advancements. And maybe most importantly, net inflation performance and other was $13 million favorable as plant efficiency improvement objectives remained on track, and we concluded a number of commercial discussions at the tail end of last year. For the full year of 2023, AAM's adjusted EBITDA was $693.3 million and adjusted EBITDA margin was 11.4% of sales. Let me now cover SG&A. SG&A expense, including R&D in the fourth quarter of 2023 was $95.7 million or 6.5% of sales. This compares to $88.5 million or 6.4% of sales in the fourth quarter of 2022. AAM's R&D spending in the fourth quarter of 2023 was approximately $40 million. As we head into 2024, we will continue to focus on controlling our SG&A costs and investing in our electric drive technology. We expect R&D to be flattish year-over-year. We anticipate about $35 million to $40 million per quarter on average, although it can be lumpy as we expect the annual pace of spending to moderate in the coming years as we finish developing our electric platform technologies. Let's move on to interest and taxes. Net interest expense was $42.9 million in the fourth quarter of 2023 compared to $36.9 million in the fourth quarter of 2022. Although our total debt is lower at quarter end on a year-over-year basis, the rising rate environment drove the interest expense increase. In the fourth quarter of 2023, we recorded income tax expense of $5.8 million compared to an expense of $4.1 million in the fourth quarter of 2022. The unusual book rate for the quarter includes the recording of valuation allowances that we have discussed in previous calls. As we head into 2024, we expect our adjusted effective tax rate to be approximately 25% to 30%. Taking all these sales and cost drivers into account, our GAAP net loss was $19.1 million or $0.16 per share in the fourth quarter of 2023 compared to net income of $13.9 million or $0.11 per share in the fourth quarter of 2022. Adjusted earnings per share, which excludes the impact of items noted in our earnings press release, was a loss of $0.09 per share in the fourth quarter of 2023 compared to a loss of $0.07 per share in the fourth quarter of 2022. For the full year of 2023, AAM's adjusted loss per share was $0.09 versus earnings of $0.60 in 2022. Let's now move to cash flow and the balance sheet. Net cash provided by operating activities for the fourth quarter of 2023 was $52.9 million. Capital expenditures, net of proceeds from the sale of property, plant and equipment for the fourth quarter of 2023 were $55.9 million. Cash payments for restructuring and acquisition-related activity for the fourth quarter of 2023 were $7.5 million. Reflecting the impact of these activities, AAM generated adjusted free cash flow of $4.5 million in the fourth quarter of 2023. For the full year of 2023, AAM generated adjusted free cash flow of $219 million compared to $313 million in 2022. As a team, we remain focused on free cash flow conversion, including managing CapEx effectiveness and efficiency and reducing cash restructuring payments. From a debt leverage perspective, we ended the year with net debt of $2.2 billion and LTM adjusted EBITDA of $693 million, calculating a net leverage ratio of 3.2 times at December 31st. This is down from 3.3 times leverage ratio at September 30th of 2023. In 2023, we lowered our senior gross debt by over $140 million, including over $85 million in the fourth quarter. We will continue to strengthen the balance sheet by reducing our outstanding indebtedness. AAM ended 2023 with total available liquidity of approximately $1.5 billion, consisting of available cash and borrowing capacity on AAM's global credit facilities. Before we move to the Q&A portion of the call, let me provide some thoughts on our backlog and 2024 financial outlook. In our earnings slide deck, we have included walks from 2023 actual results to our 2024 financial targets, and you can find those starting on slide 14. From a backlog perspective, the industry is at a juncture where OEMs are reformulating their electric vehicle product plans and timing, driven by a variety of factors. Similar to the industry, AAM is not immune to these cross currents and our new 2024 to 2026 backlog reflects timing of this environment. However, the good news here is under various scenarios, our base core business can remain quite strong for longer. Demand for our next-generation business we are launching should be robust and possibly extend further. And all that is good for AAM. Let's talk about our guidance for 2024. For sales, we are targeting the range of $6.05 billion to $6.35 billion for 2024. The sales target is based upon a North American production of approximately 15.8 million units and assumptions for our key programs. New business backlog launches of approximately $300 million and attrition of approximately $220 million. We are cautiously optimistic that the supply chain has found a better footing to support more stability versus the past several years, but we are monitoring this very closely. From an EBITDA perspective, we are expecting adjusted EBITDA in the range of $685 million to $750 million, and let me provide some color on the key elements of our year-over-year EBITDA walk that is on page 15. We expect to convert our year-over-year product volume and mix increase at approximately 25% variable profit. As mentioned earlier, our R&D spending will be flattish year-over-year as we invest in our future and support electrification products and projects that we are in various stages of development. AAM expects to deliver cost reductions, operational productivity and commercial actions to mitigate inflationary costs and deliver year-over-year efficiency gains. You can see year-over-year performance improvements at a net favorable $35 million on our walk. And lastly, we expect the net negative impact to the metal markets and FX, with the majority of this related to the strengthening of the Mexican peso. On page 16, from an adjusted free cash flow perspective, we are targeting approximately $200 million to $240 million in 2024. The main factors driving our cash flow changes are as follows. We have higher capital expenditures stemming from key launches and investments such as automation. A number of these launches are related to our large next-generation core programs that we secured and we are targeting CapEx as a percent of sales of approximately 4% to 4.5%. We are also expecting moderately higher cash interest and taxes. Lastly, while not included in our adjusted free cash flow figures, we estimate our restructuring payments to be in the range of $15 million to $25 million for 2024 as we look to finalize the integration of recent acquisitions and further optimize our business. We continue to focus on the reduction of these types of expenditures. In addition, we expect to use the free cash flow generated in 2024 to continue to reduce debt, further solidify our position in electrification and take advantage of select market opportunities to support growth should they arise. We are excited about AAM's cash flow generation potential as we launch over $10 billion of next-generation full-size truck axle programs with multiple customers from mid-decade to beyond 2030. From a CapEx perspective, our goal is to remain under 5% of sales, but there could be years that we may spike over that mark depending on launch cadence. As it relates to cadence for the year, sales cadence is similar to 2023 with first and fourth quarters being lower than the second and third quarters. And as depicted on slide four of our deck, we anticipate exiting the listed challenges by the second quarter. From a cash flow perspective, we expect the seasonal cash flow use in the first quarter. Overall, we're expecting a more stable operating environment relative to 2023. As underperforming plants hit operational stride, costs stabilize and additional productivity improvements are achieved, AAM will generate nice future EBITDA conversion, setting up the opportunity for continued financial performance. Thank you for your time and participation on the call today. I'm going to stop here and turn the call back over to David, so we can start Q&A. David?

