Good morning and welcome to the Magna International Inc. second quarter 2024 results webcast call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star, one again. Thank you. I would now like to turn the call over to Louis Tonelli, Vice President, Investor Relations. Please go ahead.

Thanks Operator. Hello everyone and welcome to our conference call covering our second quarter of 2024. Joining me today are Swamy Kotagiri and Pat McCann. Yesterday, our board of directors met and approved our financial results for the second quarter of 2024 and updated outlooks for 2024 and 2026. We issued a press release this morning outlining our results. You’ll find the press release, today’s conference call webcast, the slide presentation to go along with the call, and our updated quarterly financial review all in the Investor Relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions and uncertainties which may cause the company’s actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today’s press release for a complete description of our Safe Harbor disclaimer. Please also refer to our reminder slide included in the presentation that relates to our commentary today. With that, I’ll pass it over to Swamy.

Thank you, Louis. Good morning everyone. I appreciate you joining our call today. Let’s jump right in. Before getting into some of the details from the second quarter, let me highlight a few key takeaways. Our Q2 operating performance was largely in line with our expectations with sales of $11 billion and an adjusted EBIT margin of 5.3%. We are executing to our margin outlook from the start of 2024. Operational excellence activities remain on track to collectively contribute about 75 basis points to margin expansion during 2024 and 2025. We have reduced our planned gross megatrend engineering spend for 2024 by another $40 million, bringing reductions for the full year to $90 million relative to our outlook in February, and our adjusted EBIT margin range has been tightened. Our range for 2024 is now 5.4% to 5.8%. We remain focused on capital discipline and strong free cash flow generation. We have further lowered our expected capex range by another $100 million, for a reduction of up to $200 million for 2024 compared to our February outlook. We are maintaining our free cash flow outlook rate at $600 million to $800 million and we remain on track to be in our target leverage range of 1.0 to 1.5 times in 2025. Lastly, we are updating our 2026 outlook to reflect market changes impacting the automotive industry, including issues we already discussed in prior quarter calls. We continue to execute our strategy despite current market dynamics. We are winning business on key programs across our portfolio. For instance, we were recently awarded a hot-stamped door ring with a Japan-based global OEM. We are having success in commercializing our innovation. As an example, we were awarded reconfigurable seating systems with a China-based OEM, and as we have highlighted in the past, our operational initiatives across the company are delivering results. We remain focused on continuous improvement, efficiency, and optimization. This year alone, we are taking actions in more than 40 divisions to restructure, consolidate or wind down operations. We are right-sizing our complete vehicle operations and driving profitability through smart automation and factory of the future initiatives. As part of ongoing efforts to optimize our footprint and portfolio, early last month we closed a transaction for the sale of an 85% controlling interest in our metal forming operations in India. With sales less than $200 million in 2023, we considered this business to be non-core. Proceeds were about $90 million. We are making progress on vertical integration of critical subsystems to strengthen our product offerings. We acquired HE Systems, a power module business, for $52 million. That acquisition accelerates our in-house development of car modules and allows us to leverage our combined technical and manufacturing competencies. The transaction secures supply of a key product. With that, I’ll pass the call over to Pat.

