Magna International, Inc.

Thank you. And as a reminder, this call is being recorded. I would like to hand the call over to Louis Stonnelly, VP of Investor Relations. Louis, please go ahead.

Thanks, operator. Hello everyone and welcome to our conference call covering our first quarter 2025 results. Joining me today are Swami Kodagiri and Pat McCann. Yesterday our board of directors met and approved our financial results for the first quarter of 2025 and our updated outlook. 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, 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 the reminder slide included in our presentation that relates to our commentary today. With that, I'll pass it over to Swami.

Thank you, Luis. Good morning, everyone. I appreciate you joining our call today. Before we start, I wanna express our deep sadness here at Magna with the passing of our former CFO, Vince Galifi. Vince was not only a remarkable leader, but also a cherished colleague, mentor, and a friend to me and many of us. Vince's contributions to Magna for his 30-plus year career were invaluable, including playing a crucial role in shaping our financial strategies, providing stability, and ensuring our disciplined, profitable growth. Many of you listening in today benefited from his knowledge, wisdom, and insight. As we mourn his loss, we also celebrate his life and the profound influence he had on Magna. There are some notable takeaways from the quarter that I would like to highlight before getting into some of the details. We are pleased that our Q1 results came in ahead of our quarterly planning cadence, mainly reflecting strong incremental margin on higher sales. You may recall that in our February call, I mentioned that the first half of 2025 would be weaker than the second half, and of the first two quarters, Q1 would be weaker. We returned $187 million to shareholders in the first quarter in the form of dividends and share repurchases. Despite increased uncertainty due to the current tariff environment, we have updated our outlook, which includes higher sales largely due to foreign currency translation, partially offset by slightly lower vehicle production in North America, and a modest reduction in margin, mainly due to the higher euro and decremental margins related to the North American volume reduction. We continue to work closely with our customers to mitigate the tariff impacts and adjust in this rapidly evolving environment, focusing on what is under our control, including cost containment efforts. And we have clearly communicated to our customers our intention to pass on any unmitigated incremental tariff costs. We continue to win new business and advance automotive technologies. We are collaborating with NVIDIA for next generation scalable active safety and autonomous driving systems, as well as other applications. We have been awarded a new complete ADAS system with a North American-based global OEM. And we are supplying a two-speed dual motor eDrive with advanced off-road technology for Mercedes-Benz. Our customers and the industry continue to recognize Magna for excellence in launch and innovation. We recently won GM Supplier of the Year and Overdrive awards. And Automotive News recently selected our AI-based thermal sensing technology as a 2025 pace pilot innovation to watch. As I said earlier, the industry is facing a high degree of uncertainty as a result of the tariff and trade environment. Let me frame tariffs in the context of Magna. Last year, our North American business was about $20 billion or less than half of our global sales. In 2024, we imported roughly $2.5 billion or roughly $2 billion of goods from countries, including Canada and Mexico, that are subject to tariffs, which would result in roughly $500 million in gross tariff costs. Based on our analysis to date, 75 to 80% of our parts crossing the border are already USMCA compliant, which puts our 2025 annualized direct tariff impact estimate at about $250 million. We continue to evaluate options that will further increase USMCA compliance to mitigate tariff impacts. In some instances, it will require design modifications, validation, and or customer approvals. We will continue to evaluate the full scope of these opportunities. As a result, we are highly focused on working with customers to consider further mitigation opportunities, utilizing government remission programs where appropriate, continuing cost reduction programs already in place, and remaining disciplined with capital spent. As I said at the outset, we expect 100% of unmitigated incremental direct tariff costs to be recovered from customers. Next, I will cover our updated outlook. Uncertainty in the current business environment caused by tariffs and other trade measures has made forecasting more challenging than normal. Our outlook reflects our strong first quarter performance and near-term OEM production release information, including announced production downtime at certain OEM assembly facilities. Our production assumptions do not contemplate the potential impacts of tariffs and other trade measures on vehicle costs, vehicle affordability, or consumer demand, nor the impact of these on vehicle production. Relative to our previous outlook, we have reduced North American production by about 100,000 units to 15 million, held Europe production unchanged, and have raised our China production assumptions by roughly our Q1 outperformance to 30.2 million units. We also assume exchange rates in our outlook will approximate recent rates. We now expect a higher euro and Canadian dollar for 2025 relative to our previous outlook. The increase in our sales range is predominantly associated with foreign exchange translation due to the higher euro relative to the US dollar, partially offset by lower vehicle production in North America, particularly with respect to certain programs with high-magnet content. The lowering our EBIT margin range reflects the margin dilutive impact of euro-US dollar translation, as well as decremental margin on the lower sales associated with the volume reductions in North America. We increased our tax rate to approximately 26% from approximately 25% mainly due to mix of earnings. We expect capital spending to be in the 1.7 to $1.8 billion range, down slightly from 1.8 billion previously, reflecting our continuing efforts to defer or reduce capital wherever possible. And our interest expense, net income, and free cash flow ranges are all unchanged from our last outlook. In addition, we are providing some helpful financial modeling guidance with respect to MAGNUS. Our average content per vehicle in North America is approximately $1,300. And we would estimate incremental and decremental margins in North America to be in the 15 to 20% range at the MAGNUS level under normal conditions. We have also seen relatively volatile foreign exchange rate swings over the past few months. As you model sales, keep in mind that a one cent change in the euro-USD rate has about a $110 million impact on annual sales with a margin below our corporate average. And a one cent change in the Canadian to US dollar is about 50 million in annual sales with a margin at about our corporate average. Lastly, we are proactively evaluating costs and capital. I would like to reiterate that our guiding principles remain the cornerstone of MAGNA. A long-term ownership mentality that starts with our culture of accountability and alignment of interests at all levels of the company. Managing our portfolio under a consistent set of criteria and dispassionately assess our product lines in terms of the markets, market positions and returns. Maintaining a strong balance sheet to have the financial flexibility to manage through the cyclicality of our industry and a capital allocation strategy that entails a long-term balance of investing for profitable growth together with returning capital to shareholders. Regardless of where we are in the cycle or challenges we are facing, these overarching principles govern the way we manage MAGNA for long-term success. With that, I'll pass the call over to Pat.

