Earnings Call
Visteon Corp (VC)
Earnings Call Transcript - VC Q2 2024
Ryan Wentling, Vice President of Investor Relations and Treasurer
Good morning. I'm Ryan Wentling, Vice President of Investor Relations and Treasurer. Welcome to our earnings call for the Second Quarter of 2024. Please note this call is being recorded and all lines have been placed on listen-only mode to prevent background noise. Before we begin this morning's call, I'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various factors, risks, and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the page entitled Forward-Looking Information for additional details. Presentation materials for today's call were posted on the Investors section of Visteon's website this morning. Please visit investors.visteon.com to download the material if you have not already done so. Joining us today are Sachin Lawande, President and Chief Executive Officer; and Jerome Rouquet, Senior Vice President and Chief Financial Officer. We have scheduled the call for one hour and we'll open the lines for your questions after Sachin's and Jerome's remarks. Please limit your questions to one question and one follow-up. Thank you for joining us. Now I will turn the call over to Sachin.
Sachin Lawande, President and Chief Executive Officer
Thank you, Ryan, and good morning everyone. Thank you for joining our second quarter 2024 earnings call. I would like to start with a summary of our second quarter performance as outlined on Page 2. Visteon delivered another quarter of strong execution with top line growth, margin expansion, and free cash flow generation. We reported records for both quarterly base sales and adjusted EBITDA and delivered high single-digit growth over market. This level of growth over market is impressive considering the market headwinds this quarter. Sales were slightly over $1 billion driven by strong demand for both digital cockpit and electrification products. We saw double-digit year-over-year increases for digital clusters and displays, while electrification grew due to the ramp-up of GM's EV production. Adjusted EBITDA increased to $136 million on higher volumes, strong operational execution, and focus on cost. Adjusted EBITDA margin was 13.4%, which is a 270 basis point improvement year-over-year when removing the impact of last year's recall charge. Adjusted free cash flow was $28 million in the quarter. We also strengthened our foundation for future growth. We launched 15 new products in the quarter and won $1.7 billion of new business. We continued to diversify our customer base with new product launches and business wins with OEMs in Japan and India. Carmakers in Japan and Korea are currently underrepresented in our current customer base, and we believe there are significant opportunities to expand our business with them. Overall, I'm pleased with our second quarter performance, which was in line with our expectations, and puts us in a solid position entering the second half of the year. Turning to Page 3. Demand for our digital cockpit and electrification products was strong in the quarter. The powertrain agnostic nature of our digital cockpit products helped drive sales growth as strength in ICE and hybrids helped offset slower EV growth. Displays were our best performing digital cockpit product growing high teens year-over-year. This is a critical inflection after the declines in recent quarters due to the end of the BMW display program that we have mentioned in prior quarters. The growth was driven by programs with Ford, Nissan, and Stellantis, and we anticipate this growth to continue in the coming quarters, as these programs ramp up and as we launch additional display products. Carmakers continue to prioritize larger and more sophisticated displays in the cockpit, and Visteon is positioned very well to take advantage of this trend. Digital clusters grew double digits in the quarter, benefiting from the ramp-up of recently launched clusters at multiple customers, including Ford, Volkswagen, and Nissan. We remain the market leader in digital clusters, and expect a long runway of growth as digital clusters extend into the mass market and value segments of the automotive market. SmartCore sales continued to grow in the second quarter with ramp-up of recently launched products at multiple OEMs, including Harley-Davidson, Mahindra, and Scania. The SmartCore launch with Scania is the first cockpit domain controller introduction in the commercial vehicle market, and we see significant opportunity to develop further in this segment. Sales of electrification products were strong in Q2, driven by the ramp-up of production of electric vehicle models by GM and the start of BMS production for our second customer. It was a significant contributor of our market outperformance coming in stronger than we originally anticipated in the first half of the year. Even with the lower market expectations for the growth of electric vehicles, sales of our electrification products are delivering incremental sales growth for Visteon on a year-over-year basis. From a regional perspective, our market outperformance was driven by strength in Americas, Europe, and Asia excluding China. Our sales in China were weaker than expected due to the ongoing market dynamics in that region, which muted our overall market outperformance in the quarter. Our sales in Americas benefited from the significant growth of electrification sales that I just mentioned. We also saw double-digit growth in digital clusters due to ongoing ramp-up of programs with Ford, which were partially offset by lower than anticipated sales of cockpit products on electric vehicles. In Europe, market outgrowth was driven by digital cluster and display programs with Volkswagen, JLR, and Mercedes. This was primarily due to the ongoing ramp-up of new product launches, which more than offset the lower than anticipated sales of products on electric vehicles. As you may recall, Ford delayed several launches in the first quarter to improve launch quality controls. The vehicles have subsequently been launched and were not a headwind to our second quarter results. Our sales in Asia, outside of China, outperformed the market due to the roll-on of SmartCore programs with Mahindra and ramp-up of digital cluster programs with Hyundai and Royal Enfield. This region provides significant potential for both passenger vehicles and two-wheelers, providing further customer and end market diversification. China was a weak spot for us on account of the ongoing decline of market share for global OEMs and the unfavorable vehicle mix with our largest domestic customer Geely, where we have most of our business on premium high-value brands that are not doing as well in the market as we had expected. Our sales in China declined compared to prior year and reduced our overall growth of the market by about 3 percentage points. Overall, we delivered solid top line growth and high single-digit growth over market performance in the second quarter, overcoming market headwinds from China and lower EV sales. This performance demonstrates the resiliency of our product portfolio and the benefits of our diversification across customers, geographies, and powertrains, as well as our expansion into the two-wheeler and commercial vehicle markets. Turning to page 4. Our strong award momentum continued in the second quarter with $1.7 billion of new business wins bringing the first half total to $3.1 billion. We are targeting over $6 billion in new business wins for the third consecutive year and