Autoliv, Inc.

Welcome everyone to our second quarter 2025 earnings call. On this call, we have our president and chief executive officer, Mika Bratt, our chief financial officer, Fredrik Westin, and me, Anders Schaap, VP Investor Relations. During today's earnings call, we will cover several key topics, including our record sales and earnings for the second quarter, an update on the 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 the support for a continued high level of shareholder returns. Following the presentation, we will be available to answer your questions. As usual, the slides are available on autolib.com. Turning to the next slide, we have the Safe Harbor Statement, which is an integrated part of this 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 TEMQ 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 it over to our CEO, Mikael Bratt.

Thank you, Anders. Looking on the next slide. I am proud to present a record second quarter, highlighting our company's resilience and strong market position. Fueled by strong customer relationships and our culture of continuous improvement. This achievement lays a solid foundation for the rest of the year. However, we remain cautious about the rest of the year as we navigate the complexities of tariffs and other challenging economic factors. It is encouraging that we, based on light vehicle production data from July, outperformed global light vehicle production despite continued significant headwinds from mixed shifts. In China, we saw a clear improvement with the gap between our sales growth and light vehicle production growth narrowing compared to the previous quarters. This positive development was driven by recent product launches with Chinese OEMs. Notably, our sales in June outpaced the growth of the Chinese light vehicle production. We expect this positive trend to continue through the remainder of the year. We significantly improved our operating profit and operating margin compared to a year ago. This strong performance was primarily driven by well-executed activities to improve efficiency and cost. We successfully recovered approximately 80% of the tariff costs incurred during the second quarter and expect to recover most of the remaining portion later this year. The combination of not yet recovered tariffs and the dilutive effect of the recovered portion resulted in a negative impact of approximately 35 basis points. on our operating margin in the quarter. We also achieved record earnings per share for the second quarter. Over the past five years, we have more than tripled our earnings per share, mainly driven by strong net profit growth, but also supported by a reduced share count. Our cash flow remained strong despite higher receivables driven by robust sales and tariff compensations late in the quarter. Our solid performance, combined with a healthy debt leverage ratio, supports continuous strong shareholder return. We remain committed to our ambition of achieving 300 to 500 million US dollars annually in stock repurchases, as outlined during our Capital Markets Day in June. Additionally, we are increasing our third quarter dividend to 85 cents per share, reflecting our confidence in our continued financial strength and long-term value creation. Looking now on the next slide. Second quarter sales increased by 4% year over year, driven by strong outperformance relative to light vehicle production. in several regions, along with favorable currency effects and tariff-related compensations. This growth was partly offset by an unfavorable regional and customer mix. The adjusted operating income for Q2 increased by 14% to $251 million from $221 million last The adjusted operating margin was 9.3%, 80 basis points better than in the same quarter last year. Operating cash flow was a solid $277 million, despite temporary working capital buildup from higher sales and tariff compensations. Looking now on to the next slide. We continue to generate broad-based improvements. Our positive direct labor productivity trend continues as we reduce our direct production personnel by 3,200 year over year. This is supported by the implementation of our strategic initiatives, including automation and digitalization. Our gross margin was 18.5%, an increase of 30 basis points year over year. The improvement was mainly the result of direct labor efficiency and headcount reductions. As a result of our structural efficiency initiatives, the positive trend for RD&E continued. Combined with the increased gross margin, this led to 80 basis points improvement in adjusted operating margin. Looking now on the market development in the second quarter on the next slide. According to S&P Global data from July, global light vehicle production for the second quarter increased 270 basis points, exceeding the expectations from the beginning of the quarter by 200 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 CPV markets in North America and Western Europe declined by around 3% each. This resulted in an unfavorable regional light vehicle production mix of around 2.5 percentage points in the quarter, a significant negative impact on our overall outperformance. In the quarter, we did see call-off volatility continuing to improve year over year and sequentially from the first quarter. 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 over 2.7 billion US dollars, the highest for the second quarter so far. This was almost 110 million higher than last year, driven by price, volume, positive currency translation effects, and 27 million from tariff-related compensation. Excluding currencies, our organic sales grew by more than 3%, including tariff cost compensation. China accounted for 18% of our group sales. Asia, excluding China, accounted for 19%. America scored 33%, and Europe was slightly more than 30%. We outlined our organic sales growth compared to light vehicle 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 India. Based on light vehicle production data from July, we outperformed light vehicle production in all regions except Japan and China, fueled by product launches and tariff compensation. In Japan, we were negatively affected by an unfavorable light vehicle production mix, resulting from last year's production stop at Daihatsu due to homologation issues. Nevertheless, we outperformed the market by over 2 percentage points in the first half of the year. In China, our sales to domestic OEMs grew more than 16%, aligned with their LVP growth. Our growth for the global customers in China was two percentage points higher than their light vehicle production. While the ongoing light vehicle production mix shifts continue to impact our overall performance in China, we saw a clear improvement with the gap between our sales and light vehicle production narrowing compared to the past three quarters. On the next slide, we show some key model launches. As shown on this slide, the second quarter of 2025 saw a high number of new launches, primarily in Asia, including China. While some of these new launches in China remain undisclosed here, due to confidentiality, they reflect a strong momentum for Autoliv in this important market. The models displayed here feature Autoliv content per vehicle from close to to over 500 US dollars. We're also pleased to have launched seat belts on two key small Japanese vehicles known as K-cars. This is a meaningful step forward as Autoliv has historically had limited exposure to this segment in Japan. In terms of Autoliv's sales potential, the DPAL-S09 from Shanghai and the Honda new midsize electrical crossover, J-P7, are the most significant. Higher CPV is driven by front center airbags on six of these vehicles, as well as knee airbags. Now looking on the next slide. I will now hand over to Fredrik.