Thanks, Swami, and good morning, everyone. As Swami indicated, we delivered solid first quarter earnings ahead of our expectations. Recall that we indicated on our February call that we expected our 2025 earnings to be lowest in the first quarter of the year. Now comparing the first quarter of 2025 to the first quarter of 2024. Consolidated sales were 10.1 billion, down 8% compared to a 3% decline in global light vehicle production. Adjusted EBIT was 354 million and adjusted EBIT margin was 3.5%. Adjusted EPS came in at 78 cents, down 28% year over year, primarily due to decremental margins on lower sales but ahead of our expectations. And free cash flow used in the quarter was 313 million, ahead of our expectations and compared to 270 million in the first quarter of 2024. Let me take you through some of the details. North American and European light vehicle production decreased 5% and 8% respectively. And production in China increased 2%, netting to a 3% decrease in global production. On a sales weighted basis, light vehicle production declined 5% from the prior year. Our consolidated sales were 10.1 billion compared to 11 billion in the first quarter of 2024. On an organic basis, our sales decreased 6% year over year for a negative 1% growth over market in the quarter, in part reflecting negative production mix from lower D3 production in North America, lower light vehicle production, a decline in complete vehicle assembly volumes, including the end of production of the Jaguar E and I-PACE and Gratz Austria, the end of production of certain other programs, the divestiture of a controlling interest in our metal forming operations in India, the impact of changes in foreign exchange rates and normal course customer price givebacks. These were partially offset by the launch of new programs, higher commercial recoveries, and customer price increases to recover certain higher production input costs. Adjusted EBIT was 354 million, and adjusted EBIT margin was 3.5%, down 80 basis points from Q1 2024. The lower EBIT percent in the quarter reflects positive 60 basis points from operational items reflecting operational excellence activities, lower engineering spend, and lower net input costs, partially offset by higher new facility costs. Negative 15 basis points related to lower equity income as a result of lower net favorable commercial items, higher net transactional FX losses, and reduced earnings on lower sales, partially offset by lower launch costs, all with respect to certain equity accounted investments. Negative 10 basis points for tariff costs paid out, but not yet recovered from customers, and volume and other items, which impacted us by negative 150 basis points reflecting reduced earnings on lower sales, and lower net transactional FX gains. In net discrete items, higher net favorable commercial items was completely offset by higher net warranty costs, and higher restructuring costs not called out as unusual. Interest was essentially in line with last year. Our adjusted effective income tax rate came in at 25.7%, higher than Q1 of last year, primarily due to higher losses not benefited in Europe, unfavorable foreign exchange adjustments for US GAAP purposes, and a change in the mix of earnings, partially offset by favorable changes in our reserves for uncertain tax positions. Net income was 219 million compared to 311 million in Q1 2024, mainly reflecting lower EBIT, partially offset by lower income tax, and lower minority interest. And adjusted EPS was 78 cents compared to a dollar eight last year, reflecting lower net income, partially offset by fewer diluted shares outstanding. The fewer shares outstanding largely reflects share repurchases in the fourth quarter of 2024, and the first quarter of 2025. Turning to a review of our cash flows and investment activities. In the first quarter of 2025, we generated 547 million in cash from operations before changes in working capital, and used 470 million in working capital. Investment activities in the quarter included 268 million for fixed assets, and 148 million increase in investments, other assets, and investment activities. And we used a total of 313 million in Q1, better than we were forecasting, and compared to 270 million in the first quarter of 2024. And we continue to return capital to shareholders, paying 136 million in dividends, along with 51 million in share repurchases during the first quarter of 2025. Our balance sheet continues to be strong with investment grade ratings from the major credit agencies. At the end of Q1, we had just under 4.6 billion in liquidity, including about $1.1 billion in cash. Currently, our adjusted debt to adjusted EBITDA ratio is at 1.92, better than we had anticipated coming into the quarter. In summary, we had solid financial performance in the quarter, ahead of what we had expected. We returned 187 million to shareholders in the quarter in the form of dividends and share repurchases. We updated our outlook, excluding the impacts of tariffs, which includes higher sales, largely due to foreign currency translation, partially offset by lower volumes in North America, and a modest reduction in margin, mainly due to the higher euro and decremental margins related to the North American volume reduction. And we are working closely with our customers to mitigate tariff impacts and adjust in a rapidly evolving environment. Thanks for your attention this morning. We would be happy to take your questions.

