Autoliv, Inc.

Good day and thank you for standing by. Welcome to the Autoliv Inc first quarter 2025 financial results conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anders Trapp, Head of Investor Relations. Please go ahead.

Thank you, Melanie. Welcome, everyone, to our first quarter 2025 earnings call. On this call, we have our President and Chief Executive Officer, Mikael Bratt, Our chief financial officer, Fredrik Kvistin, and me, Anders Strat, VP Investor Relations. During today's earnings call, we will cover several topics, including our strong sales and earnings development in the first quarter, market development and tariffs that are affecting the automotive industry, as well as how our strong balance sheet and asset returns provide financial resilience and support the continued high level of shareholder returns. Following the presentation, we will be available to answer your questions. As usual, the slides are available on autoliv.com. Turning to the next slide, we have the statement, which is an integrated part of the presentation and includes the Q&A that follows. During the presentation, we will reference non-US GAAP measures. The reconciliations of historical US GAAP to non-US GAAP measures are disclosed in our quarterly earnings release available on autoliv.com and in the 10Q that will be filed with the SEC. Lastly, I should mention that this call is intended to conclude at 3 p.m. Central European Time, so please follow the limit of two questions per person. I now hand over to our CEO, Mikael Bratt. Thank you, Anders.

Looking on the next slide. I am happy to present the solid first quarter showcasing the company's adaptability and resilience, driven by our diverse product portfolio and strong customer relationships. This achievement lays a solid foundation for 2025. However, we remain cautious about the reminder of the year as we navigate the complexities of tariffs and other economic factors. It is encouraging that we, based on light vehicle production data from March, outperformed global light vehicle production despite continued significant headwinds from light vehicle production mix shifts, particularly in China. The stronger than expected sales were partly driven by LVP pull forward in Europe and North America. We significantly improved our profit and operating margin compared to a year ago. This strong performance was primarily driven by well-executed cost reduction activities. Our structural cost reduction program reduced our indirect workforce by over 1,500 since Q1 2023, and our direct headcount by 3,700 over the past year. We neutralized tariffs almost entirely in the quarter by agreement with customers. We also achieved record earnings per share for the first quarter thanks to lower number of shares and high net profit. I am also pleased that we continue to generate a high level of return on capital and plot. Our cash flow remained solid despite higher receivables from strong sales towards the end of the quarter, supporting a high level of shareholder returns. In the quarter, we repurchased and retired 500,000 shares for 50 million US dollars and paid a dividend of 70 cents per share. Looking now on the next slide. Last night, Autoliv was recognized by the automotive news in the category PACE Pilot Innovation to Watch. The prestigious PACE Pilot Award recognizes achievements under development with new materials, fresh ideas, creative processes, and bold execution in the automotive and future mobility space. received the award for its Bernoulli airbag module, which inflates larger airbags more efficiently by leveraging pressure differential with the small single stage inflator, lowering deployment costs and weight. I want to thank the team for this great achievement. It reflects our collective effort and commitment to excellence and innovation. Looking now on financials in more detail on the next slide. Sales in the first quarter decreased by 1% year over year due to negative effects from currency, light vehicle production development, and adverse regional and customer mix development. Adjusted operating income for Q1 increased by 28%. to $255 million from $199 million last year. The adjusted operating margin was 9.9%, 230 basis points better than in the same quarter last year. Operating cash flow was a solid $70 despite a temporary working capital buildup. Looking now on the next slide. We continue to generate broad-based improvement. Our positive direct labor productivity trend continues as we reduce our direct production personnel by 3,700 year over year. This is supported by the implementation of our strategic initiatives, including optimization and digitalization. Our gross margin was 18.6%, an increase of 160 basis points year-over-year. The improvement was mainly the result of direct labor efficiency and headcount reduction, partly offset by a supplier settlement as communicated last year. As a result of our structural efficiency initiatives, the positive trend for RD&E continued. Combined with the gross margin improvement, this led to 230 basis points improvement in adjusted operating margin. Looking now on the market development in the first quarter on the next slide. According to S&P Global data from March, global light vehicle production for the first quarter declined 40 basis points. exceeding the expectation from the beginning of the quarter by 140 basis points. Supported by the scrapping and replacement subsidy policy, we continue to see strong growth for domestic OEMs in China, while light vehicle production in higher content per vehicle markets in North America and Western Europe declined by 7% and 10% respectively. This resulted in an unfavorable regional light vehicle production mix of more than three percentage points in the quarter, significantly impacting our outperformance negatively. In the quarter, we did see call off volatility continue to improve year over year. We will talk about the market development more in detail later in the presentation. Looking now on our sales growth in more detail on the next slide. Our consolidated net sales were 2.6 billion US dollars. This was slightly lower than a year earlier, driven by negative currency translation effects, which reduced sales by almost 4% in the quarter. Excluding currencies, Our organic sales grow by 2%, including out-of-period compensations of 4 million US dollars. The regional sales split reflects the