Virtual Auto Summit. My name is Emmanuel Rosner, and I'm the lead autos analyst here at Wolfe Research. Very few suppliers have the global scale and diversified product portfolio of Magna, which provides critical components across its exteriors, power and vision, and seating segments, and even does complete vehicle assembly through its tire business. While Magna expects customer mix and other industry headwinds to weigh on revenue and earnings this year, it sees a sharp rebound in 2026 with 5% revenue growth, 30% higher EBIT, and nearly 70% free cash flow improvement. In other words, Magna sees a pass to around $7 of EPS next year, possibly more with the buybacks, but the market is skeptical, and consensus is in the low $6 range for 2026. To discuss all this and much more, we're pleased to be joined by CFO Pat McCann and Head of Investor Relations, Louis Tonelli. Gentlemen, thank you so much for being with us. Thanks for having us. Maybe to kick off the conversation, let's hit on some of the near-term dynamics. We're most of the way through the first quarter. Any updates from your viewpoint on industry conditions versus your initial expectations? No, I think, you know, putting tariffs to the side, it's been a pretty business-as-usual type quarter. We probably expected more volatility than what we're seeing. That being said, we're still only two months into the year, right? We're progressing. We've had our monthly meetings. I would say we're two in. It's pretty consistent with what our expectations have been. We're just, I would say we're digging in ready for the tariff situation more than anything. We will definitely have a few questions on that, but that's good to hear. Now, your 2025 guidance implies that margins improve, we believe, from the 4% range or so in the first quarter to maybe a 6.5% in the second half. What will drive the sequential improvement? Yeah, you know, we don't provide quarterly outlook when we do our guidance. We're really in a long-term business. We're managing our business for 2025. All that being said, our expectation is exactly what you said. We're thinking Q1 is going to be our low point. We actually said it's actually going to be lower EBIT margin than we expected or we executed against in Q1 of 2024. Big picture, about 40% of our EBIT should be coming through in the first half of the year, 60% in the back half of the year. The main drivers of that, there's some volume, there's some cadence of volume and mix, but the bigger drivers are commercial, which tend to be coming through in the back half of the year. The second part of it is related to engineering recoveries as those come through and we're able to get through the gates and build a customer. Is there also an element of cost performance, or is that pretty evenly spread out throughout the year? I think you always have some cost performance in the sense that if you're going through your CIs or you're implementing a cost-saving idea, they don't all hit on January 1 of the year, right? They're coming in as you grow. As volumes pick up, your CI improvements come through. Traditionally, when you would have looked, if you would have had this call six years ago or in the 20 years before that, you always would have had Q1 was usually pretty solid, Q2 was your best, Q3 was your worst, and Q4 was somewhere in between. Really, over the last three years since the chip situation, it's almost turned on its head where Q1 is the worst, gets better in Q2, improves again in Q3, and by far the best quarter is Q4. It is those items we had talked about being commercial recoveries and the engineering. Emmanuel, as you said, you are getting the full benefit of all your CI activities as well. Got it. So then shifting to the tariffs discussion, how are you thinking about the near-term tariff risk for Magna? And then are there pass-through mechanisms or other mechanisms that would allow Magna to offset some of the cost? Yeah, maybe just not to bore with some data, but big picture, we obviously have a big Canadian footprint, which is a little bit different than a lot of the people you spoke to today. Big picture, we have about $4.5 billion of sales from Canada from our plants. Of that $4.5 billion, about 70% is shipped into the U.S. In Mexico, we have sales of about $5.5 billion, and only about 25% of those sales are shipped into the U.S. All that being said, the way our contracts are structured is the customer, in virtually all these situations, is our customers pick up at our dock. What that means is they're responsible for importing the product, carrying it over the border. The customer is responsible for paying tariffs in that situation. Our exposure to tariff is if we have a plant, let's say in Michigan, and we're buying product from either Canada or Mexico and importing it. That's where we're working through. Obviously, as you go down the tier, if we're buying something from a local supplier in Michigan, where are they getting their product and so on and so on. As far as protections on the pass-through, there are a fair amount of pass-through protections. Steel, aluminum would be by far the biggest, where 85% plus of our steel is on customer resale programs. You are protected in those situations. I don't want to downplay the size of the issue here. This is an industry-wide issue that, my personal opinion, I don't think the industry has the margin or the liquidity to absorb for an extended period of time. That is on the metal sides. In terms of some of these direct tariff exposures, if you are actually bringing a component across the border and supplying a U.S. plant, would it be a discussion with your customers around recovery? Absolutely. We would have to go to our customers' broker. We would have to be the importer of record. Our expectation, Emmanuel, is that we have to, we do not have the margin to give in this situation. Our