We will now begin the question and answer session. If you would like to ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. And your first question comes from the line of John Murphy with Bank of America. John, please go ahead.

Good morning, guys. Very sorry to hear about Vince. It's tough news for all of us. I think we all learned a lot from him and he was a great friend. So that's a rough way to start the call. Thoughts are out to all you guys. Thank you. I guess first here, maybe kind of thinking sort of mid to long-term swarming. On the seating business, it just seems like even adjusting for tariffs, the business remains kind of tough. I'm just curious, as you think about that business, mid to long-term, if there's something you need to do on a micro basis, organically, or do you need to get larger scale? Because there's a lot of other folks out there that are kind of tripping over that business as well. And it seems like it should be an okay business, but it seems like you just can't get it to turn the corner. What are your thoughts there on seating?

Good morning, John, and thanks for your comments. On the seating, I don't know if you caught it, the big topic, the one time which was behind us was a 30 million magnitude warranty topic that's included in the quarter right now and that's behind us. Operationally, continuing to look at what we had last year and what we had in the past, it continues to track. Given the volatility and the program that we talked about in South Carolina and it comes on board for next year, the macro variables that we talked about in seating as a business hasn't changed. From an operations perspective, the execution plans that we have been talking about stay on track. But on the bigger context, not just to seating, John, as I mentioned before, we continue to look at all product lines, so that's always a part of the process.

Okay, and then just a second question as you think about tariffs, and I hate to harp on this. Yesterday, the Customs Border Patrol, they put out a sort of a notice that seems to be an indication that USMCA compliant parts are gonna remain on tariff beyond sort of the 90 day review and certainly beyond May 3rd and it seems like that may be in perpetuity. I'm just curious what you're hearing there and if that's correct interpretation because that would create some pretty extreme relief for you guys here, at least in North America.

John, I read that report and you're absolutely right. I think I mentioned in the call here about that's where the focus has been. We have had work streams looking at in intricate detail of every part that crosses the border. We are about between 75 to 80% USMCA compliant, a lot of discussions on how to take that percentage up. Yes, definitely that gives a lot more certainty and relief in our planning process. And that is the assumption that we are going with and hope to get some more clarity and certainty on that decision.

And maybe just to follow on that, I mean, as far as schedule changes and program launch changes, what have you heard from automakers so far? It seems like everybody's kind of trying to plow ahead without making significant changes yet. Have you seen big changes in short-term schedules or potential program launches for the second half of this year or maybe even into next year?

John, we have not, not just looking at releases. So first to address the releases, right? April seemed pretty aligned with our planning. May from a visibility perspective also looks normal, but we've always have been thinking about depending on any announcements that might change pretty quickly. But as we see today, it looks pretty aligned. And obviously we don't stop just by looking at the data here, we have been in conversations with OEMs at least two or three times a week at my level, even to get a understanding and not depend only on the releases. Overall, we have not seen any changes in terms of planning or in terms of production schedules, at least from the programs that we are involved with. But even at a macro level, we are not seeing it. A lot of discussions on how to get more USMCA compliance for sure, but that's where the chips fall today.