Thank you, Mikael. I will talk about the financials more in detail now on the next few slides. If we turn to the next slide. This slide highlights our key figures for the second quarter of 2025 compared to the second quarter of 2024. Our net sales were approximately 2.7 billion, representing a 4% year-over-year increase. Gross profit increased by 27 million, and the gross margin increased by 30 basis points. The adjusted operating income increased from 221 million to 251 million, and the adjusted operating margin increased by 80 basis points to 9.3%. The adjusted earnings per share diluted increased by 33 cents, where the main drivers were 27 cents from higher operating income and 10 cents from lower number of shares. Our adjusted return on capital employed was a solid 24%, and our adjusted return on equity was 28 percent. We paid a dividend of 70 cents per share in the quarter, and we purchased shares for 51 million US dollars and retired 0.5 million shares. Looking now on the adjusted operating income bridge on the next slide. In the second quarter of 2025, our adjusted operating income increased by 30 million. Operations contributed with 35 million, mainly from higher organic sales and by execution of operational improvement plans supported by better call-off volatility. The net currency effect was 12 million positive, mainly from revaluation effects. The impact from raw materials was around 4 million negative. Out of period, cost compensation was 6 million lower than last year. The combination of unrecovered tariffs and the dilutive effect of the recovered portion resulted in a negative impact of approximately 35 basis points on our operating margin in the quarter. Looking now at the cash flow on the next slide. Operating cash flow for the second quarter of 2025 totaled $277 million, a decrease of $63 million compared to the same period last year. despite a 29 million increase in net income. The decline was primarily driven by higher receivables, reflecting strong sales and tariff compensations toward the end of the quarter. Capital expenditures net decreased by 32 million. Capital expenditures net in relation to sales was 4.2 percent versus 5.6 percent a year earlier. The lower level of capital expenditures net is mainly related to lower footprint capex in Europe and Americas and less capacity expansion in Asia. The free operating cash flow was 163 million compared to 194 million in the same period the prior year as the lower operating cash flow was partly offset by lower capex. The cash conversion in the last 12 months defined as free operating cash flow in relation to our net income was around 65 percent, somewhat below our target of 80 percent. Now looking at our trade working capital development on the next slide. Our trade working capital increased by 185 million compared to the prior year where the drivers were 251 million in higher accounts receivables and 21 million in higher inventories. partly mitigated by 87 million in higher accounts payables. In relation to sales, the trade working capital increased from 11.2% to 12.5%. We view the increase in trade working capital as temporary as our multi-year improvement program continues to deliver results. Additionally, enhanced customer call of accuracy can enable a more efficient inventory management. Now looking on our debt leverage ratio development on the next slide. Autoliv has consistently prioritized maintaining a balanced 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 to deliver value to stakeholders over time. In the quarter, We refinanced a $3 billion SEK loan from Swedish Export Credit Corporation with a new one-year $2 billion SEK loan. Our leverage ratio remains strong at 1.3 times, well below our target limit of 1.5 times, and has remained stable compared to both the end of the first quarter and the same period last year. This comes despite returning 550 million US dollars to shareholders over the past 12 months. Our net debt decreased by 31 million, while the 12 months trailing adjusted EBITDA increased by 34 million in the quarter. Now looking at the tariff situation on the next slide. We are closely monitoring the evolving tariff situation. Thanks to our well-diversified customer portfolio and strong manufacturing footprint across the USMCA region, we are well positioned to navigate these challenges. Customers and duties have long been a part of doing business, even before the current wave of tariffs. Last year, we paid approximately 100 million US dollars in such costs on a global level, and they are reflected in the sales price. Currently, we estimate that our total gross exposure to tariffs could roughly double to around 200 million. However, we are actively engaging with our customers to mitigate the impact through measures such as adjusting shipping points, enhancing USMCA compliance, and exploring compensation mechanisms. In the second quarter, due to timing, customer compensation booked during the quarter covered approximately 80% of the tariffs paid. Most of the remaining charges are expected to be recovered later in the year. Despite the uncertainty, we continue to believe that the net effect on our adjusted operating income for 2025 will be around 20 basis points on our operating margin due to the dilution effect. We remain vigilant, particularly in assessing how these developments may influence end customer demand in the U.S. With that, I hand it back to you, Mikael.