Thank you, Chris and David. We have reserved some time to take questions. I would ask that you please limit your questions to no more than two. So at this time, please feel free to proceed with any questions you may have.

Operator provided instructions. Our first question today comes from Dan Levy from Barclays. Please go ahead with your question.

Hi, good morning. Thanks for taking the questions. Wanted to start with just a couple of questions on the '24 EBITDA walk. Maybe you could just clarify a couple of items here. The metal markets and FX, just what are you assuming in terms of peso case of transaction headwinds and anything on the commodity side? And then maybe I see R&D is a $5 million headwind. What are the puts and takes within that? How much is R&D related to EV programs versus core R&D on ICE?

Yes, Dan, good morning. This is Chris. I'll take both of those questions. We'll start with the R&D then we can talk about the FX and metals. From an R&D perspective, this really gets us to a run rate of about $40 million a quarter, up from $155 million in 2023 to $160 million in 2024. Principally, this continues to be the build-out of some of our electrification platforms. As David mentioned, we do have some large, I would call it, replacement business launching this year, which will require a little bit from an R&D perspective, more on the B side. And so that really — that's why we said sort of year-over-year, we see it flattish. From a metal market and FX perspective, as you can see on that walk, it is minus $20 million. Most of that is just simply related to the strengthening of the Mexican peso. As you know, we're a large consumer of the peso. We used about MXP5 billion to MXP6 billion a year inside of our Mexico operations. It's about 1.5 points lower than our experience in 2023. So we're sort of in that 18% to 18.25% range is our estimate going forward, and that's a blended rate with our hedges as well as some floating.