And then just lastly, China seems like it's showing some relative strength and absolute strength relative to expectations. Can you just remind us of your footprints or your mix of customers there, domestic, Chinese OEMs versus international?

Yeah, it happens to be, we were in China about just three weeks ago. About five and a half billion dollars of our revenue is from China. Of that, just about over 60, 65% of the business is with Chinese OEMs. And they are, I would say largely drawn with five to six customers, the major Chinese OEMs there. If you remember, we started in China predominantly with all the Western OEMs and we've been able to move that mix from 10% to 65 plus percent are in that range today. So we continue to gain traction. Even last year, we grew at 15% in China compared to the roughly 5% that China market is going. So we feel pretty good about it. We are deliberate which product, which customer, but we continue to gain or improve our mix there.

So I mean, I thought just about a year ago that was 50-50. I mean, did it move that quickly? Or was my number kind of different? It did move that quickly. No, John,

your numbers are correct. We continue to make good progress and have traction. Great, thank

you very much,

guys. Thanks,

John. And your next question comes from the line of Tommy Chan with BMO Capital Markets. Tommy, please go ahead.

Hi, good morning. Thanks for the question. First, I just wanted to clarify. So Swami and Pat, the annualized tariff exposure this year, you said 250 million. So I might interpret that as essentially the COGS exposure from you importing into your US plants, parts from Canada and Mexico. And are you saying this number, you believe you would get 100% recovery from your customers?

So Tommy, good morning. First, yes, what you said, the 250 million we're talking about where we are the importer of record. Beyond Canada and Mexico. Beyond Canada and Mexico. And then

China and what not.

China and Europe, although those numbers are smaller, but it's a very comprehensive list. Second, obviously our first initiative is to mitigate that as much as possible with all our internal actions of resourcing, rebalancing, continuing to work with our customers to increase the US and Mexico funds. Some of it might need design modifications or validations or the production part approval process. And we're working with them and we continue to. So now anything that is remaining past all those efforts, yes, our intent is to pass it on to the customer, Tommy.

Okay, understood. And yeah, on that, with respect to increasing USMCA compliance and also I'm curious if at this point, well, I think first of all, you said a lot of discussions around that, increasing USMCA compliance with your customers. I'm also wondering most recently after we've got a little bit of relief and clarity earlier this week, do you also believe your customers may be thinking more about increasing US content, not just USMCA compliance? And can you talk a little bit more about between the two of them, what that means for you, incremental capital investments? What do you need to do? How does that impact you if both of those things continue from here?

Yeah, I think Tommy, it's only fair to say that all scenarios are being considered. But from what we're hearing given in my discussions, I think it is not a knee-jerk reaction. Given the capital allocation and the magnitude of what's being discussed, they're looking at very carefully. If there is a rebalancing possible, I think that is the first option. If there is a resourcing, that is also an option. I haven't heard in all the discussions that I'm having with all the customers that anybody is looking at a knee-jerk reaction. They're looking at it and they've been very collaborative and sharing data with us. So that's on one side of things. Magna has a footprint in Canada, in Mexico and in the United States. As you can imagine, there is not capacity available at any point of time, but is there a possibility of rebalancing some of the things? Yes, that we continue to look at, but again, we cannot do it unilaterally. We have to work with our customers to make those changes. So that's how we are proceeding to mitigate any impacts that are there.

Okay, got it. And my last question is on your shared buyback, could you confirm at this point, I think you'd said earlier that a month or so ago, you've paused it. I just wanna understand at this point, how are you thinking about the buyback? Is that still on pause given the macro uncertainty? Is it also related to where your leverage currently is at and where you expect that going forward? Thanks.

So Tammy, yes, you're right. We talked about pausing and we've always talked about it as a strategy, right? In managing our balance sheet. To answer your question very directly, yes, it is paused given the uncertainty that we have in the market. But as you know, we had the NCIB about to purchase 28.5 million shares approximately. If uncertainty goes away and there is a lot of clarity, there is always the possibility to look at it later in the year for now, given where the market is and given where uncertainty is, yes, we are paused.

Thank you. But also,

Tammy, the leverage ratio as Pat mentioned is on track and we continue to make good progress as discussed. And I think we're just a little bit ahead compared to where we're planning as Pat mentioned in the comments.

Great, thank you.

And your next question comes from the line of Dan Levy with Park Lace. Dan, please go ahead.

Hi, good morning. Thanks for taking the question. One of the first just asked on advanced program launch activity. What have you seen there? Has there been any change in the activity behavior of automakers on this front? Maybe you can just conclude in that. What's the tone and tenor of commercial discussions with the automakers right now?