Thanks Swamy, and good morning everyone. As Swamy indicated, second quarter operating results were largely in line with our expectations. Now comparing the second quarter of 2024 to the second quarter of 2023, consolidated sales were $11 billion, in line with Q2 2023, which compares to a 2% increase in global light vehicle production. Adjusted EBIT was $577 million and adjusted EBIT margin was down 30 basis points to 5.3%. Adjusted EPS came in at $1.35, down 12% year-over-year, reflecting lower EBIT and higher interest expense, including approximately $0.09 associated with non-cash foreign exchange losses on certain deferred tax assets. Free cash flow generated in the quarter was $123 million compared to a $7 million use in the second quarter of 2023. During the quarter, we paid dividends of $134 million and raised CAD $450 million in debt. More importantly with respect to our outlook, we are lowering our capital spending range and maintaining our expectations for 2024 free cash flow. Let me take you through some of the details. North American light vehicle production was up 1% and China increased 6%, while production in Europe declined 5%, netting to a 2% increase in global production. Breaking down North American production further, while overall production increased 1%, production by our Detroit-based customers declined 5% in the second quarter. Our consolidated sales were $11 billion, substantially unchanged from the second quarter of 2023. On an organic basis, our sales decreased 1% year-over-year for a minus-1% growth over market in the second quarter, but plus-1% growth over market excluding complete vehicles. The negative production mix in North America unfavorably impacted our year-over-year sales growth in the quarter. The end of production of certain programs, lower complete vehicle assembly volumes, including end of production of the BMW 5 series, the impact of foreign currency translation and normal course customer price give-backs were offset by higher global light vehicle production, the launch of new programs, acquisitions net of divestitures, particularly the acquisition of Veoneer Active Safety, and increases to recover certain higher input costs. Adjusted EBIT was $577 million and adjusted EBIT margin was 5.3% compared to 5.6% in the second quarter of 2023. The lower EBIT percentage in the quarter reflects volume and other items which collectively impacted us by about minus-25 basis points. These include acquisitions net of divestitures, which in aggregate came in at margins lower than the corporate average; reduced earnings on lower assembly volumes, including the end of production of the BMW 5 series, partially offset by lower incentive compensation and employee profit sharing; negative 25 basis points related to lower equity income, largely as a result of unfavorable product mix and higher depreciation on increased capital deployed at certain equity-accounted entities; and negative 20 basis points of non-recurring items which reflects non-cash foreign exchange losses on certain deferred tax assets, higher warranty costs, higher restructuring costs that are not classified as unusual, and additional supply chain costs partially offset by higher net favorable commercial items. These items were partially offset by 40 basis points of net operational improvements, including operational excellence activities, lower net engineering spend, and lower costs associated with our assembly business, partially offset by higher net input costs, particularly related to labor. Interest expense increased $20 million, reflecting higher short-term borrowings and net debt raised during and subsequent to the second quarter of 2023, as well as higher market rates on the new debt. Our adjusted effective tax rate came in at 22.8%, slightly higher than Q2 of last year mainly as a result of an increase in non-deductible foreign exchange adjustments on the revaluation of certain deferred tax assets. Net income was $389 million compared to $441 million in Q2 of 2023, mainly reflecting lower adjusted EBIT and higher interest expense, and adjusted diluted EPS was $1.35, including approximately $0.09 associated with non-cash foreign exchange losses on certain deferred tax assets compared to $1.54 last year. Turning to a review of our cash flows and investment activities, in the second quarter of 2024, we generated $681 million in cash from operations before changes in working capital, and $55 million from working capital. Investment activities in the quarter included $500 million for fixed assets and $170 million increase in investments, other assets and intangibles. Overall, we generated free cash flow of $123 million in Q2 compared to a $7 million free cash flow use in the second quarter of 2023, and we are maintaining our free cash flow expectations of $0.6 billion to $0.8 billion for 2024. We continue to return capital to shareholders, paying $134 million in dividends in Q2. Our balance sheet continues to be strong with investment-grade ratings reaffirmed by the major credit rating agencies in the second quarter of 2024. At the end of Q2, we had about $3.7 billion in liquidity, including a billion dollars in cash. Currently, our adjusted debt to adjusted EBITDA ratio is at 1.9, up slightly as expected from the first quarter of 2023. We anticipate a reduction of our leverage ratio by the end of 2024 and we are on track to be within our targeted range during 2025. Next, I will cover our updated 2024 outlook, which incorporates slightly lower than previously expected vehicle production in Europe, while our assumptions for production in North America and China are unchanged. We also assume exchange rates in our outlook will approximate recent rates. We now expect a slightly higher euro and Canadian dollar for 2024 relative to our previous outlook, and we continue to assume no further production of the Fisker Ocean. We are substantially maintaining our expected sales range with lower volumes in Europe and negative customer mix in North America being offset by positive foreign exchange from the higher euro and Canadian dollar. We are narrowing our adjusted EBIT margin outlook to a range of 5.4% to 5.8% as we are now halfway through 2024 and reflecting H1 margins that were in line with our expectations. Consistent with our original outlook, customer recoveries and lower net engineering spend are expected to drive stronger margins from H1 to H2. Our reduced equity income range largely reflects lower expected unconsolidated sales of EV components. Interest expense is expected to improve by approximately $10 million, reflecting debt issuances at better than anticipated rates and lower borrowing rates on commercial paper. We now expect capital spending to be in the $2.3 billion to $2.4 billion range. This is down another $100 million from our previous outlook, now totaling up to $200 million for the full year compared to our February outlook. This mainly reflects lower spending on EV programs. Our income tax rate, net income and free cash flow expectations are all unchanged from our last outlook. I’ll now pass it back to Swamy.