Okay. And the peso assumption, that now is a full true-up? Or there's still some heads outstanding that in the future once those reset, that would be an additional headwind based on where the peso is?

We're at a consistent, I would call it a year-over-year rolling hedge program. So we're constantly hedging three years out at various levels from a risk management perspective. And it will ultimately depend on the underlying spot rate to how you place those forward into the subsequent one, two or three years.

Great. Thank you.

Our next question comes from James Picariello from BNP Paribas. Please go ahead with your question.

Hi. Good morning, everyone.

Good morning, James.

Just on your EV program exposure. Any way to think about the EV programs you have in your backlog that you're reporting in the rolling three-year figure relative to your key platform OEM exposure, just in terms of what that overlap could look like as we consider the possibility for EV programs to get further pushed and/or delayed? Just in terms of what that replacement, the legacy production benefit could be or what that dynamic looks like?

So James, let me take a crack and Chris can add to it. First of all, if there's a delay in EV programs, that's good for our business. We can generate strong margins and, in that area, strong cash flow, continue to fund our electrification growth going forward. At the same time, continue to pay down debt and work on tactical acquisitions where it makes sense. So we see that as a positive for us. At the same time, we're going to continue to develop the portfolio that we need for electrification. As Chris has already highlighted and I highlighted in my comments, we continue to win new electrification awards. But to your point, many of the customers are rescoping their program, their content per program and the volumes that go with that. And so our backlog, as we said earlier, is growing year-over-year. We're quoting $1.5 billion of new and incremental business, of which greater than 75% of that is electrification based. But most of what we're working on is the latter part of the decade. So I think you're going to see as the OEMs sort out their plans over the next, let's say, 12 to 24 months — because I think it may take that long — ultimately, the market is the boss and they've got to put their portfolio in place to be able to support what the consumer demand is. So we'll adjust accordingly, but any delay in EV is only going to ask for more ICE to get inventories where they need to be which, like I said earlier, is a positive thing for AAM. Chris, I don't know if there's anything you want to add or not.

Yes, specifically to the electrification products inside of our backlog. There's not a lot of overlap with our existing ICE business. As you know, AMG is going into multiple derivatives as we talked about previously. So that continues to expand on that set. But some of the announcements over the last year that we've talked about, especially in the China and India markets, those are incremental to us. But we do see a little bit of overlap on the component side. So to the extent that ICE is stronger, obviously our ICE business would pick up any slack from the component side. That's how I think about the electrification.

That's helpful. Thanks. And then just my follow-up is, as certain OEMs consider a pivot to hybridization or an emphasis on it, as a full driveline supplier, what could be the conceivable fastest turnaround to get an existing ICE driveline to incorporate hybrid? Just high level thoughts on that.

James, for us, the product components and subassemblies that we manufacture between ICE and hybridization are very similar to one another. So we can get to market very quickly without a lot of change. It's really what the OEMs want to identify the type of hybridization that they want to put into their vehicles. But again, that could be a positive for our company.

Absolutely. James, keeping perspective, a few years back, some of our customers had some large truck platforms that were hybrid. It was the exact same axle for us.

And that would entail additional content for you potentially as well, right?

There is potential, especially on some of our VCS business depending on how the OEM configures the vehicle, but potentially, yes.

Thank you.

Our next question comes from John Murphy from Bank of America. Please go ahead with your question.

Good morning, guys. Surprisingly, I have more questions on the backlog. When you look at this 50% is EV, does that include EV and hybrids? And I wonder if you could maybe give us a split there? And also, Chris, slide 14, you gave us this great $220 million attrition against the $300 million gross. So we had a net new business backlog and roll on in $24 million of $80 million. I just wonder if you have some similar guidance or something you'd give us there for '25 and '26, so we could back into a net new business backlog?

So let's start with the first question as it relates to our EV backlog: with the exception technically in the AMG product — as you know, we supply is technically a hybrid, but it's an electrified axle — the rest is all BEV in terms of that half, not hybrid. In terms of how we think about attrition going forward, as you know, this is a little bit larger year for us. There were a couple of platforms that we supplied that ceased production. But as you go forward, we typically think about somewhere between $100 million to $200 million of attrition on an annual basis. So you can use midpoints of those going forward for the time being.