we are on track to achieve that target based on our first half performance. In the first half, we benefited from the focus we have placed in recent years on diversifying our customer base. Two-thirds of our first half new business wins were for customers outside our current top 10. In Asia, excluding China, where we have been particularly focused on expanding our presence, we had $1.8 billion of wins with Japanese and Indian OEMs. We believe there is a significant runway ahead of us to expand our business with these customers and other OEMs based in this region. Displays represented our largest source of awards in the first half accounting for just over 50% of our wins. Several years ago, we began to invest in our design and manufacturing capabilities to capitalize on the growing trend of large sophisticated displays for automotive cockpits. This included higher levels of vertical integration and a regionalized approach to production to help meet customer supply chain sustainability priorities. These investments are now paying off as we ramp up production of current programs and also gained significant traction on new business awards. Looking forward, we expect to invest in further vertical integration in displays that can help to expand our leadership position in this key product line. Our new business wins were also well diversified across our other digital cockpit products with significant SmartCore infotainment and digital cluster awards. These growing product lines are benefiting from the ongoing digitalization trend in the cockpit. On the right side of the page, we highlight a few key wins in the second quarter. The first win is for a large curved OLED display with a Japanese OEM, representing another significant win with this recently added customer. This display will be offered on luxury vehicles, with initial launch on a new electric vehicle model with potential for additional launches on other platforms and powertrains. The second win is for a dual display product that will be featured on an SUV with ICE and hybrid powertrains with a different Japanese OEM. I'm really pleased to see the extension into displays with Japanese OEMs, following on the recent wins for digital clusters. Lastly, we would like to highlight a win for an infotainment system and multi-display module for an Indian OEM. These products will be utilized on the OEM's next-generation platform, and includes a 25-inch multi-display module along with the underlying infotainment system. Turning to page 5. Launches of new products are the primary driver of our sales growth. We had a strong first half with 41 new product launches on vehicles from 17 different OEMs worldwide. Digital cluster and SmartCore launches represented roughly half of our launches and mostly with OEMs in Asia, supporting our goal of growing our business with this currently underrepresented customer base. Now, I would like to highlight some of our key launches during the quarter. We launched a digital cluster on the Toyota Camry, our first on that vehicle and our second major launch with Toyota, after the launch of the digital cluster on the Corolla in China. This cluster will be offered on the Camry for all regions globally and on both ICE and hybrid powertrains. This is our first global launch with Toyota, and I'm pleased that this is also one of the best-selling vehicles in the world. We also launched a high-resolution 10-inch center information display on the Mazda MX-30. This vehicle is a compact SUV and comes with both hybrid and electric powertrains, highlighting the powertrain agnostic nature of our digital cockpit products. The third launch I would like to highlight is the launch of a 12-inch digital cluster with a curved display with Porsche on the electric Macan. The Macan is a high-volume module for Porsche, and this cluster will also launch on some other models with that OEM. I'm very pleased with the momentum we are building in Asia and particularly outside China, which is demonstrated by the fact that 60% of our first half launches were in this region. Many Asian OEMs outside of China have historically not been a meaningful part of our customer base, for example, Toyota, Honda, Hyundai, and Suzuki. These OEMs, however, produce a large number of vehicles annually and represent a significant opportunity for Visteon. Turning to page 6. I would now like to share our updated views on the market and Visteon sales for the full year. While our first half performance was in line with our expectations, we are seeing some market headwinds in the second half of the year, impacting our top line performance compared to the assumptions within our initial 2024 guidance. First, our customer vehicle production based on S&P Global forecast is lower than the January forecast used in our initial guidance. Customer production is now expected to decline by 3% as compared to the original expectation of a 1% decline. While we did see lower customer vehicle production year-over-year in the first half, the more significant declines are in the second half. Second, we expect our sales in China to be weaker than our original forecast. The hyper-competitive market dynamics and the ongoing price war is driving rapid changes to the automotive market in China. We are seeing unfavorable mix with Geely, our largest domestic customer in China, as they prioritize lower content vehicles in response to the market dynamics. Market share of our global customers in China is also continuing to decline versus domestic OEMs. New sales incentives that were discussed during Q1 have not boosted demand. We are now expecting our second half revenue in China to be roughly flat with the first half despite higher vehicle production in the second half. Outside of China, there are a couple of factors that are negatively impacting our market outperformance. First, we are expecting some mix impact from lower sales of key electric vehicle models where we have higher than average digital cockpit content. Second, the announced delays in the introduction of some model refreshes at our largest customer, Ford, is delaying the contribution from new product launches at this customer. On a positive note, we expect the ongoing ramp-up of recently launched digital cockpit and electrification products to drive continued market outperformance continuing the trend from the first half. Demand for digital cockpit products across powertrains remain strong and we expect continued growth in digital clusters and displays. Electrification sales should continue to grow year-over-year, as our customers build the pipeline for vehicle launches through the rest of the year. Putting all these factors together, we forecast continued market outperformance in the second half leading to growth over market of approximately 7% for the full year. Considering the environment, this is a strong performance. Turning to Page 7. In summary, the company performed very well in the first half of 2024. Our technology portfolio is aligned with key industry trends including digitalization, connected car, and electrification, megatrends that will drive future growth for years to come. We delivered growth over market of roughly 6% in the first half with further growth over market expected in the second half. The team continued to execute on our commercial and operational plans which resulted in a strong adjusted EBITDA margin of 12.2%. We continue to build our foundation for the future by launching 41 new products and winning $3.1 billion in new business. Now I will turn the presentation over to Jerome.