seasonally weak sales in China due to the Lunar New Year celebration. China accounted for 17%. Asia, excluding China, accounted for 20%. America for 33% and Europe for 30%. We outline our organic sales growth compared to last week's production on the next slide. Our quarterly sales were robust and slightly exceeded our expectations, driven by strong performance across most regions, particularly in Europe and America. Based on light vehicle production data from March, we outperformed light vehicle production in all regions except China, fueled by product launches and pricing. In China, our sales to domestic OEMs grow by 19%, aligned with their light vehicle production growth. Our growth with the global customers in China was just one percentage point below theirs. LVP growth. Due to LVP mix shift that continues, we underperformed significantly in China overall. Among the primary net sales growth drivers for the company this quarter, four were Chinese OEMs and two were Japanese, highlighting the importance of the Asian market and its customers. On the next slide, we show some key model launches. New launches in the first quarter of 2025 was, as you can see on this slide, mostly in America, Europe, and South Korea, with few launches in China. The reason for this is that many OEMs are planning to unveil new vehicles in the Shanghai Auto Show in April. We expect significant number of new launches in China as of Q2. But we are unable to disclose these launches as the vehicles have not yet been unveiled. The models displayed here features Autoliv content for vehicles ranging from approximately 130 to nearly 500 US dollars. In terms of Autoliv's sales potential, the US-produced Honda Passport and the Ford Expedition are the most significant. Now looking at the next slide. I will now hand it over to Fredrik Christian. Thank you, Mikael. I will talk about the financials now more in detail on the next few slides. So turning to the next slide. This slide highlights our key figures for the first quarter of 2025 compared to the first quarter of 2024. Our net sales was 2.6 billion, representing a 1% decrease. Gross profit increased by 35 million, and the gross margin increased by 1.6 percentage points. The adjusted operating income increased from 199 million to 255 million, and the adjusted operating margin increased by 230 basis points to 9.9%. The reported operating income was 1 million lower than the adjusted operating income, mainly due to costs for capacity alignment. Adjusted earnings per share diluted increased by 58 cents, where the main drivers were 48 cents from higher operating income and 13 cents from lower number of shares. Our adjusted return on capital employed was a solid 26%, and our adjusted return on equity was 29%, driven by share buybacks impacting total equity. We paid a dividend of 70 cents per share in the quarter, and repurchased shares for slightly over 50 million US dollars and retired half a million shares. Looking now on the adjusted operating income bridge on the next slide. In the first quarter of 2025, our adjusted operating income increased by 56 million. Operations contributed with 46 million mainly from high organic sales and improved operational efficiency supported by the better call of accuracy. The net currency effect was $5 million negative, as the positive effects from the Mexican peso versus the US dollar was offset by translation and revaluation effects. The impact from raw materials was around $5 million negative. Out-of-period cost compensation was $4 million higher than last year. Costs for SG&A and RD&E net decreased slightly, despite higher costs for SG&A personnel. The recycled accumulated currency translation differences related to the divestment of our idle operations in Russia amounted to 12 million. And the year-over-year impact from the supplier settlement in 2024 was around 2 million negative. Looking now at the full year result on the next slide. On the cash flow, sorry, on the next slide. For the first quarter of 2025, operating cash flow decreased by $45 million compared to the same period last year to $77 million, mainly a result of increased receivables following the strong sales towards the end of the quarter. Capital expenditures net decreased by $47 million. Capital expenditures net in relation to sales was 3.6% versus 4.5% a year earlier. The lower level of . The free operating cash flow was negative 16 million compared to negative 18 million in the same period the prior year as the lower operating cash flow was offset by lower capex. The cash conversion in the last 12 months defined as free operating cash flow in relation to net income was around 72%, slightly below our target of 80%. Now looking at our trade working capital development on the next slide. Trade working capital decreased by 56 million compared to the prior year, where the main drivers were 11 million in higher accounts receivables, 17 million in lower accounts payables, and 84 million in lower inventories. In relation to sales, the trade working capital decreased from 12.8% to 12.4%. The improvement in trade working capital is a result of our multi-year working capital improvement program and an improvement in customer call of accuracy enabling a more efficient inventory management. Now looking on our debt leverage ratio development on the next slide. Autoliv has consistently prioritized maintaining a strong leverage ratio, reflecting our prudent financial management and commitment to a strong balance sheet. This approach has enabled the company to navigate economic fluctuations, invest in innovation, and continue delivering value to stakeholders over time. Our leverage ratio is virtually flat year-over-year at 1.3 times, despite close to $700 million in shareholder returns. Compared to the end of last year, our debt leverage ratio increased by 0.1 times as our net debt increased by 242 million US dollars while the 12-month trailing adjusted EBTA increased by 55 million US dollars. With that, I hand it back to you, Mikael. Thank you very much, Fredrik. On to the next slide. In recent years, our business has faced significant challenges from COVID disrupted global supply chain, component shortages, inflation, and the changing LVP landscape. Our company has adapted quickly, found new ways to mitigate risk, and maintaining profitability. Now facing a challenging tariff situation, we are well equipped with a