Okay. And then just one more follow-up. In this, you are not accounting for potential upside in the mid CUV program, the GM relaunching the Ram HD, any upside in GMT programs or the full-size truck at GM. I mean there's no accounting for that at all in this backlog whatsoever?

No, that's all in our core business. The only thing we have in the backlog is incremental business. We consider replacement business to be part of our core financials.

We've not provided specific margin guidance on splits from EV to our ICE business in the future, but as we've stated previously, our goal is to drive maximum financial performance and ultimately replicate what we have today. That is a long way to go; EVs have long tails before they reach volume. They'll go through the normal cycle of a product: investments upfront, a volume start-up, and then they get into volume later in their life cycle.

We're generating strong margins on our ICE business today because we have size and scale. The EV business doesn't have the size and scale to date, so you can expect those margins will be lower initially. But as that size and scale grows over time, we'll stay focused on delivering our financial hurdles.

Very helpful guys. Thank you so much.

Our next question comes from Winnie Dong from Deutsche Bank. Please go ahead with your question.

Hi. Thank you so much. Can you guys hear me?

Yes. Good morning.

Good morning. I was wondering if you can provide an update on the labor situation. It was a very helpful slide including the deck. Maybe if you can go into any sort of latest changes in the availability of labor? And then what kind of improvement you're anticipating that has been guided within the outlook?

Labor is going to continue to be a challenge for the industry going forward. It's not just an American Axle issue; it's an industry and overall economic issue. There's a scarcity of labor out there today. Clearly, we're doing the necessary things to secure our labor going forward. We're making adjustments in base wages and fully loaded labor cost. We're bringing incremental workers in where we need to, even temps if we have to. We're investing heavily in automation and robotics right now to address any shortfalls that we might have on the labor side. We're driving productivity and efficiency to try to free up labor in our existing plants that can be reallocated to other facilities or other work within those facilities. We're also looking at plant consolidation opportunities as well to free up labor so we can transfer it to other locations. It's demanding a lot of time and attention. It's not an issue that's going away. At the same time, with that labor, you're also seeing an increase in costs associated with employing that labor that's going to be sticky and be here that we're going to have to find a way to offset as we go forward or pass through.

Thank you. That's very helpful. And I guess in related terms, I was wondering if you can maybe break down the last bucket in the EBITDA walk. Obviously, inflation from labor is a headwind, as you said. But what are the other breakdowns in buckets that you're hoping to generate whether it's recoveries from customers or some of the plant efficiencies that you're planning to generate?

Winnie, I think you're referring to the $35 million of performance improvement in the year-over-year walk and what inflation is embedded in there. As we think about inflation stepping into 2024, we will have labor inflation as everyone will. We do have other inflation embedded from some of our purchased components. But through some of our core plant productivity initiatives, we're offsetting much of that labor inflation — that would be our expectation — same with anything from the supply base where we have commercial arrangements with our customers to mitigate that. But far less in scope than we experienced in 2022 and 2023.

Got it. Thank you so much for the color.

Our next question comes from Joe Spak from UBS. Please go ahead with your question.

Thanks. Good morning, everyone.

Good morning, Joe.

Maybe just a couple more on the backlog. David, you sort of mentioned this air pocket which makes sense because people are figuring out what to do with EVs and delaying it, but then they're also extending some ICE programs. I think last year you talked about a $1.5 billion quoting funnel. Is there any sort of update on that activity?

Joe, as I was saying earlier, we still have about $1.5 billion of new and incremental quoting opportunity today, heavily weighted towards electrification. But as the customers are sorting out their long-range product plans, it may adjust the timing of some of what we're projecting in terms of launch cadence. Also, those launches will most likely be later in the decade versus mid-decade. That's really what we see right now.

Okay. And then, Chris, you answered John's question before about the attrition in the outer years, you talked about that continual plan for $100 million to $200 million. Conceptually, why if your customers are extending programs, why wouldn't attrition be at a lower level if they're extending some of the current programs?