Jerome Rouquet, Senior Vice President and Chief Financial Officer
Thank you, Sachin, and good morning, everyone. Visteon delivered solid results in the second quarter. We continue to execute well with 15 successful product launches including on the Toyota Camry our first global program launch with Toyota. We won $3.1 billion of new business wins in the first half. These wins further diversify our customer base, especially in the rest of Asia with $1.8 billion of wins with Japanese and Indian OEMs. We also delivered another quarter of excellent operational execution and commercial discipline which led to record adjusted EBITDA and a margin in excess of 13% for the quarter. I am very proud of our track record of consistently expanding our margins. Lastly, we continue to focus on cash flow generation and delivering on our capital allocation priorities. Our strong balance sheet with a net cash position will allow us to balance organic investments, selective M&A, and capital returns to shareholders. Turning now to the second quarter's financial results in more detail. Q2 sales were slightly over $1 billion in line with our expectations as communicated last quarter. Sales benefited from our market outperformance, generated from new product launches, partially offset by lower customer volumes and lower recoveries. Our market outperformance was the strongest in the Americas with growth of market in excess of 20%, solid outperformance in Europe and rest of Asia excluding China, while China significantly underperformed the market. We saw year-over-year growth in sales across digital clusters, SmartCore, displays, and electrification products. It is worth noting that after several quarters of declining display sales, as a result of the BMW display roll-off, our displays business delivered 17% growth year-over-year in the second quarter. We expect the display's product line to continue to deliver growth in the coming quarters. Customer recoveries declined year-over-year, as a result of the improved semiconductor supply, but were stable sequentially as we're still recovering elevated supply costs. Adjusted EBITDA was a record $136 million for the quarter or 13.4%. Our strong EBITDA performance this quarter is the result of sales exceeding $1 billion, strong operational performance as well as combined net engineering and adjusted SG&A costs of 9.1% of sales down approximately 100 basis points from the level we are guiding for the full year. We also benefited from several million of one-time commercial items in the second quarter of this year. Adjusting for a more normalized level of engineering and SG&A spend reflecting our full year run rate guide and removing the Q2 2024 commercial one-timers, we estimate our EBITDA run rate to be closer to 12%. Adjusted free cash flow was $28 million in the quarter, as a result of our focus on cash and our strong adjusted EBITDA performance. Overall, our second quarter was another step in the right direction, with continued revenue growth, margin expansion, and cash flow generation. We are successfully navigating a changing environment as a result of our strong focus on operational performance, commercial excellence, and cost discipline. Turning to Page 10. Sales were $1,014 million in the quarter, an increase of $31 million compared to the prior year. This increase in sales was primarily driven by our market outperformance, generated by recent product launches, partially offset by lower customer production and reduced customer recoveries related to semiconductor costs. Our growth of the market was 9%, in line with our expectations of high single-digits. Adjusted EBITDA was $136 million in the second quarter. This was a $46 million increase from the prior year. Excluding the $15 million recall charge shown in the dotted box that we incurred last year, the year-over-year EBITDA improvement was primarily driven by three factors: volume, strong operational performance, and lower cost for net engineering and SG&A. Exchange negatively impacted year-over-year EBITDA by approximately $4 million, while the favorable commercial items that we benefited from in Q2 2024 were neutral on a year-over-year basis. Net engineering was $12 million lower than the prior year due to the timing of project spend. Our net engineering cost as a percentage of revenue was 4.9% below our expected full year average of mid-5%. SG&A was $2 million lower than the prior year as we maintain a strict cost focus while continuing to invest in specific areas to support our growth. Adjusted SG&A was 4.1% of revenue, which is slightly below our full year expectation of mid-4%. Our continued success on delivering growth while managing our fixed cost base will continue to provide significant leverage as we scale up. Overall, we delivered solid financial results in the second quarter in line with our expectations. We continue to demonstrate our ability to overcome challenges while preparing for future growth by delivering on a high number of program launches and substantial new business wins. Turning to Page 11. We generated $28 million of adjusted free cash flow in the second quarter, bringing our first half total to $62 million, which is a $67 million improvement compared to the first half of last year, primarily due to the higher adjusted EBITDA. Trade working capital was an outflow for the first half as we built additional working capital to support our growth. Cash taxes were modestly lower than the prior year due to the timing of tax payments in the first quarter of last year. Interest payments remained low and primarily relate to our term loan, which were more than offset by interest income on our invested cash. CapEx was $68 million in the first half and remains on track for $145 million for the full year. We're investing in projects that are critical to deliver on our future growth and margin expansion. We ended the quarter with a total cash of $508 million and a net cash position of $181 million. Our balance sheet provides the flexibility to pursue our balanced capital allocation framework. We're highlighting on the right-hand side of the slide the amount of adjusted free cash flow