Thanks Pat. Let me take you through the details of the revised outlook that we disclosed in our press release this morning. We don’t typically provide updates to our midterm outlook, but given the changes in the broader environment, we believe it is necessary to provide a high-level update to the 2026 outlook that we provided in February, including some of the factors we highlighted on our first quarter call. We are seeing slower BEV (battery electric vehicle) adoption than previously anticipated, particularly in North America and to a lesser extent in Europe. As a result of this and a high degree of geopolitical uncertainty, OEMs (original equipment manufacturers) are recalibrating their portfolios and capacity, resulting in program delays or cancellations and reduced volumes. There are three broad categories impacting our 2026 sales expectations: One, our complete vehicle assembly business, including the cancellation of the Ineos program, our assumption of no future production of the Fisker Ocean, and updated information on pass-through sales of the Mercedes G-class; Two, the impact of EV program delays, cancellations and reduced volumes, the most significant to us being Ford vehicles in Oakville and BlueOval City, GM’s full-size electric pickups and SUVs, and a new program for a North American-based EV manufacturer that was planned for southern U.S. and Mexico; and Three, our active safety business for which we have highlighted some of the near-term impact in our Q1 call. The sales softening reflects volume shortfalls, insourcing of programs by certain China-based OEMs, and an updated view of expected win rates on upcoming programs. We are taking a number of steps to address the new market dynamics we are facing, demonstrating our commitment to margin expansion, capital discipline and free cash flow generation. We are restructuring our complete vehicle cost base to adjust to lower volumes in the near term. We are driving engineering spend reductions for 2026 of up to $200 million while ensuring that we continue to prioritize investments for the future. We are taking actions across our portfolio and footprint, focusing on optimization and cost reductions. All of these actions are contributing to continued expected margin expansion through 2026 compared to 2024. We are also reducing expected capex in 2026 approximately $200 million, resulting in a projected capex to sales ratio of less than 4% for 2026. As a result of our efforts to mitigate the anticipated market impacts, we are expecting strong free cash flow in 2026 in the range of $1.8 billion to $2.1 billion. Although our 2026 outlook assumptions are included in the appendix, I would like to highlight a few key points. We have made no changes to foreign exchange rates or global and regional light vehicle production; however, there have been significant changes to program mix, as I noted earlier. Please also note that IHS production for 2026 is currently higher than our assumptions in each of North America, Europe and China. Given the higher level nature and timing of our forecast analysis, we are currently not able to provide 2026 forecast with the same granularity that we previously provided, in particular for sales and adjusted EBIT margin ranges by segment for 2026, megatrend sales and adjusted EBIT for the years 2024 to 2026, and 2027 sales for battery enclosures, powertrain electrification, and ADAS (advanced driver-assistance systems). Now I’ll cover the details of our updated 2026 outlook for sales, adjusted EBIT margin, equity income, capital spending, and free cash flow compared to February. Let’s start with the change in our sales outlook. Our expected 2026 sales range from our February outlook was $48.8 billion to $51.2 billion. Complete vehicles is down about $2.2 billion, almost half of the total sales change I mentioned. As I said, we have assumed no further production for the Fisker Ocean, which reduced our 2026 sales outlook by about $600 million. As previously noted, we continue to receive updated information on the amount of directed content on the new Mercedes G-class assembly programs. For 2026, this has reduced expected sales by about $900 million. Recall that we expect no EBIT dollar impact related to this sales change. The cancellation of the Ineos program is expected to result in about $700 million of lost sales, which would have had assembly-type margins, so the adjusted EBIT dollar impact is less significant. The impact of EV delays, cancellations and volume declines offset by higher isolated volumes is expected to be about $2 billion. Our decline in equity income also reflects timing delays and volume reductions, particularly related to North American BEV programs. Lastly, our active safety sales are expected to be down about $600 million in 2026 compared to our February expectations. Based on our top-down review of programs, we now expect a 2026 sales range of approximately $44 billion to $46.5 billion. Our 2026 adjusted EBIT margin range from our February outlook was 7.0% to 7.7%. Based on our expected sales range in February that translates to adjusted EBIT dollars between $3.4 billion and $3.9 billion. Our lower expected sales in complete vehicles at margins below our corporate average are expected to be accretive to consolidated margins. Lower anticipated EV sales, including lower unconsolidated sales, partially offset by higher ICE (internal combustion engine) volumes, are expected to negatively impact margins, and our lower projected active safety sales are expected to reduce margins. As I said earlier, there are a number of self-help initiatives that are well underway to partially offset the impacts of the market challenges we are facing. These include incremental actions in operational excellence activities, restructuring actions, as well as reduced engineering and capital spending. Our updated 2026 EBIT margin range is 6.7% to 7.4%, and based on our updated sales range translates to an expected EBIT dollar range of between $2.9 billion and $3.4 billion. However, I want to assure you that we are continuing to explore opportunities that are not included in our revised outlook. As a result of lower expected sales, we have reduced our capex plans for 2024 through 2026. Our 2024 capital has been reduced from approximately $2.5 billion at the start of the year to a range of $2.3 billion to $2.4 billion now. We have also reduced both 2025 and 2026 capital spending expectations with 2026 coming down to a range of $1.6 billion to $1.8 billion compared to about $1.9 billion that we expected in our February outlook. To start the year, we anticipated capex as a percentage of sales to decline from about 5.6% this year to low 4.4% in 2026. We now expect about 5.2% for 2024 and less than 4% for 2026, consistent with our previous commitment. To recap our updated 2026 outlook, our sales forecast has been updated to reflect the shifting market with an expected range of $44 billion to $46.5 billion. We are actively pursuing customer recoveries to offset the impact of EV program cancellations, delays, and lower volumes. With respect to margins, we have a number of self-help initiatives well underway to mitigate the impact of lower sales. We now expect adjusted EBIT margins in the range of 6.7% to 7.4%, which represents a 150 basis points or more improvement over 2023. We are curtailing investments for the 2024 to 2026 period, targeting reductions of up to $500 million of gross engineering investments in megatrend areas and up to $600 million in capex. As a result of our significant efforts to mitigate lower sales, we continue to expect free cash flow generation to increase each year off our outlook period, reaching $1.8 billion to $2.1 billion for 2026. This is over $1.6 billion higher than 2023. Coming back to summarize 2024, our operating performance in the second quarter was largely in line with our expectations. We are actively mitigating market challenges with a focus on margin expansion, capital discipline and free cash flow generation. With respect to our updated 2024 outlook, we are maintaining our sales range, narrowing our adjusted EBIT margin range, lowering our capital spending and maintaining our free cash flow expectations for the year. All in all, a solid quarter, and we remain on track for 2024. Thank you for your attention, and now we’ll open it up to questions.