Good morning, Dan. From a overall planning launch perspective, we have not seen any change, right? But in terms of sourcing, there is a lot of scenarios being discussed and talked through. And I think we are fortunate in a way to say that most of our major customers have had discussions with us because of the footprint and capacity and variability. So we are getting a viewpoint on that. So I wouldn't say it has slowed, but I think there is deliberation on the footprint and the cadence of the decision-making. But we are not really seeing a change in what we are going after in terms of business and how it's

being sourced. Okay, thank you. And then as far as the complete vehicle segment, if you could just give any color on the outperformance in the quarter, but also how should we assess the risk for complete vehicles given G-Wagon is a central program and there's some questions on the demand in the tariff environment as those are all exported.

Yeah, Dan, I think part of the outperformance has been based on how our complete vehicle assembly segment has the terms, right? So there is commercial recoveries as volumes go, you know, change because of how the terms are there. So that's one. And over the last year, we've been talking about restructuring and getting the cost structure of that facility to the current volume scenarios and the programs that we have had. We talked about some of the programs ending and some coming to an end in the 2026 towards the end of 2026. So we have proactively taken steps to restructure the cost base and we continue to see that flow through. On the Mercedes G-Wagon, I won't comment for our customers obviously, but you've seen the public statement of holding the price. But if there is a demand reduction for that vehicle in North America, I'm sure there will be an impact, but you've got to keep in mind the margin profile of that business is substantially lower than the normal magma average.

The only thing I'd add, Dan, is it comes back to the contracts while he's talking about there are fixed recoveries in it. So even if the volumes fall, we do have that fixed recovery regardless.

Dan, we continue to have discussions as mentioned with different OEMs for getting on additional programs and they seem, I would say, pretty encouraging,

Dan. Okay, thanks. If I could just squeeze one in just to clarify, the pieces of the business that are not USMCA compliant, those are which products or in which segments?

Dan, I think it's across. We haven't seen any significant point to make on one specific segment, right? I would say it's all across, but there's not a marked difference from one to the other, so it's kind of across magma. Great, thank you.

And your next question comes from the line of Doug Dunn with Evercore ISI. Doug, please go ahead.

Yeah, hey, Swami, hey, team. Just looking at the body and exterior segment here, margins were particularly weak. They were down from most of last year, from all of last year, actually. I understand there's some FX volume effect there, but in terms of timing, is this likely to be a first half or first quarter phenomenon, or is this something that could persist with the uncertainty that we're seeing? How do you see those margins progressing throughout the course of 25?

Hi, Doug, it's Pat. Sorry to interrupt, grab my numbers here, but I think your thesis, broadly speaking, is correct. We're operating where we expected to operate in the BDS group, so we came in at an EBIT number of 5.8%. We're seeing that increase as we progress through the year, and it'd be consistent with what we had seen last year. Remember, we're still in a situation where a lot of our commercial recoveries tend to be recovered in the back half of the year. That's probably gonna be amplified this year, given all of the volume uncertainty. So I think we're still expecting a strong margin performance in Q4 compared to the first three quarters of the year.

So it might be a cadence, but operationally and foundationally, the segment BDS is really doing well and continues to perform at the level that we're gonna see. No difference in the operations from where we had last year versus now, except volume and other things that Pat just talked about.

Okay, that's helpful. And then, as we can segue into my next question here, on slide 17, you mentioned those tariff costs that have been paid and not recovered from customers as a headwind. Is this gonna be the norm going forward where those tariff costs are treated similarly to your cost recoveries from your customers? Basically, it's magna fronting any incremental costs, and then you will be reimbursed in the future. Is that the correct way to think about this incremental tariff cost?

Yeah,

I think,

Doug, this is an accounting issue. It's not really the commercial side of it. Under the accounting rules, until you have a legal agreement with your customer for recovery, you have to expense those costs. The cost in the quarter were about $10 million gross from perspective. Obviously, we're pushing it close as quickly as we can, but that is, expect that same cadence as other commercial.

Awesome, thanks,

team.

Thanks, Don, Mr.

And your next question comes from the line of Joe Spack with UBS. Joe, please go ahead.

Thank you, everyone, and thanks for the tariff impact color. Sorry to go back, because I just want to understand some of the math here. The $2 billion of goods that cross the border, I get 25% of that's the $500 million. Then you're saying 25% of the parts are non-USMCA compliant, so how do you get to a $250 million impact? Is that because the compliance that percentage you gave is parts-based, not dollar-weighted, so you really mean only half the dollars are exempt? And then just to be very clear, I know you're not assuming any volume impact, but in the guidance, are you assuming in the revenue guidance that you recover that 250, I'm sorry, the half of that on an annual basis?