before CapEx that we have generated over the last 12 months, $359 million, and how it was allocated. Our largest spend has been CapEx, which is critical for our future growth and margin expansion and represents approximately 40%. We will continue to look for ways to deploy capital to support organic growth initiatives at attractive returns, well in excess of our cost of capital. Our success in allocating capital to high-return projects is illustrated by our strong return on invested capital. Buybacks have also been a significant source of capital deployment, with $96 million spent in the last 12 months or 27%. Lastly, as I mentioned last quarter, we're looking to expand and improve our business via bolt-on M&A, primarily in further expansion of engineering services or additional vertical integration into our manufacturing processes. We have earmarked 28% for potential M&A opportunities in the coming quarters. Turning to Page 12. Following some of the market dynamics highlighted by Sachin, we are updating our guidance for the full year. For sales, we are revising our guidance range to $3.85 billion to $3.95 billion, a $200 million reduction at the midpoint. The change versus our original assumption is driven by lower customer vehicle production and several factors affecting our growth over market. For customer vehicle production, we are forecasting a decline of approximately 3%, which is a 2% reduction from our initial forecast. This is in line with S&P Global forecast. For growth over market, the most significant headwind versus our prior forecast is the lowering of our expectations for China, both due to unfavorable mix with our largest domestic customer Geely and continued market share losses by the international OEMs. Outside of China, we also expect some mix impact from the slower-than-anticipated ramp-up of EVs where we have higher-than-average digital cockpit content and from delays in the introduction of some model refreshes at Ford. As a result of the change in revenue, we are slightly lowering our range for adjusted EBITDA to $455 million to $475 million, a reduction of $20 million at the midpoint, reflecting decrementals of 10%, as we continue to execute well. On a margin basis, the 11.9% midpoint is slightly higher than our prior guidance, with our first half performance coming in ahead of our original expectations. We expect strong year-over-year incremental for the full year, as we continue to find efficiencies in the business, control costs, and leverage our fixed cost base. Lastly, we are maintaining our adjusted free cash flow guidance, as our first half cash flow was strong. This range considers our assumptions of the current adjusted EBITDA range, the use of working capital for the year, and CapEx spending of $145 million for the year. Our conversion ratio increased slightly from our prior year guidance and remains within our targeted range of 35% to 40%. Turning to Page 13, Visteon remains a compelling long-term investment opportunity. We expect to benefit from higher demand for more digital content in a cockpit, regardless of powertrain and the growth of electric and hybrid vehicles. Visteon is uniquely positioned for multi-year top line growth, margin expansion, and free cash flow generation while our strong balance sheet provides us with significant flexibility. Thank you for your time today. I'd now like to open the call for your questions.
Operator, Operator
Our first call comes from Luke Junk with Baird.
Luke Junk, Analyst
Hi. Good morning. Thanks for taking my question. For my first question just hoping you could segregate cluster growth in the second quarter and your expectations through the back half of the year, just a lot going on here of digital cluster growth versus analog and hybrid. I think there's some product sunsets that we're seeing in the numbers and launch delays or slower ramps. Can you just kind of square…
Sachin Lawande, President and Chief Executive Officer
Sure. Sure.
Luke Junk, Analyst
... what we saw in the second quarter and then how that steps up in the back half? Thank you.
Sachin Lawande, President and Chief Executive Officer
Absolutely, Luke. So yes, first of all as you know, digital clusters have been a very strong product for the company now for the last several quarters. And even in Q2, we saw our sales of digital clusters grow good double-digit year-over-year in a lower vehicle production environment. And it was one of the main drivers of our market outperformance. Today, clusters overall make up about 40% of our sales. And of that, digital clusters are about 80%. So the majority of what we do today in clusters are digital. We are clear market share leaders in that product category. And we expect this performance to continue. But I would like to also mention that what we are seeing in the industry is that in the mid-to-upper end of the market, we are seeing more a transition towards Cockpit Domain Controllers and displays. We are seeing also as a result of that, this digital clusters migrate more and more into mass market vehicles. We expect that transition to continue as we go forward from here. So this is why as you have seen, our displays performance has been very strong this year, in the first half. And if you go back, last year, our SmartCore cockpit domain controller wins were also very strong. In fact, I believe that was the largest portion of our $7-plus billion in new business wins. And so with displays being a product that requires shorter time to launch following the cockpit domain controllers which take longer to implement and launch, you see the sequence of CDCs followed by displays in the mid to upper end of the market and the migration of digital clusters into more and more mass market vehicles. We still feel that there's a lot of runway ahead for this product for the foreseeable future and we expect that to continue to be a leading product for us.
Luke Junk, Analyst
Thanks for the Sachin. The mix of digital customers is helpful. For my follow-up, maybe you or Jerome, just hoping for some high-level thoughts on following the updated 2024 expectations through to your 2026 midterm targets? Thank you.