diversified customer portfolio, a broad regionalized footprint, a strong balance sheet, and a single focus on automotive safety and saving lives. Autoliv has a diversified customer and model mix in North America. This diverse model mix base helps Autoliv mitigate risks associated with slowing import of certain vehicle models from Mexico and Canada. The company has multiple production and assembly facilities across North America. ensuring timely delivery of airbags, seatbelts and steering wheels. Our largest production hub is in Mexico. However, not all products are made there meet USMCA standards due to customer specific components or the unavailability of certain materials like magnesium and leather for steering wheels. Our logistics in North America are complex. While some of our Mexican production support local vehicle manufacturing, the majority is still destined for U.S. vehicle assembly plants. For products sent to the U.S., customers manage about one-third of the transportation and import, and these shares continue to grow. Driving from past experiences, Autoliv has developed a strategy to handle tariffs. Over the years, we demonstrated that our methods for navigating challenging environments are effective. On to the next slide. The instability and overall magnitude of the tariffs have placed the automotive industry in a challenging position. Tariff costs need to be passed on to the end consumers, which would lead to higher vehicle prices and potentially impact consumer demand and light vehicle production. To mitigate the effects of US tariffs on auto parts and materials, we have implemented several strategic measures. We established a task force early in the year with the focus on minimizing the impact of We are engaged in ongoing discussions with our customers to find setups that are mutually beneficial while negotiating compensation for the transition period. Our large existing footprint in the U.S. enables us to navigate the challenges posed by tariffs effectively. It gives us opportunities to ramp up production in the U.S. Should that be the best option when evaluating future production locations together with our customers? We are committed to increase our compliance with the USMCA regulation, working closely with our customers and suppliers to achieve this through increased local sourcing of components and changing of specifications. On to the next slide. The outlook for global light vehicle production in 2025 has become significantly more uncertain since January, with regional variation influenced by tariffs, slowing economic growth and other factors. In North America, the production outlook may be significantly downgraded due to trade risk and higher vehicle prices from import tariffs. This reduction is likely to affect vehicles produced in Mexico and Canada more severely. In Europe, production is expected to increase slightly short-term due to revision in EU regulations and higher demand in some Eastern European markets. China is also growing, driven by government policies supporting the new energy vehicle market. Japan and South Korea are potentially facing decline due to the impact of lower exports to the US. Overall, while some regions are still expecting growth, the global auto industry remains cautious, navigating the complexities of tariffs and other economic factors. Now looking on the business outlook on the next slide. We expect 2025 to be a challenging year for the automotive industry. However, our ongoing focus on efficiency is expected to further enhance our profitability. We anticipate a significant improvement in our sales performance in China. Additionally, our strong cash conversion and solid balance sheet provide financial resilience and a robust foundation for maintaining high shareholder returns. We expect cost pressures from in 2025. But still, we expect some pressure coming mainly from labor, especially in Europe and America. However, the ongoing tariff situation could add inflationary pressure. Certain raw material prices have increased, and we expect headwind for the year, mainly in the US. We successfully navigated the new tariff environment in the first quarter. This gives us confidence that it's possible to continue on that course, but there is significant uncertainty. Contrary to the past three years, we do not anticipate a gradual quarter-by-quarter adjusted operating margin increase as the inflationary environment differs from recent years. However, the fourth quarter is still expected to be the strongest of the year. Turning to the next slide. This slide shows our full year 2025 guidance, which excludes effects from capacity alignment, antitrust-related matters, as well as no further changes to tariffs or trade restrictions that are in effect as of April 15, 2025. as well as no significant changes in the macroeconomic environment or changes in customer call of volatility or significant supply chain disruptions. The business environment uncertainties make it difficult to predict the reminder of 2025. However, based on the strong first quarter performance and encouraged... Operating cash flow is expected to be around 1.2 billion US dollar. Our positive cash flow and strong balance sheet It supports our continued commitment to a high level of shareholder return. Our full year guidance is based on a global life vehicle production decline of around negative 0.5%. A tax rate around 28% and that the net currency translation effect on sales will be around minus 3%. We are monitoring the situation closely and are prepared to be as agile as needed to adjust to any changes. Looking on the next slide. We are pleased to invite you to the Autoliv Capital Market Day on June 4th, 2025 in Stockholm, Sweden. Join us to learn more about our journey towards achieving our target. capturing growth opportunities, and translating these into attractive and sustainable payroll returns. We will showcase our belief in strategically securing a strong position with successful OEMs, supporting our medium and long-term growth in a rapidly changing market environment. You will also have the opportunity to see our latest innovation and technology. I personally look forward to seeing you all in Stockholm. Now turning the slide. This concludes our formal comments for today's earnings call, and we would like to open the line for questions from analysts and investors. I will now hand it back to Madeleine.