So I think to clarify, writing the map, there is also remission programs from governments, for example, under Canada, so that would offset some of the things that are there. And net offset remission is how you get to the 250 approximate number that you're seeing, Joe, and we are not including the volume impact, right? Is that your question? Well, yes, but sorry, but the

remissions would go further, right? I guess what I'm saying is just very simple math. If you're saying,

you

know,

500 across.

The remissions are included is what I'm saying. After remissions, we are having the 250.

Maybe we can take it offline, but because again, if 25% is not compliant, I would have thought the impact would have been 125 before remissions and remissions would bring it down further.

I think Joe, we can take it offline, but forget, don't forget that it's not all 25% across the board. We are importing parts from China and other parts of the world that have a higher tariff than 25%. Fair enough,

okay. And then the second question. Yeah, okay. I know the volume is not included. Oh, sorry, go ahead. Sorry, you also asked about the revenue. I know the volume impact from tariffs not included, but is the recovery of that, you know, let's say three quarters of that 250 included in the revenue outlook?

We've assumed in our outlook that at the EBIT level, we have zero impact from tariffs any residual is gonna be recovered from the customer. It's not included in revenues.

It's just as a cost recovery. Okay, so it's not in the revenue, but then you assume, but in reality it would be, but then it's zero impact EBIT.

I can't, it's gonna depend, Joe, on how we structure those agreements with the customer. It's gonna be more complicated than we can

answer just

yet. Okay.

And then I guess just on the, you know, when you look at some of this, the margin revisions by segment, you know, was mostly in BS and seeding. And I know Swami just said the tariff impact is, you know, mostly, or across sort of all segments. So is that really just a result of some of the softer one queue results?

So I'm just broadly speaking, Joe, when you look at the revenue changes from our outlook in February to our current outlook, midpoint to midpoint, we're seeing roughly about a $1.5 billion increase just related to bond exchange. And that's spread out quite evenly across our four segments. When you look at the pure, volume declines as, you know, just manufacturing activity, the bulk of that decline is in BS and we're seeing weakness in seeding. And the seeding is primarily related to announce shutdowns in April and May already. Okay, I appreciate it. Thank you.

And your next question comes from the line of Adam Jones with Morgan Stanley. Adam, please go ahead.

Thanks, Swami and Pat and everybody. I wanted to offer my condolences for the loss of Vince. He was a really talented, kind, humorous and gentle soul who left the world a better place than he found it. And those lucky enough to know him, his memory is a real blessing. And I think if he was listening to this call, from up above, he'd be saying, you know, just, all right, back to work, keep your head down and get through the challenges and the opportunities of the day. And I think he would have great confidence in the team. And I just wanted to offer my condolences to the Magnus family and his own family and children as well. And that's all I wanna say. I don't have any questions. So take back to the call. Thank you.

Thanks Adam. Thank you Adam. Appreciate it.

Pass it on to

Joanne and the family.

And your next question comes from the line of James Picari from Yellow with BNP Paribas. James, please go ahead.

Hi, good morning everybody. My question is on, Swami, you mentioned in your prepared remarks that the one queue exceeded internal expectations and the 2025 EVA range is unchanged. Ms. Kheris, do you still expect the first half to represent about 40% of the full year? This would imply something modestly above 500 million for the second quarter. I know tariffs, the timing of recoveries could swing the answer, but if you were to get full recovery in the second quarter, which I don't think is, I imagine it's pretty reasonable given that the parts rebate mechanism is now in place for OEMs and given Magnus critical role as a supplier to your customers. Just how are you thinking about that 40, 60 split?

I think James, the simple answer is yes. Based on all the visibility that we have, it will be behind us. And unless something drastically changes, and I notice that seems to be happening, I would say the 40% in the first half, 60 in the second half is still a good assumption, yes. Good, thank you.

And then my follow-up is just on buybacks. I think it was mentioned at a, Magna mentioned at a recent conference that typically when you get the authorization for a buyback, you want to, a company would typically want to buy back at least half of the authorization. That was something, again, mentioned at a conference, not necessarily my words. Just wondering if volumes overall for the industry hang in, you get full recovery or most recoveries for the tariff exposure that you have. Is that kind of the target? At least half of this authorization gets done

this

year?