expectation is, and our plan, and our customers are well aware, is we are going to be going to them for reimbursement. Longer term, do you foresee Magna or your OEM customers reshoring production to the U.S. from Canada or Mexico? I think it's probably going to vary by product. There might be some short-term situations, smaller pieces that they can move. In all, the facts that we've seen is we're not really seeing customers come up with RFQs where they're changing the sourcing of where they are going to produce or where they expect us to produce. From their expectation is they want a part, pick a spot somewhere in Indiana, Michigan, and we're going to say where we're going to source it from. It's going to be the landed cost to them and what's the lowest risk to them. We're going to probably see that more on the smaller products. On the big capital-intensive type products, we haven't had any discussion. When I say capital-intensive, I'm talking frames, transmissions, transfer cases that we haven't had discussions about moving products across. One of our biggest programs is the T1 truck, which is the GM's full-size vehicles, whether it's a truck or an SUV. They are producing over a million of those vehicles. Every single one of those vehicles requires a frame. Every single one of those frames are produced in either Canada or in Mexico. These are 1 million sq ft facilities. These are the size of the decisions people are talking about. The capital related to it is so significant. I do not think there is, forget about the time. We are probably talking three years to relocate the product. This is driving a lot of costs, and it is going to drive a lot of costs for North American consumers. Yeah, that's great color. Shifting gears to your free cash flow, you're guiding to $900 million of free cash flow this year. That's down about $150 million at the midpoint. That is despite taking CapEx down by $500 million and then also $200 million lower Megatrend spend. Can you provide us more context on the free cash flow decline this year? What are some of the main drivers there? I think the decline, you hit it bang on. We have the pickups on CapEx being down from 2024 into 2025, and some of our other asset spending, which is related to customer-owned tooling in the facilities, is down as well. We peaked out in 2024. Going against us is we do have sales and EBIT coming off as per our guidance. The one real big move is our working capital performance in Q4 of 2024 was really strong. We finished the year with about $250 million of extra cash in our books. Emmanuel, I take for granted, but we had guided $600 million-$800 million of free cash flow for 2024. We finished the year just over $1 billion. That extra, we have pulled it from 2025 into 2024. Louis and I are more focused on our two-year cash flow. How are we executing against that number? We're relatively in line, maybe down $100 million-$150 million. Got it. On the topic of share buybacks, you've authorized repurchases worth up to 10% of the float, but with $700 million likely allocated to deleveraging and $600 million for the dividend, the math would leave probably little room for buybacks, at least now for this year. Would you, I guess, are we missing something or how should we think about that opportunity for this year? Maybe just to clarify, the 10% authorization, that's about 28.5 million shares. That's the maximum amount that we can repurchase under the NCIB rules in Canada. That provides us flexibility to repurchase shares. It's not meant to represent the number of shares that we intend to purchase. We purchased about 4.5 million shares in 2024 for about a couple hundred million dollars and another $50 million or 1.2 million shares early in the first quarter. That number you had for dividends of $600 million, we were about $540 million last year, will be less than $600 million in 2025. As Pat said, we started the year with excess cash of about $250 million. I think in terms of our leverage ratio, it's going to be more about EBITDA growth over time rather than net debt repayment, which means we'll probably go to the market and access debt at some point. What all this means together is that we will have the free cash flow to repurchase shares in 2025, subject to the uncertainties like the tariff impacts that we're having right now. Okay. In terms of magnitude, is there an expectation that this would be, again, subject to tariff, but is there an expectation that this would be a larger purchase than 2024 or directionally you're comfortable with your pace so far? I think the pace in 2025 is probably muted at this point just because of all the tariff situation, as Louis was saying. The Canadian rules, when you go in and say we're going to buy up to 10%, they don't want you to come in and buy two. The expectation is you are coming in and buying at minimum 50% of that number. Our expectation is we're going to come in, do the purchases. As Louis said, we bought $200 million effectively in six weeks. We can come in and do those acquisitions fairly quickly. We do have to really work through this tariff situation. On the tariff situation, we had a lot of calls today, obviously, and I just can't see it lasting for an extended period of time. Got it. Shifting to your 2026 outlook, 5.5% revenue growth, 30% EBIT growth. Essentially, the message from it is 2025, in a way, is sort of temporary headwinds. With the deteriorating inventories that are broadly now aligning with demand and then some structural challenges in Europe, it's unclear why conditions should materially improve as we move into next year. I guess, what are you looking at that gives you confidence in the rebound as we move into 2026? If you look at our expectations for volumes, for production, it's pretty modest. We're basically expecting that in each of our key markets, our volumes in 2026 are only going to