Thank you. As a reminder, to ask a question, you will need to press 1-1 on your telephone, and we can answer. draw a question please press star 1 1 again please note that there is a limit of two questions per person on today's call please stand by while we compile the Q&A our first question comes from the line of Colin Langan from Wells Fargo please go ahead your line is open oh great thanks for taking my question um I know mid-quarter you were trying to size the

the USMCA exposure. Do you have any better clarity now on how much of your sales are non-USMCA compliant that are at risk? Because, you know, I didn't see any actual, you know, impact on the walks on margin or sales, so I assume it was pretty small in March. But at any run rate, you could kind of help so we could frame the potential risk.

We haven't given any detail around the split there with the USMCA compliance or non-compliance here because it's, I would say, with the current circumstances here, I mean, it's a pretty fluid situation here and giving too much details in this environment, I think, would be more confused than support. I think the bottom line here is that we are well positioned here with the footprint we just described here. we are having a regionalized setup, so meaning America for America. However, now with this focus on the US side, it means the tariffs impact us mainly for the Mexican flow, but as we have mentioned here, that production we have in Mexico is to a large extent for OEMs in Mexico also, our customers are there. They also have pickup points in Mexico, meaning that they are carrying them over. And then a smaller part of that is also carried by us over the border into the customer's plant in the US. We are working with our customers here to see what we can do to improve that. But the reason why we have US MCA non-compliant components here is because there is no... To a very large extent, there is no available supply in the region there. And we mentioned, for example, leather. We mentioned magnesium for the steering wheels. We have also uniqueness when it comes to certain directed components when it comes to electronics in the steering wheels, et cetera. So we are working to find alternatives with our customers, but that will take time. Whatever we are impacted by there is what we then pass on to the customer here through surcharges. So I think we are as good as we can get in this environment here right now, and we monitor it carefully going forward to see what we can do.