I don't know about the comment about the half. I don't think James, it's from us, but like I said, when we look at sharing purchases, we always looked at it as a tool to give excess liquidity back to our investors and shareholders. But the most important thing is, operationally, how do you maintain liquidity and have the balance sheet and look at possible programs and opportunities even that come up in a normal course, like additional volume and programs from other places that customers might reach out to us, especially in terms of uncertainty like this. Beyond that, and that's the reason why we said we are paused, we have to see if everything returns back to normalcy. We would still go back to the NCIP authorization that we have and we have to assess our surplus at that point of time, given we are still tracking the way we want it to for our leverage ratio. I wouldn't say it's half or our intent when we start is to say we wanna get as close as to the NCIP as possible. Our intent is always that.

You should, thank you.

And your next question comes from the line of Shreyas Patil with Wolf Research. Shreyas, please go ahead.

Hey, thanks so much for taking my questions and my condolences to Vince and his family. Wanted to maybe just come back to the guidance for this year. I understand it does not reflect tariffs, but just to confirm you have revised it for the latest FX assumptions, I guess just looking at the Euro, for example, that alone would be maybe a 650 million benefit to revenue for this year, 35 million or so to EBIT, Canadian dollars and other benefit. And so is that correct? And if so, can you maybe just expand on the offsets that you mentioned? I think there was some headwinds on key programs that you noted.

So good morning, Shreyas. I think the FX, what they have taken is as dollar stands with respect to Euro and Canadian dollar today, right? Which is how we do every time. I don't know the exact number for how much of that is in Europe. Some of it is in Steyr, some of it is in Europe for sure. And that's maybe. I think we'd have to break it

down,

Shreyas,

but just broadly speaking, the FX impact including Q1 is $1.5 billion. Right. That's the role. Then the offsets are primarily where we're seeing some volume. Remember, just broadly speaking, our volumes in North America are down, just over a hundred thousand units. And that's primarily impacting our BES segment and our seating segment.

And we have taken what we have seen in terms of closures to date, right?

Okay. Yeah, so just, so basically revenue is up a billion and a half on FX and then it's offset by lower volume. That's the primary headwind. That's 95% of the answer, correct?

Yes.

Okay. Okay, understood. And then just maybe if you could help us just understand mechanically the process by which you would get recovery from the OEM. Because I understand your expectation is to get a hundred percent. I guess what we've seen in the past, I think about the semiconductor shortage from 21 and 22 is there is a bit of a lag in recovery. Would you expect this time around, if you're looking at tariff costs, to incur a lag through negotiation? Or do you feel like because this is an industry-wide problem, that the pace at which you could get recovery is much quicker?

So, Shreyas, even during the semiconductor crisis, yes, there is a little bit of time and it depends. We had three-day conversations. Some of it was directly with the customers. And keep in mind that we recovered pretty much 95 plus percent, if not 100% of the semiconductor at that point in time. So we have a process, is what I'm trying to say. And we will set up a process again, similar to what we have. So would there be a little bit of back and forth in terms of timing? Depends on customer and program and the magnitude of it, but we feel pretty confident. And I have to say the customers have been open to discussion and collaborative as we are discussing. But all I have to say is stay tuned.

Okay, thanks.

And your next question comes from the line of Mark Delaney, with Goldman Sachs. Mark, please go ahead.

Yes, good morning. Thank you very much for taking my questions and please allow me to pass my sympathies on to Magna and Vince's family on his passing. He's very detail-oriented and always quite generous with his time. So he will be missed for sure. Thank you. I did wanna speak a bit on schedules and understand your comments that customer production schedules have been stable. We speak to your broader set of customers though on their plans. Can you help us better understand what they're indicating they'll do with vehicles being exported and now seeing tariffs? And help us better understand why there wouldn't be a change to those exported vehicles, given the tariff dynamic. And then just overall, as you think about the second half, what's the confidence you have in production schedules tracking in line with your prior view for 2H?

Mark, it's a little bit of a crystal ball, right? When we made the comments, we are talking about releases that are in the system. And it also depends on what programs and platforms we are on, right? So our comments are very much dependent on that. And we haven't seen, I would say, any significant change compared to the normal course of going up and down a little bit. What you're talking about is a little bit macro. If there is, what, 800,000 units that are imported from Europe into North America because of tariffs, would that have an impact on those 800,000 units? I think so, but difficult to quantify what that would be depending on, you know, would the customers look at keeping the market share, managing pricing for the short term? There's so many variables here. I would not know how to quantify that yet, but our answers are purely based on the data that we are seeing and based on the conversations we are having with our customers on the programs that we are active.

Thanks for that, Kalar Swamy. My second question was about EBIT margins. The company had been expecting to achieve 75 bips of EBIT margin tailwind over the next two years in total. I'm hoping to better understand if there's been any change in either the magnitude of savings or the timing of which it may flow through given the current industry backdrop.