Thank you, Fredrik. On to the next slide. The outlook for global light vehicle production in 2025 continues to be uncertain, with regional variations influenced by tariffs slowing economic growth and other factors. S&P now forecast global light vehicle production to grow by 0.4% in 2025, following growth of over 3% in the first half of the year. However, their outlook for the second half has weakened considerably, with light vehicle production now expected to decline by more than 2%. In North America, the production outlook has been significantly downgraded due to the trade risks and higher vehicle prices from import tariffs, especially for the fourth quarter. This reduction is likely to affect vehicles produced in Mexico and Canada more severely. In Europe, production in the first half of the year continued to exceed expectations. leading to the overall upgrade by S&P's full year forecast. However, the outlook for the second half of 2025 remains unchanged as S&P expects inventory reductions to take effect after a strong first half of production versus rather subdued vehicle sales. China is also growing driven by government policies supporting the new energy vehicle market and relaxed auto loan policies. Japan and South Korea are potentially facing declines 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 our way forward on the next slide. At our capital market day in June, we outlined our strategic roadmap for sustainable growth and long-term value creation. We emphasized our medium and long-term growth opportunities, particularly through deepening partnerships with leading global and Chinese OEMs. positioning Autoliv as the clear market leader also in the future. We showcased innovations across our core safety systems, airbags, seatbelts and steering wheels, as well as new mobility safety solutions. Global growth outlook for automotive safety overall is supported by light vehicle production growth driven by positive GDP trends in emerging markets, and by continued increases in safety content per week. Our strong performance culture is driven by clear key behaviors to guide us, a clear mandate and expectations end-to-end, continuous improvement mindset, partnerships across the value chain, both with customers and suppliers. Operationally, we demonstrated progress that contributes to improved profitability. especially through productivity improvements, automation and digitalization, footprint optimization and commercial excellence. We reaffirmed our commitment to strong shareholder return with an ambition of 300 to 500 million US dollars in annual stock repurchases and maintaining a healthy leverage ratio not above 1.5 times. Now looking on the business outlook on the next slide. We expect the second half of 2025 to be challenging for the automotive industry with lower light vehicle production year over year. 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 higher shareholder returns. We successfully navigate the new tariff environment in the first half of the year. This gives us confidence that it is possible to continue on that course, but there is significant uncertainty. Contrary to the past three years, we do not anticipate the gradual quarter-by-quarter adjusted operating margin increase as the inflation environment differs from recent years. We expect a cadence more in line with our historic normal seasonality, with the fourth quarter anticipated to be the strongest of the year, while the third quarter is anticipated to be the weakest quarter in the year. Global light vehicle production is expected to drop by 1 million units or nearly 5% in Q3, making the weakest quarter 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, and is based on no material changes to tariffs or trade restrictions that are in effect as of July 10, 2025, as well as no significant changes in the macroeconomic environment or change in customer call-off volatility or significant supply chain disruptions. Based on the strong first half year performance and the impact from tariff compensation, we expect our 2025 organic sales to grow around 3%. We expect an adjusted operating margin of around 10 to 10.5%. Operating cash flow is expected to be around 1.2 billion US dollars. Our positive cash flow and strong balance sheet supports our continued commitment to a high level of shareholder returns. Our full year guidance is based on a global light vehicle production decline of around negative 0.5%, a tax rate of around 28%, and that the net currency translation effects on sales will be around zero. We are monitoring the situation closely, and we are prepared to be as agile as we can to adjust to any changes. Looking on the next 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. And I will now hand it back to Raz.