Sachin Lawande, President and Chief Executive Officer
Yeah. Let me talk about that, Luke, and I'll be happy for Jerome to also add any more color. But first of all, I would say that it is a little early for us to talk about 2026, but I want to share some of the things that we are looking at here as we look at the midterm. First of all, I would say that if you look at the last few years, we have demonstrated that we can grow our sales even in a flat LVP environment. Right? If you go back to say, 2019 to 2023, LVP was essentially flat at roughly 89 million units globally. And our revenues over that period of time grew 30% to almost $4 billion, and our EBITDA improved 300 basis points to about 11%. Now this year, we were expecting that performance to continue. But as we have discussed in our prepared remarks, the reduction in the outlook for customer vehicle production as well as the dynamics in China has meant that despite those things, we will be in a position to deliver a flat, flattish performance 2023 to 2024, still representing a growth over market on account of the lower production expectations. Now, what I would also mention is that we are adapting to these market changes. We are first expanding our customer base in passenger car market to OEMs that historically have not been a big part of our revenue, for example, OEMs in Japan and India. Today, those OEMs make up about 5% of our revenue. And if you look at the production side of things, they make up almost 25% of the global passenger car production. So we see a lot of opportunity there. We're also focusing on two-wheelers and commercial vehicle segments. And in both the Asian OEMs as well as in two-wheeler and commercial vehicle segments, we have made a lot of progress. We have talked about our progress with Toyota. We also have one business with Honda and Hyundai that make up that group of OEMs. And when it comes to two-wheelers and commercial vehicles, I'm very happy that we have business with all of the top four or five leaders in each of those two segments. So as we go forward, some of these will start to contribute revenue even in 2026. And then lastly, as Jerome mentioned in his prepared remarks, we are also looking at some M&A to help build our engineering services business that we see a good opportunity for. As we all know, OEMs are going to do more and more software as the cars are going to be attracting a lot of software content. And we have the technology capability and scale to help them. So as I said, some of these will have an impact on 2026, but the full impact will be probably felt more in outer years. So we'll take all of that into consideration. And as we make up our midterm plan, including 2026, we will probably update you sometime this year at a date yet to be determined.
Luke Junk, Analyst
Understood. Thank you for that and we’ll stay tuned down. Thanks, Sachin.
Sachin Lawande, President and Chief Executive Officer
Thank you, Luke.
Mark Delaney, Analyst
It's Mark Delaney, and I appreciate your time in addressing my question. To begin, I would like to gain a clearer understanding of the EBITDA outlook for the second half of the year. Jerome, if I understood correctly, you mentioned that a normalized EBITDA margin, adjusting for one-time factors, would be around 12%. It seems that while the second half revenue is expected to be similar to the first half, the EBITDA margin appears to be projected in the mid-11% range. Could you elaborate on the factors influencing EBITDA in the second half compared to the first half? Additionally, how should we consider the second half EBITDA as a potential baseline for modeling 2025? Thank you.
Jerome Rouquet, Senior Vice President and Chief Financial Officer
Absolutely yes. Good morning, Mark. So let me maybe start by saying that we are very pleased with the way Q2 performance shaped out. We performed better than anticipated. And if you step back and look at essentially H1, we've been performing better than what we had anticipated even after normalizing for some of the commercial one-timers that I highlighted in my prepared remarks, which represented about 50 basis points of benefit to EBITDA margin in the quarter. So, to put things in perspective, we were planning to be slightly below our EBITDA margin midpoint of 11.8% for H1. And we've ended the first half with 12.2% at face value. And if you normalize that with the one-timers, it's closer to 11.9%, so closer to the 12% that you were referring to. As we go into H2, we're expecting this level of performance to continue on flat sales as you said per our revised sales guidance. So what will be happening, we'll be slightly increasing our engineering and SG&A spending in H2 versus H1, but a little bit less than what we had originally anticipated. And this good performance will combine with as well the good cost control of our SG&A and engineering will allow us to raise our EBITDA percentage to 11.9% for the full year from that 11.8% that we had previously guided towards, so $465 million for the full year. When you look at it versus prior guidance, it's essentially a set of decrementals that are close to 10%, which we believe is a pretty good performance given the challenging environment we're in.
Mark Delaney, Analyst
Got it. Thanks for all that color. Maybe a strategic question. There's been a lot of news out there OEMs looking to partner on electronic architecture or some of the big tech giants looking to maybe move more with software. Maybe if you could talk a little bit more on some of those things. I guess the one I wanted to better understand was, specifically as you think about the digital electronics in the car, you had Apple with the next version of CarPlay, you're looking to have more influence over the broader set of digital controls in the vehicle. I'm hoping to understand how that maybe impacting OEMs want to work with Visteon, maybe there's some opportunities for you, maybe some incremental challenges. If you could maybe talk about what you're seeing in regard as the digital electronics and the software ecosystem continues to evolve. Thanks.