Thank you. Your first question comes from John Murphy with Bank of America. Please go ahead.

Good morning guys, and thanks for all the help and the walk on how things are changing through 2026. I do have one follow-up on that. I think it’s kind of important, and I’m not sure if you can answer it in extreme detail; but Swamy, as you’re going through these numbers, as EV programs are pushed down and to the right, there’s certainly some lost volume or lower volume expectations there, at least. How do you think about the potential for the backfill of ICE vehicles as you’re going through this? It seems like there’s going to be more program extensions potentially, stuff that’s more like midcycle, majors to add more ADAS to the vehicles potentially, update sheet metal, etc. How do you think about that backfill, and is that in any meaningful way in your thought process for these 2026 numbers?

Good morning John, great question. Yes, that’s on our mind, but we’ve been cautious in looking at exact data that is available today. That’s the reason in my prepared comments I talked about continuing to look at opportunities that could be out there. As you know, we are talking just about an 18-month timeframe, right, where we are now into 2026. There has been some offset into this overall that we talked about already, and we continue to look at some discussions, but we wanted to make sure we get some concreteness in the data while we are having these discussions going into 2026. When we talked about the roll on the slide, you saw the second bar, which said about $2 billion impact - that is already partially offset by some higher ICE volumes that we’ve been seeing, right, so I would say that’s in the range of $900 million that we already saw for the ICE. But you know, I don’t want to give a number or guess a number, but those discussions continue and we, like I said, continue to pursue those options.

But that $800 million to $900 million is based on what you’ve been told on programs and releases from automakers themselves, as opposed to an assumption? Is that a fair statement?

Exactly, yes. That’s what I meant - we are only looking at things that are already confirmed and we know, rather than any assumption.

Got you. Then second question just on Steyr and the restructuring that needs to go on there. I guess my understanding is that would be mostly headcount, and relatively easy, although not great for the folks, but relatively easy to execute. How much risk is there as you’re readjusting around this Fisker, G-class, and Ineos changes here to that actual restructuring? Is it fairly straightforward, or how complicated could that be?

I think the straightforward answer, John, it’s pretty straightforward, and this is not something that we are thinking forward. This is already in action, in place, I would say substantially addressed. As you know with this business, we talk about program starts and ends, so as programs ramp down, it’s normal process to go through that, and we have done that already, so I would say it’s a pretty straightforward exercise and already on track. That’s the reason why I was able to say that the restructuring activities and getting to the appropriate cost base, given what we already have in plan, is in place for complete vehicle assembly.

Sorry, just one last quick one on the Japanese hot-stamped door ring, I’m just curious on the structured business, on Cosma. What percent of the business is to the Japanese at the moment, because it sounds like that’s a pretty good initial foot in the door. I know you have some other stuff, but I mean, how big of an opportunity to the Japanese for Cosma?

I would still say it’s not a large percent, John. I think we have had some entries in the past in processes and products that are pretty specific and specialized, and we have been able to get that market. I will still say it’s not substantial compared to our other core customers in Europe and North America.

Okay, great. Thank you very much, guys.

Thanks.

Your next question comes from the line of Adam Jonas with Morgan Stanley. Please go ahead.

Thanks, good morning everyone. Swamy, if Magna were part of the S&P 500, it would place in the bottom two percentile, around 492 out of 500 companies. I understand that may not be favorable for you—investors certainly won't like it, and I'm sure your board isn't pleased either. This situation usually indicates serious strategic challenges or a market that is dissatisfied with future capital allocation. What justification do you offer for this, or do you recognize that your capital allocation and execution strategies need to evolve? I notice your plans for capital expenditures and spending show you're addressing this, but is there something else that needs to change as well? I have a follow-up, thank you.