Thank you, Sal. As a reminder to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 for any questions and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Thank you. We are now going to proceed with our first question. And the questions come from the line of Tom Narayan from RBC. Please ask your question. Your line is opened.

Yes, thank you for taking my question. I have two. The first one is on the China domestic performance. I think in your prepared remarks, you said that you performed with the market in the second quarter, but then June, it looks like you outpaced the market. Just curious how we should think about the progression here. Is that something that you think continues to outpace the market? Or is this specific to June? I know you mentioned this China was potentially helping drive your expectation for improvement in H2. So that's my first question as a follow-up.

Okay, thank you. Yes, I think what we're trying to say here with our description on the development in China is that we are progressing in line with what we have indicated before, that through the growth of our business with the Chinese OEMs, we are closing the gap that we have seen over the last couple of quarters here. And I would say that towards the end of the quarter here, we saw this, I would say, turning the corner here and starting to catch up the underperformance that we have seen over the last three quarters here. We feel that we are on the right track and we expect this to continue and that we should be in an outperformance situation in China towards the end of this year.

Okay, thank you. My second one might be a somewhat naive question, so apologies. There's a slide that has product volumes. I think it has knee airbags down 9% versus LVP chest size up 8%. My sense is this just might be lumpy based on mix, just seeing what big kind of swings. Just curious how that works, why there would be such big swings. Is that just a function of launch activity and mix dynamics? Thanks.

Yeah, it is that. So even if it is one of these product categories, the sales price can still be quite different. So, yeah, it is the mixed effect within there that can sometimes look disconnected from the sales development of if you then take airbag and steering wheels combined or seatbelts combined.

Got it. Thank you. I'll share it over. Thanks.

Thank you. We are now going to proceed with our next question. And the next questions come from the line of Colleen Langan from Wells Fargo. Please ask a question.

Oh, great. Thanks for taking my questions. Just to follow up on the tariff commentary, I mean, you recovered most of it in Q1. Any reason why only 80%? You had a few more months. It was actually pretty impressive in Q1. You got so much recovered. Any reason why it's a little slower in Q2? And just to be clear, you still expect by the end of the year to get 100% of all your tariff costs? I mean, or is it going to be a little bit of a lag that gets recovered into next year?