And the vast majority was passed on to the customer in the quarter already? Yes, yes. And just as a follow-up, In your comments, you said, I believe maybe I misheard, but the profit trajectory is not going to be like prior years now, but it would be strongest in Q4. So how should we be thinking about it? I know you don't guide quarters, but Q2, any rough color there? Are we now expecting that to not increase sequentially? And why would that be the case?

No. I mean, I would say we are more back to the normal pre-inflationary environment here, where you always had a weaker Q1, you had the stronger Q4, and then Q2 and Q3 was more average in between there. And I think that's what we're trying to say now, that we are not seeing the same inflationary pressure that creates this sequential development that we have seen for the last three years. So more back to normal.

All right, thanks for taking my questions.

Thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Eric Golrang from Sweden. Please go ahead. Your line is open.

Thank you. I have three questions. Firstly, on Europe, if you give some more color on that big outperformance, what's behind that? And then the second question on the size of tariff compensation in Q1, to the extent you would share that. And then thirdly, continuing on the tariff topic, just some more sort of color on this. I mean, you've covered yourself fully in Q1. It seems that you're confident that you'll be able to continue to do so. But just

thinking of why wouldn't this burden be shared across the value chain thank you okay uh thank you uh on the european side i think um we we uh i think we see the result of our position here with the european oems and and the positive result of the mix we have there as they they have some Because I pulled forward here also to connect it to the European regulations here. So we have a good mix there. So more on the tariff side. I would say here that we start with the last question. I mean, we have been very... clear thing here that these tariffs needs to be passed on to our customers and obviously to the end consumer here in my view then of course it's up to the OEMs what they want to do here but I don't see any logic at all why the supply chain should absorb these tariffs and this is you know the cost of doing business which is implemented from one day to another. And we'll see for how long and at what magnitude they will be, but there's no way the supply chain can absorb this kind of magnitude of additional costs. So the pure nature of it, in my mind, needs to be passed on to the end consumer. So we start forming that and we'll continue to hold that position as we move forward. Then with that said, of course, we will be working with our customers to see what can be done in terms of fulfill the requirements so you don't need to have to pay a tariff at all. But in order to do any bigger things there, you need to have some kind of stability and certainty on the Paris situation before you can take that kind of decision. For example, moving large part of your capacity from, let's say, Mexico or somewhere else into the US. So you see that you have the right circumstances there to have a business case to do it. But as I said, we are well positioned here with the footprint we have. And of course, we can work on the footprint we have here to see what kind of stretches we can do there in terms of using the footprint we already have. We are, I would say, among our peers, the one with the strongest industrial footprint in the US here. So we are in a good start there. And then when it comes to what we discovered before here with the non-US MCA compliance, it's the availability. And there, of course, it's more forces than our own force here that can change that. So we are dependent on the industry here as well. But we're working together with the industry on this and see what happens. But once again, stability and flexibility is required before any bigger changes can be done, if they should be done. And we haven't given any details on how much the tariffs are, because I don't think that, I mean, it's a figure that is not meaningful in terms of the details here because we're looking on the tariffs that we get as a result of this and it's changing all the time also so it's a lot of changing parts here because besides the automotive tariffs here you have the steel, magnesium, aluminium and all that so yeah it's a very complicated picture.

Thank you. And if I could just follow up, you mentioned the business case to relocate production, probably early days, but do you see that? Is there sort of an investment that you could do in the US where the total cost to bring your product to the market and your customer doesn't go up or it's actually beneficiary? Or do you think that you'll stay where you are based on at least the current level of tariffs?

It's way too early to, you know, have any firm views on that, because as I said, we need to know what the landscape will be for a foreseeable future, so you can actually do a business case around it. And for certain, the cost in the US will go up. I mean, there's a reason why we are in Mexico. So the question is what that would be and what everybody's trying to do there. So it's too early to have any comments. Okay.

Thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Emmanuel Rosner from Wolf. Please go ahead. Your line is open.

Great. Thank you so much. My first question is your decision to reiterate guidance. Can you elaborate a little bit about this? Is it mostly a function of just a lot of uncertainty, so it's really difficult to know what to assume for any changes, or is it strong confidence in the ability to offset future challenges? Is it both? Can you just comment a little bit more about it?

Sure. No, I think, first of all, we feel comfortable with the guidance here When we look at our own ability to move forward here, I think we had a strong first quarter here. And we continue to see also when we look into the horizon that we have with the call-offs, that we continue to see a healthy level of light vehicle production moving into the second quarter with the horizon we have there. And as I said, our own activity level controlling what we're doing in a good way. So I feel that we are steadily moving forward in the right direction there. So we have no reasons, I would say, to change our guidance here. We feel comfortable with what we can see. Then, of course, what you're pointing to here, we are absolutely fully aware of the risk You could say that these are out there connected to the tariffs and and overall uncertainty there. But today we don't have any data points. They're pointing in a dramatic change to that. Plus that we also in our guidance has a range mentioned that also that, you know. Can absorb some movement as well. So, yeah, we've been comfortable with the guidance we've given you today with what we know.

Thank you. If I could just ask this sort of like a different way, and then I have a quick follow-up. So, for example, this morning, I think, you know, you're based on the March S&P file, but this morning S&P, you know, cut the global production, you know, a little bit deeper than the down 0.5% that you're assuming. So, all else equal... Is that something that we should be flowing through your guidance and essentially saying, look, the production is lower than assumed, therefore, you know, it's actually sort of like a lower outcome? Or are you essentially saying that you have offsets or the Q1 was so much stronger than expected that all in, even with sort of like this somewhat weaker outlook, you still do it with your guidance?

I mean, as we said here, I mean, we have based our guidance on the 0.5 negative. So we were already from the beginning, remember, more negative than S&P Global. Now they have made an adjustment. I would say that ballpark figure around where we are at also, I mean, 1% lower than what we have. So I mean, I would say it's within margin of error when you look at the likely production. It doesn't change the picture for me here.

That's great. And then the quick follow-up is your capital allocation strategy, and in particular the shareholder returns. Are you still comfortable with your existing strategy, or is the current uncertain environment make you want to potentially slow down the cash returns to shareholders or change it in any other way?

No, I think, I mean, our strategy and commitment here lays firm to be a shareholder-friendly company, return liquidity to our shareholders. We continued in the first quarter here with our buyback, even though at a slightly lower pace. But we hold on to it. And what we will do going forward, of course, we can't comment here, but our commitment still stands.

Thank you so much. Thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Edison Yu from Deutsche Bank. Please go ahead. Your line is open.

Hi. Thank you for taking our questions. First one, a near term. In terms of the tariff-related cost, it seems like you absorbed it or were able to pass it on very quickly.

would you expect that going forward to be that quick in terms of the Time when you pass it on to when you actually run it through the piano Yeah, I think it needs to be quickly I mean you remember when we have described our negotiations when it comes to the inflationary compensation that was related to very detailed and complicated negotiations on a component by component, plant by plant level across the whole globe. The tariffs is very, I would say, clear and obvious when you have to pay them and say the evidence to prove that you have had this cost is much more simple and therefore the negotiations should go much faster.

Absolutely. Okay, so just to check, let's say tariffs continue on for the next couple of quarters, you would expect to recover that pretty much inter-quarter going forward.

I mean, I will not promise anything here, but as I said, we stand firm in our opinion here that the tariff cost needs to be passed on, and we will continue to do so. And I think we have a well-established way of doing it with our customers.

Got you. And then longer term, on automation, I know it's a bit early to decide whether to necessarily relocate a lot back to the US. But I think you've discussed in the past, you've done a lot of automation overseas in China. It's been very successful. So if you had to automate, do you have a playbook? Do you have kind of a system that you can implement based on your learnings?