Good morning Adam. Yes, obviously those statistics are something we continue to see, and the market has shifted or pivoted drastically. When we look at capital allocation based on a trend, part of it is flexible and part of it is something we do from the product; for example, when you look at our, call it structural business, we have substantial market share and presence in certain product lines, whether it’s trains, underbody, and so on and so forth. When you start looking at body enclosures, given the hypothesis that EV is a secular trend, accept it that the rate is uncertain, you have to be in that market not only to look at the evolution of the product that we already have and look at possible integration, so those are some of the long-term investment decisions that are made. But like I said, now the capital allocation, wherever there is flexibility, we are able to pivot very, very quickly, and that’s what we are trying to go through and have been able to communicate today about $600 million of reduction in the three-year time period, and it’s not done yet. We continue to look at that. If we look at regions or divisional level, all product lines in the long term, not based on the quarter or one year, but if there are certain parts from a product line perspective where their relevance might be in question or market share might be in question, all of this is the normal process that we continue to look at, and we will look at that. The basic objective of optimization is shareholder value.

Thank you, Swamy. I have a follow-up question. Many of your competitors have been recently recognized for returning cash to shareholders through share buybacks. Companies like Ford and even some of your clients, such as General Motors and Toyota, are engaging in significant buybacks, which is unusual for them. Magna is a high-quality company with strong cash flow and one of the lowest stock valuations across any industry. Why does Magna management believe that the stock is not a suitable investment for buying back shares, considering that this is gaining attention?

Adam, my simple answer is I think that it’s the best investment that we would like to do, no question, but we also talked about a balance sheet strategy, and I’ve committed to a leverage ratio. With the Veoneer acquisition that’s in place and continuing, we are on track to get to the leverage ratio that we talked about, and as I said, the cash flow is strong and coming back to that level. As soon as we get to the commitments that we made from a balance sheet perspective, it is absolutely in the cards, and usual process around October-November timeframe, we come out with a plan for the share buyback and, with the strong cash flow that seems to be on track and have in plan right now, I look forward to talking about it.

Thanks Swamy.

Your next question comes from the line of Tamy Chen with BMO Capital Markets. Please go ahead.

Good morning, thanks for the question. I wanted to ask about the power and vision side, and I guess more specifically the ADAS side. I was just wondering if you could give a more detailed update on what’s happening in the ADAS market, in particular there was, I think, a Chinese dynamic that was called out last quarter, something moving to being insourced. I’m wondering if you’re seeing more of that. There was the language for 2026 guidance, an updated view on expected win rates - I’m wondering if you can elaborate on that.

Yes, good morning Tamy. Yes, you’re right - we did talk about it, and about $600 million is the magnitude that we are talking about, predominantly in China. The insourcing that we talked about was also related to one Chinese OEM on their program. Based on that and also the type of products that are going into the vehicles there, we kind of looked comprehensively at the programs that were there and took our approximation of what we think is the win rate possibility, and therefore adjusted that. But just to give you broader context, in the overall scheme of our ADAS sales for 2026, this is a rough estimate, but I would say the exposure to Chinese or in China for us is roughly 10% to 12% of the total, so I would say it’s pretty contained in my comments about the insourcing trend in China. In the rest of the regions, we are continuing to see similar traction and win rates that we have noticed. I think one of the other things, Tamy, is we look at the OEMs grappling or making decisions still on what ADAS architecture they’re going to, right, whether it’s centralized with the peripheral sensors or having smart sensors and edge compute still included, so these are a bunch of questions that the OEMs are also coming to conclusions on, so we want to be prudent on what we take on, where is our priority, and how much we invest in different projects until that gets to some sort of certainty.

I noticed that the P&V margin was reduced for this year. Regarding Q2, I recall you mentioned last quarter that the margin would likely be at least double that of Q1, but it seems to have been a bit weaker. However, your revenues for P&V in Q2 were strong, and I expected that would create some operating leverage. Can you discuss this year's margin for P&V and how we should interpret it? The expectation has been that as more sales come in, substantial margin improvement would naturally occur.

Yes Tamy, I think you’re absolutely right. I mentioned in the last call that it’s going to be at least double. The two factors that impacted the business were pretty good. One major impact was the change in the equity income from our LG joint venture, which affected our expectations for Q2. The second factor is a slight change in the mix related to a couple of programs. I don't see this as significant. If you look at our forecast, the equity income continues to be softer than we had previously anticipated, primarily due to our joint venture's exposure to the GM programs in North America. We need to evaluate this, but fundamentally, the baseline of the business still meets our expectations for overall performance.