I think, I mean, as you said, I mean, we had some tariffs hitting us in the first quarter here, but it was really in March that that started. And then, of course, we have a full quarter here now with a higher level. And we are accruing this every day when we ship the products. Of course, when you get towards the end of the quarter and the closing, you have some outstanding stats that are still in negotiating mode. And so it's a pure timing effect. And that's why we feel confident that we will regain that towards the end and next quarter here. So it's a pure, I would say, calendar question here in my mind here. So of course, Q1, lower amounts, less of an impact, Q2. bigger, and with the pace we have on a daily day-to-day operations here, we have the timing towards the end of the quarter. So pretty straightforward in that regard.

Okay, got it. And then just as we think about the guidance, the margin guides unchanged, FX a little bit better, I would assume on a percent basis that doesn't affect the margin, as usually FX converts at average margins. You also highlight the raw material costs. Is that worse, any quantification of how much worse that is, or what is the offset to kind of keep the percent margin guidance in check?

Yeah, so on the guidance, the impact of tariffs, if that was your first part of the question. So that's the main reason for the increase in the organic growth from 2% to 3%. So that is the tariff component there that we expect to be able to pass on to the customer, and then the impact of that on our top line. Okay. And then we expect a 20 basis point dilution effect on the full year from tariffs, which is a combination of the pure dilution effect that we have the compensation on the sales line, but you have no EBIT effects from it. So that's one part of the dilution effect, but we also expect that there will always be at the quarter end some costs that we need to absorb first before we can pass it on to the customer. And then on your raw material question, we actually expect that the raw materials have improved. We see that the raw material situation has improved slightly versus Q1, so that we now expect a headwind of close to 20 million, which is then a drop from around 40 million that we were expecting after the first quarter. But it has slightly improved, actually, for this year.

Okay. Okay, that's very helpful. All right, thanks for taking my questions.

We are now going to proceed with our next question. And the next questions come from the line of Edison Yu from Deutsche Bank. Please answer your question.

Hi, thank you for taking our questions. First of all, I want to come back on the margin. I know you're looking for 3Q to be the weakest. Can you just maybe walk us through the main drivers of that relative to the second quarter?

It's basically the volume that Mikael mentioned during the presentation. If you look at S&P Global, that indicates a roughly one million unit drop between Q2 and Q3, which is not so different from a typical seasonality. Q3 is typically the weakest LVP quarter. still continue to expect that the fourth quarter will be the strongest quarter, both in terms of volumes, but also then with the regular seasonality that we have higher engineering income in the fourth quarter. So more of a return to the more traditional seasonality that we had pre-inflation.

Understood. And just more generally, we've seen reports that some of the big OEMs are trying to be a bit more stringent on some of the terms of the suppliers. Have you seen any of that come up in your discussions or at least potentially any impact of that happening later in the year?

I think, I mean, the terms and conditions is, I would say, a regular business to go through and it's a negotiation around those also. So I wouldn't like to point out that as a specific topic here. I think it's a natural thing part of us interacting with our customers here. So it's a negotiation around that as well. Great, thank you.

We are now going to proceed with our next question. And the questions come from the line of Emanuel Rosner from Woolf Research. Please ask your question.

Yes, thank you so much. Just on tariffs again, just a quick point of maybe housekeeping or clarification. Would it be your expectation that in the third quarter you will therefore over-recover tariffs, so like you'll have the 20% under-recover from Q2 and then the full Q3 tariffs, or that every single quarter will likely have a little bit of a lag and therefore you could also end the year not fully recovered?

Yeah, I think, and as Fredrik already mentioned here, when it comes to the full year here, that we expect, of course, there'll be some calendar effects there that you have spillover, so to speak, from what is not in a timely fashion being able to conclude before you close the books. So, I mean, the size of it, I wouldn't like to speculate, but you have some calendar effects there as well.