get back to 2024 levels. We do have them down this year. We do expect some recovery in 2026. On top of that, we have the launch of new programs. Between the volume uptick in 2026, which, as I said, is fairly modest, and the launch of new programs and new content, we do have solid sales growth in 2026 compared to 2025. We're expecting good incrementals on that sales growth. I think that's an important factor that's driving our results. On top of that, we have the operational excellence activities, which have contributed about 100 basis points through 2023 and 2024. These self-help activities are expected to continue to be meaningful contributors for margin in both 2025 and 2026. On top of that, we are taking engineering down. Engineering spend is coming down in 2025 and again in 2026. I think all of that together, if the volume set that, as I said, is relatively modest, if that comes through and the mix is relatively in line with what we expect, that plus launching the programs and what we call self-help is really what's driving our margin expansion and our confidence in that. What needs to happen for the free cash flow to improve from the $900 million this year to $1.5 billion next year? I guess let's start with that. Yeah, I think Louis has already gone to the margins. We're obviously expecting margin improvement. The other piece beyond the margin improvement is we're seeing there's some mix change between our system components group and our CVA business. Big picture, we're seeing sales growth of systems up about $2.4 billion at a regular incremental margin. On top of everything Louis is talking about with the self-help, we're just dropping more EBITDA down as we launch business and volumes recover somewhat. We're talking 300,000 units in North America, but it's primarily launch-related and operational execution around those. Beyond that, what I talked earlier about where we pre-collected some working capital in Q4 of 2024, by default, we have a use of cash in 2025. 2026 should come back more to normal levels. Those are the big drivers on the free cash flow. CapEx is relatively flattish, down a little bit. Those are the three big buckets of moves. As you get into that situation and we move up in our EBITDAs coming up, by default, we're going to start coming back into our leverage ratio, as Louis said earlier. That's going to give us flexibility to come back into the market and look at capital allocation between return to shareholders and continuing to grow the business. I just want to be clear with everybody, our capital allocation strategy hasn't changed. Number one, you come in, number one is we have the right portfolio that we're going to have for our business. When we look at our balance sheet strategically, we have to have a high investment grade rating to withstand. Imagine that in a situation like tariffs, we might be living right now, right? We can withstand a body blow and take a notch down. Our view is we're going to come out the other side, we get back into our leverage ratio where we expect, and then if there's not growth opportunities or appropriate returns, we return it to shareholders via buyback. Our strategy hasn't changed from that perspective. How much Megatrend spending is there left to pull back on? Obviously, it's been a positive factor, I guess continues to be. Is there some of that in 2026 as well? I think, and Louis jumping on, on the Megatrend spending, there are two distinct buckets. One is Louis was talking about was what type of Megatrend spending is going through EBITDA or through our P&L, which is primarily engineering related to eDrives and to ADAS systems. We had talked about bringing that number down from last year's expectations to today in the range of about $500 million over three years. We are executing against that number slightly ahead. The other place where you have Megatrend spending is on the capital side, and that is primarily related to battery trays. We are seeing a step down in that spending from 2023 to 2024 to 2025, and again, a smaller decline from 2025 into 2026. I think the positive when you look through all these is not only have we spent the money, but when BEVs volumes do recover and they're expanding, they're just not expanding as quick as we thought, our spend's behind us. All we have to do is ramp up our lines, and we should have really above average pull-through on those programs. Now, you and other suppliers have absorbed significant cost headwinds in recent years. Where do you stand with regards to cost recoveries? Is it mostly recovered at this point, or is there more to go after? Unfortunately, there's more to go after just in the sense that just to level set everybody, we have significant headwinds. Our net headwinds related to inflation alone is roughly $600 million. That's net of customer recoveries. On the cost side, we're really seeing commodities normalize, but more importantly, from our point of view, was the labor rates have really stabilized. We go into 2025, 2026, we're seeing labor inflation more at traditional levels just because CPI has been coming off. On the flip side, Emmanuel, this is putting all the tariff discussions off to the side, right? That's going to be a completely separate bucket. We do have other costs that we have to go over. Louis talked earlier about some of the commercial recoveries. These are outside of the cost side of it. This is where volumes have dropped significantly from where we had expected them to be. We would capacitize a line, we'd build a facility, they say they're going to build a number, and then we don't. We have to go back to the customer, we have negotiations. I think that reflects positively on Magna that one, the customer wants to work with us, and two, we're able to go back and have that relationship that they're willing to reimburse us because we were such good partners. As we