And Tamy, just for perspective, the equity income is related to EVs as well, and that impact alone is 40 basis points, so the equity income delta, we were within expectations.

And we did take down our power and vision sales for the year as well, even though currency’s up.

Right, okay. Last one from me is this whole aspect on the EV side with the OEMs in North America - you know, the continued delays, defer some of the new programs, just curious, based on your conversations with them about this, where do you think we’re at? Do you feel these OEMs, do you feel like given the current pull-through of EVs, there’s still some more to go on recalibrating their expectations? Do you feel like there’s still some programs you’re looking that probably they’ll get punted down? Do you feel we’re getting to a point where this is behind us, a lot of this has recalibrated appropriately to the current backdrop? Thanks.

Tamy, I think this is a bit of a speculative question. Overall, it depends on the market, but I'll share our perspective from Magna. We've expressed before that we have our own assessment of volumes based on historical data when customers approach us. However, some of the new EV programs lack extensive historical data. We still maintain a conservative outlook on that. Considering the significant changes we mentioned regarding three or four programs, which have justified a reduction in sales, we feel our assumptions are well-managed overall. We've also factored in the volumes that OEMs are currently discussing along with our own perspective on potential outcomes. In summary, we cannot accurately predict EV volumes for the next 18 months to two years, but we have been cautious in the past and will continue to be, even with the current volume figures.

Thank you.

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

Good morning and thank you for taking the questions. Just a question first on the 2024 outlook. Given we continue to hear about production to schedule, especially from the D3, maybe you can just give us a sense within your guidance, what you are assuming on a production schedule, especially as what we’re seeing from third party forecasters is likely going to be coming down, just based on commentary from the calls and we saw another soft-ish sales trend, so maybe you can comment on the level of conservatism, if at all on the D3 assumptions for ’24.

Good morning Dan. To provide an overview, we are projecting North American volumes at 15.7, Europe at 17.1, and China at 29. In North America, year-over-year, we're essentially flat, with an overall decline of about 2% in Europe, and a decrease of approximately 1% in China. For the second half of the year, year-over-year, we expect flat production for the D3, although it's important to note that last year, the D3 experienced strikes. Normally, we would anticipate some improvement in this area, but we are still witnessing a decline of about 5% from the first half to the second half, primarily driven by Stellantis. In Europe, we believe the second half of the year will align closely with the data provided by IHS, in particular.

Thank you for the clarification. I have a two-part question regarding the globalization of the Chinese auto industry. First, could you comment on reports that your Steyr operations in Europe might support Chinese automakers looking to localize their production in Europe? Additionally, we have noticed that Chinese suppliers are becoming more global and establishing operations in various regions. Can you address the competitive threat, if any, posed by the rise of these Chinese suppliers?

Good morning, Dan. To address your first question regarding tariffs and regulations, we have noticed, as you pointed out, that Chinese OEMs are seeking a presence in Europe to navigate these tariff regulations. We have valuable experience and capability in working with various customers, including European and North American OEMs in the past, which we believe remains a significant opportunity for us. We are actively engaged in discussions with different types of customers and will share any significant developments as they arise. Regarding the second part of your question, I want to reflect on the history of Japanese and Korean companies entering western markets and the ecosystem that developed during that time. I expect a similar trend now. While we remain vigilant and aware of our competitive environment, we also have a presence in China, collaborating with both western OEMs and leading Chinese OEMs. We believe that when they expand internationally, whether for collaboration reasons or to meet regulatory requirements in other regions, we can provide substantial value and will be well-positioned to engage with them.

Great, thank you.

Your next question comes from the line of James Picariello with BNP. Please go ahead.

Hello everyone.

We’ve lost you, James.

James, we don’t hear you.

All right. Your next question comes from the line of Mark Delaney with Goldman Sachs. Please go ahead.

Yes, good morning, and thanks for taking the questions. First with regard to the new 2026 outlook, I understand some of the specifics and exact quantification is a little hard to comment on, but at a high level as you’re thinking about lower revenue from some of these megatrend areas, as well as other cost and efficiency actions you articulated today, on a directional basis, do you still think you can be breakeven within the megatrend areas in 2026?

Good morning Mark. I think, like you said, it’s a high level. We are going through it, there’s a lot of flux in here. With the reduction of sales, we still have to go through the bottoms-up, and really not getting into the details of the breakeven at that point in time or that specific area-by-area. We are looking at the big picture of what needs to be, as I said, curtailed, held, optimized as much as we can, but that is something we’ve got to come back to. Even if it’s relevant given the big picture of what we need to deal with.

I think, Mark, the one thing I’d add, just to be clear, when you look at the 2026 reforecast we did, the sales adjustment in particular related to the EVs is beyond just the megatrends, so to be clear, that includes seats, mirrors, body and white, so the megatrend impact within that sales reduction of about $2 billion is much more beyond the megatrends.