But I guess that's also true from the quarter point of view as well you don't expect to over recover no no no no that's my point so it's i mean every every closing in the quarter i mean be it q3 q2 or q4 ultimately you have this time effect yes understood thanks for clarification and then i guess longer term so you had your capital markets day recently uh 12 margin is still very much uh the target holistically um you know, how much of the drivers to get there are things that are generally under your control in terms of, you know, headcount reduction, efficiencies, automation, et cetera, and how much of it is really, you know, things that would require essentially a more stable market or different industry conditions?

I think we have tried to frame it here, I mean, around the stable and, reasonable LVP level here and we talked about 85 million here and call off stability back to pre-pandemic here. So I mean, that's still valid for sure. But as you can see here in the quarter here, we are delivering well on what is in our control. And I think that's really our focus here to make sure that we we have good traction on our different levers that we have identified for our, within our own controls. Got it.

Thank you.

We are now going to proceed with our next question. And the questions come from the line of Hampus. Angelo from Handelsbanken, please ask your question.

Thank you very much. Two questions from me. Just to use some clarification on China, given the price competition we see there among the domestic OEMs, has that in any way changed your pricing situation as it becomes tougher for you guys in terms of negotiations? That's my first question. Second question is India. If you maybe could update us on the situation in India, maybe market share, and also how much contribution of growth you have from India this year. Thank you.

Yeah, I can start with China and then Fredrik can jump in on India there. But I mean, I mean, first, I mean, as you know, I mean, automotive industry is very focused on cost and has always been. And I think we have shown that we have the capability to be price competitive wherever we are operating, also in China, where we are the market leader in China. local market. What we have talked about here is the mixed effect that we have been impacted by, but we are regaining that. So I would say my view here and feeling here is that we are able to meet the cost pressure that you have in the China market and also elsewhere here. So hence our focus here on continuing to drive efficiency and those that cost out in the whole system.

And then your question regarding India. So we have significantly outperformed the underlying LVP growth in the first half of the year. And we have around 60 percent market share in India. For the full year 2025 we expect that India will make up around 5 percent of our group sales. 100 million top line.

Super. Thank you very much.

Thank you.

We are now going to proceed with our next question. And the questions come from the line of Vijay Rakesh from Mizioho. Please answer your question.

Yeah. Hi, Mikael and Frederik. Just a quick question. global lvp you mentioned second half you know might be some risk with the tariff and pull-ins um do you still expect to see the same um seasonality if you're going to do some work for you guys given some of the the you know the overall market trends there on lvp and their follow-up so sorry could you repeat that the line was a bit better could you Just given the second half risk in LVP with the pull-ins and tariffs, do you still expect the same seasonality in the December quarter for hourly?

So we do expect that the second half will be weaker in relation to the first half. You saw LVP in the first half was up 3.1% year-over-year. And S&P thinks or says it will be down 2.3% year-over-year. So, yeah, the impact on the end consumer has been limited in the first half, and the expectation is that that will increase in the second half of the year. But then in terms of – and then in terms of that impact on us is then, as I explained before, that leads to a lower Q3 LDP by roughly 1 million sequentially quarter-by-quarter. And with that, we would expect the third quarter to be our weakest in the year in terms of profitability. And then the fourth quarter will have, also due to seasonality, the highest LVP support. And then on top of that, the regular cadence of the higher engineering income in the fourth quarter. I hope that answers your question.

And then on the EV versus ICE, what's the content on EV vehicles versus ICE? And I guess what's the mix for you now, EV versus ICE overall for your group sales?

Thanks. I mean, it's not a large change. I mean, we are, as you said, our market share is pretty similar on EVs as it is on the regular ICE vehicles. And we did not see any change on that here in the second quarter. Thank you. Thanks.

We are now going to proceed with our next question. And the questions come from the line of Michael Aspinall from Jefferies. Please ask your question.