move forward, inflation really started to hit us in 2022, particularly with the war in Ukraine. As we keep launching new programs after that date, they're all coming on with current economics, right? Your margin's resetting. You have an old program rolling off with upside down economics, and then when you launch, they come in at current economics. It is going to be a combination of repricing, time, and then volume stability, in particular in the EV space. I wanted to ask you a couple of questions on the potential for strategic moves. How does Magna view alternative ways to create shareholder value? I guess, first of all, would a company benefit from a more focused, smaller structure, or are there any strong synergies that exist within the current portfolio that justify the scale and really benefit the company? Yeah, I think what Swamy, I would say, reiterated at the call was how we evaluate our product portfolio. We did not wake up in 2025 and have this portfolio. This is a very strategic, thoughtful process where we go through and say, we want to be in this part of the car. The reason we want to be in this part of the car is because there is margin in it, it is growing. For example, you would not want to get into an engine at this point in time. You would rather be in an eDrive type space where the portfolio is moving. If you look backwards, I would say we have exited our interiors business, we have exited our fluid pressure control. Those are the two big ones, but we have also exited manual transmissions in Europe. We have exited a bunch of paint capacity in Europe. The flip side is we're growing in transmissions or eDrives through the Getrag acquisition and then in the ADAS space. We're always playing with our portfolio. As far as what's the glue that keeps them all together, obviously everybody talks about the synergies, whether there's revenue synergies, there's purchasing synergies that aren't product specific. We buy a lot of steel that goes into seats, it goes into exteriors, it goes into powertrain. There's purchasing, then there's engineering synergies across the products that you can be smart with your engineering resources. Then you get into the traditional SG&A type synergies, whether it's public company cost, treasury, tax, and then you get right into some of the tax planning strategy. There's a bunch of glue that holds it together. Now, all that being said, if we have a situation where we can grow in a certain area because there's an opportunity or pivot from a different area, that's something we consider. It's an annual process we go through. I apologize, I'm giving you a really, really long answer here, but it's not something that's new to Magna. This is something that we've done, I would say, since at least 2015 when we became a non-controlled company. The current challenging environment, would that prompt you to be more of a consolidator in certain areas or alternatively sort of potentially become leaner? Or is your answer essentially that you're constantly doing both at the same time? I think you're doing both for sure. I think to be a consolidator, we're so big. By default, the way we approach it is we want to be in a market that's growing or stable, and we have an ability to have a strong selling position, which in our world would be your top three, four by region or global, depending on how we measure it. By default, we already have a strong position in a lot of these spaces. If we go to grow, there's a lot of antitrust and a lot of customer concerns in that growth perspective. You have to be smart. You could grow in certain product categories, but we'd really have to be thoughtful about it. At the same time, we've gone through a significant acquisition in Veoneer. Magna has done, I've been at Magna 25 years, Louis has been here 27. Getrag and Veoneer are the two biggest, only two acquisitions we've ever been around that are over $1 billion for perspective. We are much more block and tackle, bolt-on type acquisitions, greenfield, and grow from the bottom up. I think that's been our track record. I think it's a very successful track record. Like I highlighted as well, we've exited products where there's, like in interiors, there's always going to be an interiors to the car. However, it was very fragmented, very hard to make money. We had an opportunity, we exited. We are not going to be giving product away. If there's a deal that can be had, we will have to consider it. Just going through a few of the specific areas of the business, you've been outperforming the market in China. What's driving growth in the region for Magna? Can you just remind us your local versus global OEM exposure? Yeah, I'll take that. You know, other than our Exteriors business, where we are relatively small compared to our position in other areas, all of our product areas are contributing to the growth in China. We've really been focused on providing customer solutions that are more difficult to do rather than being me-too products, things that are more complicated. Those are the areas that we want to compete in. In terms of our position, our sales last year was about $5.6 billion. If you were to add on there sales of unconsolidated entities, that would be over $8 billion. Pretty big size business. People always say, well, we're small in China, but $8 billion on a managed basis would be a big public company. In terms of our position with the different OEMs, I'd say if we went back 10 or 15 years ago, our customers would have been predominantly the international OEMs. Last year, we were about 60% of our consolidated sales with the domestic China-based OEMs. That really is the big players in China that make up the vast majority of that number. In 2024, our sales grew by about 50% in China. We have really been able to, as the customer shares have shifted, continue to grow. We have not kind of had to shrink