That’s helpful. Thanks for that. My other question was on EVs. On the 4Q23 call, Magna had said it was investing to support a future low-cost EV from the leading North American EV provider. This morning you spoke about that program as a factor in your lower 2026 outlook, but I’m hoping to understand if sales for a lower-cost vehicle is still something Magna expects to have meaningful exposure to at that OEM, even if it’s maybe not as much as you were originally thinking when it was envisioned as an all-new platform and a new factory, but perhaps still some reasonable opportunity for you with a different type of low-cost vehicle. Thanks.

Yes, I don’t want to comment on or surmise anything at this point of time, given customer feedback and the program timing. We have taken it out. I don’t want to comment or guess at what the future could be. We obviously have conversations, but don’t want to go beyond that.

Understood, thank you.

Your next question comes from the line of James Picariello with BNP. Please go ahead.

Hey, can you hear me okay?

Yes.

I would like to focus on the targets for 2026, particularly regarding the incremental margins. I understand there is a lot that contributes to that forecast and rollout, but the operating leverage is around 40%. Could you explain what factors lead to such a high incremental margin on the growth? Thank you, especially regarding power and vision.

Sorry, we’re not providing a 2026 segment.

Yes, okay, just to consolidate it. I’m referring back to the prior segment breakout for this.

Yes, to clarify, we made a top-level adjustment, which affects the segment margins that should no longer be relied upon. In the broader context, you need to consider the leverage on the margin pull-through, especially since we have around $2.2 billion of complete vehicles sales declining, which are significantly below corporate averages. Additionally, there's close to a billion dollars in straight pass-through on the Jeep, which contributes a substantial benefit when you analyze the numbers. If you look at Slide 24, it illustrates a considerable positive effect coming from the product mix. The sales decline in EVs compared to ICE is aligned with the traditional decremental margins we observe in our various businesses, which seems reasonable, as is the case with active safety. On the positive side, despite facing several challenges, we are lowering engineering expenditures, which will enhance our bottom line. Reduced capital spending is also leading to lower depreciation and amortization. Furthermore, we're restructuring certain operations, and continuing to streamline more, which ties it all together. I understand there’s more complexity, but if you consider these four broad categories instead of just comparing A to B, it really starts to make clearer sense.

Got it, is there any visibility in commercial recoveries or cost savings for the second half of this year as we consider the implied EBIT step-up from the first half to the second half, especially against an industry backdrop where the second half is certainly becoming more challenging? We’re observing significant reductions in the second half.

James, good morning, this is Swamy. I think it’s not the second half-first half - those discussions are always critical, but we have taken all of that into account when we talked about the 2024 outlook. There is a lot of puts and takes. We’ve talked about productivity give-backs, there are commercial discussions, there are discussions regarding volume reductions, new programs. We’ve taken all of that into account and still feel comfortable, and that’s the reason we have given the outlook, and we feel pretty good going into the second half that we will see the cadence that outlook is reflecting.

And I think, James, when we consider what we observed last year in our 2023 margin progression by quarter, we anticipate a similar trajectory. From the beginning, our expectation was for our margin to improve each quarter, which is connected to commercial recoveries. We're expecting commercial inflation to be more pronounced in the latter half of the year, in line with historical trends. We're noticing an increase from Q2 to Q3 similar to the incremental improvements seen in 2023, and we anticipate further enhancements into Q4.

Thanks guys.

Your next question comes from the line of Itay Michaeli with Citi. Please go ahead.

Great, thank you. Good morning everyone. Just had a couple follow-ups on active safety. First, of the shortfall in the 2026 outlook, the $600 million, can you just dimension how much of that is the older Veoneer assets as opposed to Magna? Then Swamy, I think you alluded to it before, but the updated view on the win rates, is that just updated for China or is that also outside of China, and then maybe if you can comment on just what you’re seeing for quoting trends in active safety outside of China as well. Thank you.

Yes, I think Itay, it would be very difficult to separate whether it’s Veoneer or, call it Magna Electronics pre-Veoneer. To your second part of the question, I think my assumptions and what I specifically talked about was related to China, and I was making a point that our exposure in China of the overall sales in ADAS is the 10% to 12%. My comment about win rates was overall. What I was trying to make a point is if you look at overall, our win rates seem to be still in cadence of what we have seen in the past. To be more clear, I was saying that this is not impacting or changing as a trend overall - that’s what I meant to say.

Thanks for that clarification, Swamy. Just in terms of quoting activity, how is that trending, along with active safety, thus far this year?

That was my point regarding the discussions about software architecture among OEMs. There is some variability in the sourcing decisions being made, but overall, I don't think there is a significant change in the assisted driving aspect of ADAS. I don't see a significant change.

Great, that’s very helpful. Thank you.