Great question. $100 million to $200 million is a range. We have hundreds of different programs across our global franchise. Some are smaller engine or transmission or driveline programs. Occasionally they'll cease production of a vehicle, like you saw Stellantis cease production of the Jeep Cherokee last year. Those types of events fall into the attrition bucket. If programs are extended, you have a chance to mitigate some of that attrition. So sometimes attrition is higher, sometimes lower; it's a mix of many factors. But historically, we've tended to be in that $100 million to $200 million range annually.

Joe, it goes back to what the OEMs are going to do with their long-range product plans. As Chris indicated, they've already made some decisions to cancel or stop manufacturing some programs. We'll feel that impact periodically, but historically we're in that $100 million to $150 million normal attrition range, occasionally higher. Hopefully some extensions of programs will cover up some attrition. The big thing for us is to demonstrate incremental and profitable growth going forward, and most of that we're working on is electrification, which is later in the decade. So there's an air pocket between now and then, but it can be filled with incremental volume as production ramps and demand increases.

Okay. Thanks for the color.

Our final question will come from Tom Narayan from RBC. Please go ahead with your question.

Hi guys. Thanks for taking the question. There was a large European OEM who said they expected in 2024 they would have to make meaningful concessions to suppliers because of cutting production on EVs and they have to make those agreements whole. Do you anticipate choppiness of orders moving around such that the contracts you have with OEM customers would require them to compensate you if they're shutting down particular EV schedules?

Clearly, anytime you have a program adjustment, whether it's ICE, hybrid or EV and investments are being made and volumes aren't realized or programs are delayed, there are commercial discussions that need to take place. Those are taking place with all OEMs and their suppliers that made investments to support the OEMs, especially as they adjust timing. AAM is not excluded from those discussions. We're in discussions with different OEMs to better understand their long-range product plans, the timing and the rescoping of programs and the impact that may have on the business cases and plans that we put together. Where we can redeploy assets or reallocate those assets to other business, we'll do that across ICE, hybrid and EV. For investments in R&D, we'll need to make sure we're recovering appropriately. That's the summary.

Okay. And then a lot of folks are thinking that 2024 could be a year of M&A in the auto space. You have volumes not necessarily growing that much, but counter to that would be high financing costs. You guys do have a little bit of leverage, but curious about your appetite to be acquisitive in '24?

We've said all along that we want to be a consolidator, and we actually started that activity back in 2017 with the acquisition of MPG. We've also done other tactical acquisitions since then, the latest being the Tekfor acquisition last year. We'll continue to look at tactical M&A right now that we can operate within our current capital structure. But if there are other opportunities that make business sense and strengthen the company going forward and position us well, we'll look at those opportunities as well — we have a fiduciary responsibility to do so. We'll definitely keep M&A on our radar screen.

If I could sneak one final one: Chinese OEMs potentially entering Europe and producing locally in the US — curious how you think about this as a customer subset that maybe you're underexposed to, could you pivot to more Chinese OEM exposure should this happen?

The good news is we're growing our China business, especially on the electrification and PHEV side. They are becoming global OEMs and they're on the offensive; before they focused on China, but now they're attacking Europe and Mexico and it's a matter of time before they push in the US. Countries may consider mechanisms to protect domestic businesses, such as tariffs, but ultimately the low-cost producer that can produce the quality the consumer desires will win in the long run. It's going to elevate the game for every OEM and technology will be a differentiator. The Chinese have vertically integrated the BEV side of the business, but BEVs aren't going to make up 100% of volume globally anytime soon. ICE, hybrid and even hydrogen will play meaningful roles. In Europe, luxury cars are dominated by European OEMs and that's a tough market to crack. Similarly, in North America, trucks, SUVs and crossovers have loyal buyers. New entrants are growing and will gain market share, but it's also an opportunity for suppliers like us.

Got it. Thanks so much, guys.

Jamie, I think that was our last question.

Ladies and gentlemen, that was our last question. I'd like to turn the floor back over to you, Mr. Lim for any closing remarks.

Okay. Thank you, and we thank all of you who have participated on this call and appreciate your interest in AAM. We certainly look forward to talking with you in the future. Thanks.

Ladies and gentlemen, that will conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.