Thanks. No, I would say we are on track, right? We talked about roughly 35 basis points in 2025 and similar in 2026. They had visibility for the continuous improvement and other activities. I can tell you the entire organization is focused on all those actions plus anything else that we have to mitigate. Fundamentally, the organization is looking at the cost structure to be viable and good at the current levels. And as the volume comes back, we are talking flex up to be able to take advantage and get our incrementals to be better. That's the philosophy, that's the mindset in the entire organization. So we feel pretty good into the given set of volumes, obviously, you know that has a significant impact to the volumes continue as they are and slowly come back over time and the uncertainty comes down. We feel pretty good about what we're doing now in terms of fractions as well as 2026, which we are keeping a very close eye on. Thank you.

And your next question comes from the line of Jonathan Goldman with Scotiabank. Jonathan, please go ahead.

Hi, good morning guys and thanks for taking my questions. Most of them have been asked already, but just one for me then. We've seen light vehicle inventories come down in the past two months in North America and maybe that's related to the pull forward in demand. But in your production outlook for North America, does that assume any rebuild of inventories at all this year?

We kind of keep an eye on the inventory, Jonathan. What I would say is where we ended up in December, there was a spike in January, February. What we see today kind of goes back to what December was, but our planning or our production is based on releases, not on where the inventory is so the assumption whether it's going to pull up or not. That's for the customers to make, not us. So I would say that we're going to be I would say what we're telling you is based on releases in the system.

No, that's fair. I appreciate the color, thanks

Swami. And your final question comes from the line of Michael Glenn with Raymond James. Michael, please go ahead.

Hey, good morning. Swami, thank you for the answer with regard to the European export for assembled vehicles, but could you provide some context to Magna's exposure to Mexico, Mexican and Canadian assembled vehicles, what the outlook is there and maybe what customers are communicating to you in terms of what might happen with those production schedules and any movement we might see?

Good morning, Michael. Maybe two part, I'll try to get it in that color. When we talk about releases, obviously looking across the North America ecosystem, we're not seeing a change in the platform or the mix at this point in time. And when we talk about tariffs, again, we are taking Canada and Mexico and our content in all these platforms, you know, crossing borders, whether it's the supply from Canada into Canada vehicles, but those vehicles might be coming over. We are looking at it broadly. I don't know if they can give more color than that at this point of time or I have more than that to give you.

I think Michael, we have that data point. I just don't have it handy. OEM production in Canada and Mexico that's shipped into the U.S. for sale, we have that data. We can follow up with you. I just don't have it handy. But from our point of view, we know our sales piece. We have sales of just over 4 billion in Canada. About 70% of that is sold into the U.S. where the OEM is an important record. And in Mexico, we're about 5.5 billion of sales and about 25% of that is sold into the U.S. Your question of what the OEMs are building in those two countries and

shipped

it, we'd have

to get back to you. And not to put you on the spot with this question or anything like that, but like when you, do you believe that the 25% on assembled vehicles from Canada or Mexico into the U.S. will remain in place?

You are putting us on a spot and I don't have the answer for you. I know what I wish, but that doesn't matter.

Okay, and just some of the reshoring efforts that you might look for to pursue, to increase USMCA compliant. How do you think about the tier two, tier three or tier four supplier base? Do you see this as feasible? I'm just trying to assess your opportunity to reshor some of those components.

Yeah, I mean, if you go back to the COVID and the semiconductor crisis, there was a little bit of reshoring. I would say rebalancing and looking at the possibilities. Michael, this is no different from that perspective, I would say. All those work streams are in place today. Does it mean you can take everything and reshor? In the short period of time, I don't think so, but I'm just one voice in the industry. Semiconductors, you saw, right? So we look at it part by part, it depends on that. And obviously, as I said, our goal is to figure how to increase the USMCA compliant post. And then we have to follow how the OEMs are thinking and how they are going to optimize or manage their footprint because, based on logistics and other things, we have to kind of work collaboratively and cannot make that decision unilaterally. Okay, I think

Mike, thank you. Swami's point's very, very important because there's a business case that the customer has to agree to behind each of these reshoring opportunities. Right, so that it's a granular bottoms up case by case analysis that the customer has to sign up. with commercial terms.

That concludes our question and answer session. I will now hand it back over to Swami Kotakiri for closing remarks. Swami?

Thanks, everyone, for listening in today. We all talked about the high degree of uncertainty in the industry that we're all facing, but I want to assure you we remain focused on execution, all things that we control, including cost and capital discipline. Pre-cast flow is primary focus and getting back within our target leverage ratio. So we remain highly confident in Magna's future and thanks for listening in and have a great day. That concludes today's call. You may now disconnect.