Thanks, Carrie, Michael, Frederick, and Anders. Just a kind of follow-up on Taras. Can you give us some context to the competitive positioning of some of the other safety providers in terms of production in the US?

No, I think we are well, I would say, well positioned to navigate through this. First of all, we are very regionalized. So the different regions are taking care of its own value chain to a very large extent. Of course, America is one region here. So for us, it's then primarily a question about the US-Mexico tariff that is in place there. But also there, we have a very strong industrial footprint relative to industry and competition here with our five plants in Utah. And in all this, we're working with our customers, of course, to see how we can leverage and optimize our footprint in the best possible way there in the short term. So, yeah, I think we're in a good position there.

Okay, and then it's kind of a related question. Outside of the discussions you're obviously having with your customers about recovering tariffs, is there any kind of, has the conversation changed with your customers? Because I could imagine with that local footprint, I mean, they may be coming to you, although they probably don't want to pay the tariffs, and asking you to kind of help them with more volumes, say, for example.

Yeah, I think, I mean, of course, we are working with them as I mentioned here to find the solution in both activities short term that can limit the impact there. But I mean, long term, we can do a lot of things here. But I think what we need to do or have in order to take next steps here is to have clarity on how tariffs actually will play out here. I mean, at what level and that they are there for, you know, foreseeable future. I mean, nothing is forever here, but we need to have some until further notice at least in place sustainably in order to take any potential CapEx decisions in all that. But right now, it feels like we are some time away from that point. Okay. Thank you.

We are now going to proceed with our next question. And the next question comes from the line of Mattias Homburg from DNV Carnegie. Please answer your question.

Thank you. Just a quick follow-up on the 10 to 10.5% margin guidance in the context of the 20 bps tariff dilution. Should we think of the underlying performance as absorbing this tariff headwind? In other words, that there is some underlying improvement and that the tariff drag is what's effectively holding back what would be a very small upgrade. I'm just trying to understand how best to frame the guidance in relation to this impact.

I think you're absolutely right. The tariff impact that Fredrik mentioned before is included in our guidance, and we are working, as I said here, very hard to improve and take out costs, etc., manage the headwind that we see. And this is definitely a headwind that we have to absorb within the guidance here.

Thank you.

We are now going to proceed with our next question. And the next questions come from the line of Agnieszka Wilela from Nordea. Please ask your question.

Perfect, thank you so much. I have two questions. So starting with the capital distribution, at the CMD you said that you have the ambition to return 300 to 500 million through buybacks, but now you're running at about 50 million buyback per quarter in the last two quarters. So can you tell us what is the reason behind the somewhat smaller buyback pace and also what should we expect for the remainder of the year?

I mean, first of all, we are fully committed to what we have stated there, to have around 300 to 500 million in annual repurchase level. So that's correct. Then, of course, we can't guide on how and when that will be distributed and so on. But that still holds. And I think, I mean, why has it only been 50% per quarter so far I would say I mean it's a discussion we have been here internally on how what level to place ourselves and I mean it has been quite a volatile first half year here and I think some prudence is always good when you enter into a new period here so nothing dramatic in that it's just a part of the overall assessment from time to time but what Our commitment still holds, absolutely.

Great. Thank you for the caller. And then the second question, I guess it's to Fredrik. Currencies supported your EBIT in the quarter with 13 million. Assuming the current currency rates, could you help us to understand what impact could we expect for H2 when you look at the translation and transaction effects for you?

As we indicated, the main positive effect we had was revaluation effect from the balance sheet through the P&L. That was around 7 million. The transactional FX impact was around 3 million positive, and then the translation effect was around 2 million positive in the quarter. And the main currency pairs that The impact of this was on the positive side was the Mexican peso versus the US dollar on a year-by-year basis, and also the Euro against the Turkish lira. So those were the two most favorable currency pairings for us, the movements. And then this was offset on the negative side by the peso against the Euro as we import Euro-denominated products into Mexico. And then also the appreciation of the SEC against the US dollar was a negative hit for us. And the only thing I can say on the guidance is that we expect that the translation effect for the full year will be around zero.