because the transition to the 60% has not happened by shrinking the business. It has actually happened as we have grown in business pretty significantly. In Europe, how much restructuring is needed there over the next few years to realign the footprint? Yeah, that question came up a few times today, earlier today. We've been restructuring and right-sizing our footprint in Europe for 10 years or more now. We exited our business in Russia in 2023. In 2024, we had a bunch of restructuring actions that took place. Our outlook includes additional restructuring that's already embedded in our numbers and our cash flow. If you look at our volume assumptions, effectively, we have no change in production between 2024 and 2026. We don't really see the need, let's say, for a large incremental restructuring plan that you've seen some suppliers announce. That just isn't, we've been doing it over time. We will continue to do it. I think that our footprint is kind of in line with kind of the modest vehicle production assumptions that we have in our plans. Your complete vehicle assembly business, is this still a gross business? What is the industrial logic for it being or remaining a part of Magna? Yeah, I think just to level set, I think our Steyr, I'm going to call it Steyr, I apologize, our complete vehicle business is, it's lumpy by nature. I never would have called it a growth business. I would say our facility in Austria is basically 150,000 units of production capacity, and it's really constrained by the paint line. You might be able to flex it up and down. If you look back, I would say over the last 10, 15, 20 years, we've operated that facility at about 110,000 units of production. It's very lumpy when it comes in and out. Right now, we're in a situation where we have programs rolling off, but that facility is not meant for high production. It's about selling flexibility and selling speed to market. I think we've proven in the past, it is one of the number one quality facilities in Europe. We have opportunities where we can fill it. You can fill it, obviously, with traditional customers. There's also a focus on looking at, is there opportunities with Chinese OEMs or other OEMs coming into that facility that you can quickly access a market? Those are the areas we're looking at. I think when you think about industrial logic for Magna, Steyr is a strong business. It's been a strong business for a very long period of time. It's very different than our other businesses in the sense that the contracts are even structured differently, that it's a much less risky business in the sense that a lot of the capital is paid upfront. Even if volumes do not exist, you have an ability to recover all your fixed costs. It is a much more different business. The other piece I would think about when you look at our content, as far as why is it part of Magna, is our European content is much higher on vehicles that are produced in our CVA business. We have more fascias or mirrors or powertrains on those types of facilities. There are revenue synergies between Steyr and the rest of our businesses. We typically have more content opportunity on vehicles that are produced in that facility just based on location and kind of our early look at some of the programs that are going into those facilities. Got it. Maybe just finally, if we're sort of entering this stronger for longer combustion engine environment in a way, what would that mean for Magna? Is this helpful? Is this unhelpful? Are you indifferent? It's probably somewhere in between. When you think about our product portfolio, 85-90% of it is agnostic to powertrain. So, we're not really building parts for an engine. We call it our powertrain group. It should be called a driveline group. That's really as close as we get to being EV dedicated. It's really an interesting situation, Magna, where we're taking an existing ICE facility that built either a transmission or a four-wheel drive system, and you're transitioning it to an EV. We're not really spending new dollars on core capital. I think we have that flexibility, and it's about picking the right platforms to be on. Everybody's been down on EVs, but EVs are coming. Is there a delay in that curve? Probably. However, our sales are relatively by region in line with EV penetration rates, whether it's in China, Europe, or North America, and we expect it to grow. We never really had expectations of 48% penetration in North America. We were always globally in the 33-34% by 2030. It has come off a little bit. Obviously, I think the rest of the industry, our customers are catching up to where we're at. Now, with all the noise that's happening in Washington, it might be somewhat delayed. I think there's a path to get there. As far as your core question or with the ICE being around longer, I think our portfolio really works well to that extent that I think Magna and every other supplier wants a stable transition from program to program. What we've been seeing for the last five years, starting with COVID, is a whole bunch of whip-sawing on programs, chips. I think we're going to go into 2025 and into 2026. Louis talked about this on the margin that we feel it's much more stable and we're able to execute against. Louis and I are just looking for a normal production year, even if it's at 15.5 million units or 15.1 million units in North America. I think we can execute against that. I think that's really what we're looking forward to. Yeah, I'd say we're confident that with our portfolio, we're well positioned to support future customer programs regardless of what the powertrain configuration is. Great. That was a really helpful conversation. I truly appreciate your time and insights today. Thanks so much for joining us. Yep. Super. Perfect. Thanks everyone for tuning in. Thanks. Thanks, Emmanuel. Have a good day. Take care. Bye everybody.