Sachin Lawande, President and Chief Executive Officer
First of all, the new features and capabilities that CarPlay and other technologies introduce are driving more content into the cockpit. This is beneficial for us because it often necessitates that the OEMs redesign and reimplement some of these features, as they were not originally planned when they developed their earlier generation systems. Typically, we find that these technologies require more computing resources and power. While you mentioned CarPlay, a significant topic impacting the industry is AI, particularly generative AI, which will be integrated into future cockpits. This integration demands a considerable increase in computing resources, enhancing the content and value we can offer. However, it's likely that this will first appear in specific market segments and may not be present across all vehicles initially due to cost considerations. Overall, we view these developments positively. You also asked about the licensing of vehicle platforms, likely referring to the Rivian VW deal. We see this as OEMs trying to figure out how to keep pace with the latest vehicle electrical architectures. This isn't directly related to what we specialize in, which is the user interface or "top hat." For instance, VW has over 15 brands in its portfolio; they can't simply implement one electrical vehicle architecture across all brands without differentiation. The unique elements come from what we provide, influencing what users experience in the cockpit. The top hat will vary by brand, and we can assist in creating that differentiation. With the influx of new technologies, it's unrealistic to expect any single OEM or Tier 1 manufacturer to manage all of these technologies independently. The future will necessitate collaboration among multiple companies to build these complex systems. OEMs will have their roles, but Tier 1 suppliers and other partners will also need to contribute. In the Tier 1 space, I believe Visteon is the best positioned in terms of the products and technologies needed for today’s cockpits, while also investing in future capabilities like AI and augmented reality, which we believe will be critical. All these factors point to the growing importance of software and electronics in the automotive industry.
Mark Delaney, Analyst
Thanks so much for all those thoughts. I’ll pass it on.
Sachin Lawande, President and Chief Executive Officer
Thank you.
Ron Jewsikow, Analyst
Yes. Good morning. It's Ron Jewsikow, Guggenheim. Sachin, Jerome, you highlight the $1.8 billion in year-to-date wins with Japanese and Indian OEMs. I guess we're particularly focused on the Japanese part but any color or even firm numbers on how that $1.8 billion compares to prior years? And I guess how big of an opportunity do you think this could be because traditionally it's a pretty high bar winning business versus the currency suppliers?
Sachin Lawande, President and Chief Executive Officer
Yes. No, that's a great question. So if you look at – I will particularly focus on Toyota because of that group of OEMs they represent the biggest opportunity. Now as you know, Toyota has some very high profile, high volume vehicle brands the RAV4, Camry, Corolla represent these marquee brands that have very high volume. And until I would say about three years ago we had roughly maybe very small I would say single-digit million dollars of revenue with Toyota on some ancillary products but nothing in the cockpit. Our first launch with them was for the Corolla in China. That was a regional product, limited volume. They were essentially testing our capabilities. The success of that launch allowed us to participate in the bidding for the bigger Camry clusters. Then there are two clusters that these products typically offer. They have an upper end and the mass market. We were very pleased that we won the mass market higher volume cluster product that we launched in the quarter that we talked about. So following that there are multiple, the regional launches as well as further more global program opportunities with Toyota, right? And Toyota represents over 10% of the overall production of vehicles. So, and yet today that's hardly even factors into our revenue list. So huge opportunity. And we see the same thing with the other guys that we talked about right Honda, Hyundai, Maruti, Suzuki. So that's where we are really putting a lot of our energies on. We were anticipating that the market in China is going to be a lot tougher given what's happening there and our energies are better focused and served on these OEMs and our products and technology is also fit where they see their vehicles go. So we're pretty happy with how it has turned out. I should also mention I mean the Japanese OEMs in passenger car markets obviously is our biggest chunk of revenue. But two-wheelers represent a huge opportunity as well. It has not been the focus so far because of mainly the nature of that product did not really allow for electronics with a lot of power consumption that came along with it. Now with that segment also turning to electrification, that's no longer the barrier, and we can do a lot more with electronics and software than ever before.
Ron Jewsikow, Analyst
Thanks for that. That's really helpful color. And then a follow-up question on the Chinese market broadly, certainly the local versus global mix issues in China are not a Visteon-exclusive issue to navigate. But I guess from our vantage point, it's pretty clear that global OEMs have a product issue in that market competing with I would say the more tech-forward Chinese local OEMs on things like displays and software. I guess my question is, these are things that I think Visteon can clearly help with. But what are your discussions like with the global OEMs about their plans in China to maybe drive more tech-forward offerings?
Sachin Lawande, President and Chief Executive Officer
No, that's a great question. And let me try to explain what we see happening today in the market in China. So it's clearly an earlier adopter market in terms of tech and they are very keen on bringing the latest and greatest technologies into the vehicles, at cost points that were considered prohibitively high by the global OEMs. The global OEMs by definition have their sights set on the broader markets and some of the tech doesn't necessarily carry the same appeal in those regions as it does in China which even from a consumer perspective is a lot more accepting of new tech than many other parts of the world. So the problem that everyone faces is how do we differentiate and bring the right amount of tech for the various markets that is appropriate for those different regions? And that has been the challenge that they faced. And therefore they were a little late. But the global OEMs recognize this just like we do. They also recognize that they need help because their approach of building a vehicle for the globe doesn't really work in this kind of a market environment. So that's the first thing. Now what we see is that in the long run, it's very likely that the German and Japanese OEMs will figure out a way to get to that point. It might take them a little bit longer than we would all like, but they will get there. And our objective is to work very closely with them to work side by side and bring those types of solutions in China and different solutions for the rest of the world. Now within China, with the domestic OEMs, we have been gradually increasing our portfolio of domestic OEM customers. We've been very selective and careful about it. There are a lot of OEMs. We do not expect that most of them will actually be able to sustain their businesses through this very challenging time. But there will be some that have that sort of achieved that escape velocity. Geely clearly is one of them. The issue we are facing with Geely, I think is more of a temporary thing that is particular to the time that we are in with the domestic demand being a little soft, but we're also trying to expand to other OEMs domestic OEMs in the top five lists in China leveraging our technology capability. What we have to offer with respect to high-performance compute, the AI that I talked about is probably going to be deployed in the market first in China before it gets deployed anywhere else. That’s where we are investing and think we will be able to make some breakthroughs in the coming quarters.