Your next question comes from the line of Brian Morrison with TD Cowen. Please go ahead.

Sorry Pat, I was on mute. I want to summarize what we've discussed. This question is for you. Regarding the 2024 margins, could you provide a sequential margin breakdown? You start with 5.3% this quarter, adjust for the FX, and you'll reach around 5.5% to 5.6%. Then, considering the lower engineering costs and the increased commercial recoveries from Q2 to Q3, you need to achieve margins between 6% and 6.5% in the latter half of the range. What other factors could help you reach that lower to higher end?

Hey Brian. Transitioning from the first half to the second half of the year, I mentioned the consistent increases we observed from the second to the third and then into the fourth quarters last year. One major factor that did not materialize in the second quarter was in the commercial sector, where we expect to see recoveries primarily in the fourth quarter based on past trends. Additionally, we experienced a reduction in engineering net spending, which is a mix of our expenditures and progress in program recovery, and we anticipate this will pick up in the latter half of the year. On the downside, we are experiencing some decline in volumes, particularly in local markets, which is somewhat obscured by translation effects, but we are seeing reduced sales activity in local currency.

Okay, so lower engineering spend, commercial recoveries. Is there heightened benefits from restructuring as well?

Yes, but it would be third on the list.

Okay, thanks for the clarification.

Great, thanks Brian.

Your next question comes from the line of Joseph Spak with UBS. Please go ahead.

Thanks. Maybe just to follow up on this - you know, a lot of this has been answered, but can you just help us understand exactly how much, like half over half, you think engineering will be lower?

We’re not going to get into the specifics, Joe, but we talked about the two items that are the most impactful to our H1 versus H2 roll.

Okay. Then I guess just going back to the ’26 guide and James’ question, like with the high incremental, and appreciate some of that color you gave, but I guess part of that you mentioned is sort of the restructuring savings. Is that related to initiatives that have already started or are there still more planned initiatives, and then also, you talked about trying to get recoveries for EV cancellations, and I’m wondering if any of that is embedded into the forecast.

From a restructuring perspective, Joe, these activities are ongoing, with some substantially completed and others still in progress. It’s not limited to this quarter or this year; we've been discussing operational excellence since last year. We have already begun to see results from some of these efforts, and as market conditions change, we are introducing additional initiatives. The restructuring, for instance, began earlier, and we are continuing to build on that. This is happening across the organization, so some initiatives are finished, some are ongoing, and a few are planned for the future. When I mention planned, I mean these were considered a long time ago, not starting now.

Right, okay, and the recoveries for the EV programs?

It’s part of the larger discussions. It’s not specific to EV programs, it’s volume reductions, it’s cancellations, it’s push-outs, it’s productivity give-backs. Mostly all of these combined with the other becomes a discussion with the OEMs.

But that’s embedded in the ’26 numbers, some level of that?

Some level of that, but I would say more substantial in 2024 than going into 2026.

Okay, thank you.

Your next question comes from the line of Colin Langan with Wells Fargo. Please go ahead.

Oh, great. Thanks for taking my questions. I just want to follow up. The sales guidance revision is very small. We saw throughout the quarter pretty big cuts from IHS, so I’m a little surprised we haven’t seen a bigger impact to your guide, particularly with so much coming from the Detroit 3. Any color on what’s offsetting that - were you already just taking a much more conservative outlook than IHS heading into the quarter? Any color there as to what’s keeping the guidance?

Colin, if you remember last quarter, we held our outlook in terms of volumes to North America and Europe even though IHS was higher than we were, so I’d say that IHS ended up coming down this past quarter closer to where we were anyway. So other than our taking down in Europe this quarter for the full year, I think it was already reflected in our numbers last quarter. In terms of offsets, I mean, currency is a positive for us relative to our last outlook, so we do have a little bit of decline offset by currency.

Got it. If I look at the midpoint of guidance for EBIT, it appears most of it is around $50 million. In the quarter, there were over $30 million in warranty and another $30 million from foreign exchange. So even though sales are slightly down, these factors seem to be rounding errors, or were some of the FX and warranty issues anticipated?

I believe we experienced some outperformance in commercial items during the quarter. Overall, we were mostly in line with our expectations for the quarter. While you pointed out a couple of negatives, we also had some positives that helped to mitigate those issues, particularly in the commercial sector.

Yes, and a little bit of operational that was better than what we had in our last outlook.

Got it, all right. Thanks for taking my questions.

Thanks Colin.

Okay, I think Operator, I assume there are no more questions, so just want to thank everyone for listening in today. I want to reiterate what I said earlier - we remain highly focused on margin expansion, capital discipline and free cash flow generation, while ensuring we continuously invest to take advantage of future opportunities where possible. Thanks again, and have a great day.

This concludes today’s call. Thank you all for joining. You may now disconnect.