I'm not worried about the process or the way of moving capacity or establishing capacity in the US. It's more a question about the business case and as I said the reliability in the environment that makes you comfortable in making an investment in this environment. It's not the how or so that is the problem. It's the calculation, the business case that we can provide the competitive, better cost domestically than with tariffs, break even calculation.

That is it. Thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Chris McNally from Evercore. Please go ahead. Your line is open.

Thanks so much, team. And I apologize if I miss this in the prepared remarks, but just in terms of the call-ups you're seeing through early April, do they align with some of the March projections around I think we're all sort of anticipating basically any day now that we'll get major Mexico and Canadian shutdowns, you know, basically permanently until tariffs are changed. So just curious if some of that is reflected in what you've seen in the call-offs, you know, over the last two to three weeks.

As I indicated before here, we see that the call-offs is holding up well and no other indications that we are moving forward here with the horizon we have from the call-offs.

And maybe just to follow up on it, because I think you've answered the other questions really helpfully. It basically seems like production is the primary variable here. There'll be a little bit on raw materials, but you're expecting to get repaid for any tariffs from the suppliers. I think we heard that from every supplier. I'm just a little surprised. I mean, basically, if there was no change in call-offs, particularly for Mexican and Canadian facilities, it would sort of imply that the you know, the Detroit three were continuing to build, which means they were planning to cross the border, which does not seem to be the case. So could you help us reconcile that? Because you would imagine we would see weakness based on everything that we know if shutdowns were to be coming soon because they're building inventory at the border, essentially.

No, I mean, I can't suppose comments or speculating in what our customers are doing here in specifically But I mean, the totality of the call-offs that I refer to here when we look at the Outerleaf order book, so to speak, is, as I said, holding up well here as we move forward into the second quarter with what we can see and the time horizon we have. Okay, excellent.

So it's sort of a global trend. perspective, and maybe we'll hold off on giving very specific Canadian-Mexican facilities. So a lot of that stuff is live. Thanks so much for the comments. Really appreciate it. Thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Hampus Engelau from Handelsbanken. Please go ahead. Your line is open.

Thank you very much. Two questions for me. Starting off on the capacity line and program, I have a question. Are you happy where you are on these levels, or are you going to go ahead fully on the 8,000 that you previously indicated in terms of headcount reduction? Second question is more related to the mix. I was also surprised of the very outgrowth in Q1, and if we look at the quarters ahead,

the lvp outlook should we assume any big changes in in in mix in the in the quarter from what you see now i know you're not going to guide on the quarters but just the sense the sense for us to model thank you yeah on your first question on the head count reduction um i think we're progressing well uh you saw now that we have reduced our indirect or salaried head count by over 1500 um so that has progressed further versus the q4 report um and we also hold on to the expected savings of an incremental 50 million for the year. So that's progressing well. Also on the direct labor side, I think we're down in total headcount, we're down 6%, whereas organically we grew sales by 2%. So also here we see a good development on the operational excellence side and productivity side. So that's also helped by the better quality of volatility. That was around 93% here in the first quarter. So a continuation of the positive trend we saw in the fourth quarter. And then on the mixed side, we mentioned here we had three percentage points negative mix in the first quarter. That will most likely continue also in the second quarter. And then we expect a more favorable development in the second half. of the year, at least when you look at our expected sales performance versus LVP development in China. But we still expect a negative mix also for the full year, still above one percentage point.

Okay, fair enough.

Thank you.

Thank you. We'll now move on to our next question. Our next question comes from the line of Agnieszka Vilela from Nordia. Please go ahead, your line is open.

Thank you so much. So my first question is on the pull forward impact that you saw in Q1 when it comes to car production. I wonder if you can just tell us about what has been happening and also did you only see that on the kind of car production or did you also see that OEMs are stocking up your products?

Yeah, I mean, it's very difficult for us to say what volume deviation here that we saw in the first quarter, which was favorable, and the volumes in the first quarter were better than we had expected going into the quarter. But to quantify a pull ahead effect of that is incredibly difficult for us, and I would say even impossible. But as Mikael already pointed out here, that we see the call off continuing at a good level also here in the second quarter. So it's not that we see them falling off So that would indicate that either the pull ahead effect continues or it was smaller in the first quarter.