Ron Jewsikow, Analyst
Thanks. I appreciate the color. I will hop back in the queue.
Sachin Lawande, President and Chief Executive Officer
Thank you.
John Babcock, Analyst
Hey. This is John Babcock. I just wanted to ask I guess quickly, one of the things we're hearing obviously from EV OEMs is that they want to kind of keep costs under control. I mean Ford has talked about this and other OEMs have talked about it. Out of curiosity, I mean are you getting a sense that OEMs are starting to target electrification products as an opportunity to lower costs? Or what are you kind of experiencing on that front?
Sachin Lawande, President and Chief Executive Officer
Yeah. Great question. And what we see is that the first generation of EVs, okay they've all realized that they're not competitive to some of the Chinese competitors in terms of cost. A lot of it is actually cost that is coming through design. What we see is a lot more willingness on part of these OEMs to engage in discussions about how to lower the cost. Now there are certain requirements I would say that would necessitate a higher level of cost in say in US and Europe versus some of the Chinese vehicles, but the fact does remain that there is a cost disparity and that they will require updated designs with more modern technology and more integration to be able to achieve some sort of parity with China. That's precisely what we see as our differentiation. We don't want to be just one of the 10 suppliers that can do an OBC, an onboard charger, or a DC/DC converter. We want to be one of the few that can do a three in one, or four in one, or five in one type of a system. We started with BMS because that was kind of the most natural stepping stone for us given the similarity with what we did here at clusters mainly with ASB. But clearly where it needs to go to is more integrated solutions and more silicon-driven solutions. Now the hype has kind of cooled a little bit in terms of the growth expectations, but we all expect it to grow more steadily and it will be one of the powertrains of choice besides others. We hope to have our fair share of that business as we go forward. I'm actually not too displeased with the fact that the industry is taking a little bit of time because it wouldn't be we would not have been ready. This time really gives us the chance to take a step back and come up to speed on some of the tech through the activities that we have including the joint venture that we have with Shinry.
John Babcock, Analyst
Okay. Thanks for that. And then also, one of the things I have noticed at least going to car shows and seeing what's out there in the market it seems like there are several OEMs that are perhaps lagging a little bit in terms of putting in larger displays and also even putting in more advanced technology. And I just want to get your view on what it's going to take some of these OEMs to adopt some of the larger more complex displays and technology?
Sachin Lawande, President and Chief Executive Officer
I think it's just a matter of time. I don't think it's the lack of desire. It's just an execution pace that some of these OEMs is much different than what we would like for sure. But we see it is going in that direction gradually. It is a matter of cost for some of them. They play in segments that in some cases cannot absorb fully the increased cost. For those reasons we have also been very focused on driving greater vertical integration of those products. Displays today are very high priced on account of the cost that they take. Our approach has been to try to bring more content under Visteon control so we can take some of the other tier two, three, four suppliers out of the picture, and thereby lower the total cost to the OEM represents still a very good opportunity for us. So we often talk about vertical integration as the term for many of those things whether there are modules with semiconductors or displays. The idea is to take more of that cost into Visteon's control, and thereby drive more affordability of those types of technologies. Without that, it will just remain at the upper layers of this vehicle market but we believe that the bigger opportunities are in the mass market segments.
John Babcock, Analyst
Okay. Thanks.
Sachin Lawande, President and Chief Executive Officer
Thank you.
Dan Levy, Analyst
Hi. Good morning. Thank you for taking questions. I apologize if this has been asked already, as I joined late. Could you discuss the impact of China beyond the second quarter, where we know it's a drag? How much is the weaker outlook for China being incorporated into the forecast for the rest of the year? Additionally, could you update us on your expectations for low double-digit growth over the market through 2026? Given the ongoing situation in China and the continued pressures, what offsets do you have in place related to China and your customer mix?
Jerome Rouquet, Senior Vice President and Chief Financial Officer
Yeah, why don't you start Jerome and then… We have adjusted our sales guidance downwards by approximately $200 million. Roughly a third of this adjustment is attributed to volume, another third is related to factors in China, and a bit less than a third is due to the electric vehicle mix and program delays with one of our customers. This breakdown provides insight into how China factors into our sales guidance revision.
Sachin Lawande, President and Chief Executive Officer
Yes. To address the question regarding the impact of China beyond 2024, last year, domestic China accounted for approximately 15% of our revenue, which has decreased this year to around 11% to 12%. We have a few points of impact we need to compensate for. There are offsets, particularly in electrification, battery management systems, and our cockpit products for electric vehicles that we will need to explore further in relation to the vehicle build plans for 2025 and 2026. Despite the reduced expectations for production growth of those vehicles due to regulatory reasons, original equipment manufacturers must continue to produce EVs to avoid facing significant penalties, which increase each year. Therefore, we do expect growth. We will need to determine exactly how that growth will offset some of the negative impacts we are experiencing in China. Additionally, we have been focused on the two-wheeler and commercial vehicle sectors over the last couple of years, making good progress in securing business and launching products, which will also have a net positive effect. Looking toward 2026, we are considering expanding our engineering services business. Our strong capabilities in software and automotive technologies for both cockpits and battery management systems enable us to offer engineering services to support the software development plans of OEMs. These are some of the positive factors we see that we will incorporate into our midterm guidance.