Thank you. Thank you.

As a final reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Thank you. We are now going to proceed with our next question. And the questions come from the line of Dan Levy from Barclays. Please ask your question.

Thank you. Thank you for taking the question. First question is just on the pricing dynamics, because if we look at the bridge, you are still getting implied positive year-over-year pricing. So wondering if you could talk to the ongoing trajectory of pricing and how that is if any way, impacted by your ongoing tariff negotiations?

I think, I mean, the pricing, I mean, of course, we continue with our price negotiations when it comes to the tariffs, no doubt about that, and that's what we have talked a lot about today here. Then, of course, we still have some inflationary impacts, even though significantly smaller than what we have seen in the in the past years, but it's still over and above what we have as normal. So that's dynamic there. And then, of course, we get new price points when we have new products and new businesses there. But other than that, it's still the same dynamics here when it comes to expectation of the price down of the 2 to 4% that we have had historically here on running programs. So no change when it comes to, I would say, the model and the dynamics there. Okay, thank you.

Yeah, thank you. Second question is around the GOM dynamics. And specifically, I think we've seen strong GOM in America and Europe. But in America specifically, we do have tariffs. I think there is some question on launch activity going forward. There's clearly a question on EV uptake. So maybe you can remind us to what extent your GOM in America has been impacted by, has been driven by EVs, and to what extent any slowdowns in launch activity, EV uptake, could impact GOM for you in the second half and into 2026?

I would say in America, the EV component has not been It's very minor. So I don't see that impacting our position at all, actually.

And tariffs, any other launches that are at risk because of tariffs for you?

I think, I mean, the tariffs as such, of course, it's a part of creating uncertainty about the outlooks here when it comes to people's willing to invest and affordability and those kind of questions. And of course, I think you can see, and we have seen that the activities for RFQs for new models is pushed out in time. And as we indicated here also, we see with lower numbers than expected and more in line with last year here. So I think in short, the uncertainty in general, and of course, tariffs are an important part of that, is creating uncertainty on where to invest with new models, etc. So, we see more the existing models running longer and new models being pushed out in time, in general, regardless if it's EV or not.

Great, thank you.

We will now take our last question. And the last question comes from the line of Carl Bockvith from ABG Central Collier.

Please ask your question.

Thank you. Good afternoon. Just a question on the comments regarding an expectation of getting into outperformance in China during the second half. I understand this is fully including both the effect of volume, but despite the negative mix headwinds. So the question is, If you expect this outperformance, for how long do you think that the mix will still be a headwind?

That's very difficult to have a very clear answer on. I think so far we have seen, of course, that you have the low-end vehicles, if we call them that, being the main driver of the volume in China so far. And I think it goes hand in hand also a little bit with the overall economic situation as such. But I think the important thing here is that we are gaining market share with that segment where we maybe have been a little bit underrepresented in the past. And that gap is closing and we expect to outperform going forward. That can be discussed, but that depends on the more model mix effect, which is very hard to have a clear opinion about more speculation in that case.

Understood. That was all from my side. Thank you. Thank you.

This concludes the question and answer session. I will now hand back to Mr. Michael Brad for closing remarks.

Thank you, Rath. Before we conclude today's call, I want to emphasize our commitment to achieving our financial targets. Our focus remains on our 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 tariffs and geopolitical challenges, which could impact our cost structure and market dynamics. Navigating these complexities, as well as we did in the first half of the year, will be instrumental in maintaining our momentum throughout the year. Finally, our products help save an estimate of 37,000 lives and reduced around 600,000 injuries last year. underscoring our vision of saving more lives. Our third quarter call is scheduled for Friday, October 17, 2025. Thank you for your attention. Until next time, stay safe.