Understood. Thank you. And then maybe just if you could help us to understand the impact on the P&L from getting compensations from tariffs and overall tariff impact. Does it filter through sales and your costs or how should we think about it when you get the compensations for tariffs?

Yeah, the majority filters through sales. But in the first quarter, it was not of such a large magnitude that it would have any meaningful effect on the top line.

Thank you. Thank you. We'll now move on to our next question. Our next question comes from the line of Jairam Nathan from Daiwa Capital Markets America. Please go ahead. Your line is open.

Hi, thanks for taking my question. Just wanted to understand, in terms of the cost reduction or your SEP, can you make any enhancements or increase the cost reduction potential if things wasn't from here? What kind of flexibility would you have?

No, I think, I mean, I think we have over the years shown that we have the high flexibility in the company to manage big shift in demand here. So, of course, what we're seeing the results of from now in the quarter one here, for example, is from really what we call the strategic roadmap activities here to drive towards our midterm targets here. If something dramatically would happen in the market, then of course we have more levers to pull. to bring down the cost and reduce labor, et cetera. So the short answer is yes, we can do more if needed, of course.

OK. And just as a follow-up, we are seeing a lot of, especially Japanese OEMs, I think, trying to shift production back to the US. And I just want to understand how would that have any impact on margins? coming from in Japan versus the U.S., or would the U.S. facilities have the capacity?

I think, I mean, first of all, I mean, yes, we see some of that also. And if there is platforms that we are on that changes location, we have a procedure for that. That has happened before, so that's nothing dramatically with that. That's basically a reset of the program and you need to do a new calculation and all that stuff. So we have a well-defined way of working around that. And I think here we have also a big advantage since we have this global footprint we have. We can also support our customers if they want to move to a different region. So that's not very dramatic for us. So, yeah, and I think it will take some time until you actually see any meaningful volume impacting that. I think they have the same situation here as we as a supplier have, that you need to make sure that you have a long-term view on the landscape here in order to actually make those investments at the end of the day. Okay, thank you for telling it.

Thank you. We'll now move on to our next question. Our next question comes from the line of Dan Levy from Barclays. Please go ahead. Your line is open.

Hi. Good afternoon to you. Thank you for taking the question. First, can you just outline what your exposure is within Europe and Asia to vehicles that are exported to North America?

I don't have the number here in front of me. We could come back to you on that one. I mean, it's typically premium vehicles, more that are exported, and then we are a bit overweighted maybe against those. But I would have to come back on the exact number. But you can talk to Henrik and Anders here.

Okay, thank you. And then second question is on the tariffs and what specifically is not USMCA compliant. How much of this is tier two directed content by the OEMs that is essentially in a position where the OEMs have to negotiate because they've directed this content as opposed to content that you chose to source on your own you know, and there's maybe a little less of a basis for getting those recoveries.

We're not breaking it down in details. It's, I was going to say, too detailed to keep in an external content there, and especially in a situation like this one, it's quite fluid here. As I said, I mean, The directed port, as you said, is obviously something we need support from the OEMs, allow our customers here to find alternatives to. But most cases, when we are not USMCA compliant, it's because it's not available under those conditions. So I think you have to live with it. Okay, thank you.

Thank you. Due to time constraints, this concludes our question and answer session, so I'll hand the call back to Michael Bratt, President and CEO, for closing remarks.

Thank you, Melanie. Before we conclude today's call, I want to emphasize our commitment to achieve our financial targets. Our focus remains on structural cost reductions, innovation, quality, sustainability, and on tariff mitigation efforts. Despite significant market challenges in key markets, we expect to continue to perform strongly. We remain vigilant about the risks associated with the tariffs and geopolitical challenges, which could impact our cost structure and market dynamics. Navigating these complexities as well as we did in the first quarter will be instrumental in maintaining our momentum throughout the year. Once again, I'm delighted to invite you to our Capital Markets Day on June 4th, 2025. I look forward to see you there. Our second quarter call is scheduled for Friday, July 18th, 2025. Thank you for your attention.

This concludes today's conference call. Thank you for participating. You may now disconnect.