Dan Levy, Analyst
Thank you. I have a follow-up question and I apologize if this has already been addressed. One of your customers recently shared some insights on a podcast regarding the challenges of transitioning to the software-defined vehicle, particularly due to the widespread electronic control units and the numerous suppliers that each manage their own ECUs, which complicates the over-the-air updates. This issue highlights some of the difficulties faced by other automakers in this transition. What has been the general tone of the conversations you've had with customers about this shift, considering that while there is a strong desire for OEMs to take ownership, they are also aware of the challenges that come with it? I apologize if you've already covered this topic.
Sachin Lawande, President and Chief Executive Officer
It's a great question. Looking back two to three years ago, there was considerable discussion about OEMs intending to hire a significant number of engineers to manage their software and develop technologies independently. The perspective has shifted significantly since then. Now, there's a more realistic view of the situation. We recognize that the challenges are increasing with each quarter rather than decreasing, and their capabilities are not sufficient to address these challenges. Recent observations show that OEMs are seeking to license vehicle platforms from start-ups, indicating they cannot accomplish this on their own. This is not a mere coincidence. However, licensing is only a temporary solution; it provides a snapshot at one moment while the industry continues to evolve. We believe that resolving these issues is particularly challenging for traditional legacy OEMs, which manage multiple brands and segments. It's unrealistic to expect that one software solution can meet the needs of all these different aspects. Consequently, the problem is not diminishing; it's growing, and we see this as our opportunity.
Dan Levy, Analyst
Great. Thank you.
Operator, Operator
The last question comes from Wolfe Research.
Shreyas Patil, Analyst
Thank you for taking my question. This is Shreyas Patil. First, I noticed your bookings total $3.1 billion so far this year, and you're on track to exceed $6 billion for the full year. Looking back at recent years, especially 2017 and 2018, you were booking between $5 billion and $7 billion annually. I believe that consistent bookings at that level should eventually translate to similar revenue levels. I acknowledge that volume has been lower than anticipated in recent years, particularly due to COVID. However, how should we interpret these bookings regarding Visteon's revenue prospects in the coming years?
Sachin Lawande, President and Chief Executive Officer
Yes, Shreyas. I would say, that in general, again, the lots of details. But in general, that is the right way to think of it, right? But as you know, there have been a lot of changes somewhat disruptive including the latest what we are seeing in China, that does affect that linear sort of thinking about how the revenue should rise up to the booking level. The biggest impact, if you go back, actually has been the volume expectations, okay? So if you think about even 2019 to 2023, our customers' vehicle production and I'm not talking about outlook here I'm talking about actual, went down by 10%. So the 10% drop we had to make up for, and our revenues increased 30% over that period. So if you were to have a flat line and mind you, we were actually in the bookings because that's what the customers gave us, the expectation was that there would be a steady 2% to 3% production growth, right? So if you really look at where we should have been versus where we were at over that four-year period it's a swing of almost 17% 18% in terms of production alone. Now if you were to add that to our 2023 revenue, we would have been closer to where we would have been if you were just to assume that of revenue growth. So the biggest impact has been LVP. And then there have been some other smaller impacts that have created a little headwind. Now, what's really good here at Visteon is that we have been adapting to this market dynamics and finding opportunities for growth, whether it is looking at OEMs that have not been part of our top 10 list or the two-wheeler market or the commercial vehicle market and engineering services. So, we see plenty of pools where we can grow profitability in this time period. To me, that's part of what we do. The market is the market. We have to react to it. I think we have done a pretty good job of positioning the company for growth, even with all of the things that I mentioned.
Shreyas Patil, Analyst
Okay. That's helpful. Jerome, I have a quick question. I believe you mentioned that the decrementals on the lower revenue is about 10%, which seems quite low. Can you explain what some of the offsets are for that?
Jerome Rouquet, Senior Vice President and Chief Financial Officer
Yes, absolutely. Yes. So we've been performing better than anticipated in the first half. Q2 was a demonstration of that. So, we expect this performance to continue. That will obviously help the decrementals as we reduce our sales for the guidance. We also are helped by these commercial one-timers that represented about 50 basis points for Q2. So, the two combined as well as a little bit of a revision of our spending on SG&A and engineering as we go forward will help us to get to 10% as opposed to have the 28% that we normally have.
Shreyas Patil, Analyst
Okay. Great. Thanks.
Jerome Rouquet, Senior Vice President and Chief Financial Officer
Thank you.
Sachin Lawande, President and Chief Executive Officer
Thanks, Shreyas.
Ryan Wentling, Vice President of Investor Relations and Treasurer
This concludes our earnings call for the second quarter 2024. Thank you everyone for participating in today's call, and your ongoing interest in Visteon. Thank you.
Operator, Operator
This concludes Visteon's Second Quarter 2024 Results Earnings Call. You may now disconnect.