The next leg of our corporate series here. We're very excited to have Magna International here with us today. They've been great partners with this conference for many years. Magna is one of the most strategically important companies in the global automotive supply chain. Over $40 billion in revenue, combining deep engineering expertise with a truly global manufacturing scale. I think unlike most suppliers, Magna operates across nearly every major global vehicle system and is one of the few suppliers capable of designing and assembling complete vehicles, giving it a really unique partnership role with the OEM. With us from Magna, we have Patrick McCann, Executive Vice President and Chief Financial Officer, as well as Louis Tonelli, Vice President of Investor Relations. Thanks again for joining us today. I guess let's start big picture.
Many Tier 1 suppliers are specialists in powertrain or axles or seating, but Magna has such a breadth of products to really integrate the body powertrain, electronics and seating systems into final assembly. I guess what type of advantage does this portfolio give you over the competition to partner with the OEM at early stages?
Great. I'll take that. Thanks Alex, and good afternoon everyone. It's great for us to be here. As Alex said, I mean, Magna is one of the largest and most diverse auto suppliers in the world. You know, our product and systems breadth along with that complete vehicles competency, you know, really does allow us to understand the interaction of systems and components in a vehicle in a way that very few other suppliers can. We do believe that provides an advantage to us in the marketplace in developing, you know, technology, technologically advanced systems and components for our customers. Customers look for ways to enhance technology, reduce assembly complexity and cost, be quicker to market and improve their competitiveness, you know, Magna can be that supplier of choice, if you will.
In our complete vehicles business, which is about, you know, just over 10% of our revenue, that's more of a partner relationship than a supplier relationship. We do get pulled in early, in the early stages of vehicle development, which does provide opportunities for us to find solutions, which often involve including other Magna groups, as suppliers on the vehicle. With respect to the remainder of our business, again, it's the breadth along with deep capabilities, strong customer relationships across the enterprise that really enable us to compete and win even in a more traditional automotive supplier, role, if you will.
Patrick McCann, your team really has a unique advantage because of the breadth of the products that you have to really see how the market balance and shift is happening between ICE, hybrid and EV. Since you're really at the front of the table with these manufacturers, how are you positioned in each of those three categories, and what advantages could you help us be smart about how this is evolving globally?
Yeah, no, great question. First of all, I think the advantage for Magna is, you know, over the vast majority of our portfolio, so I think north of 80% of our portfolio is agnostic to the powertrain configuration. Items like or components or systems like body, chassis, fascia, seats, mirrors, power systems, ADAS, et cetera, apply to all the vehicles, whether it's ICE, hybrid, EV. It's mainly the powertrain business that we have that tends to be more propulsion specific, if you will. Powertrain for us is really drive systems.
Yeah.
Systems that take power to the wheels. You know, we're predominantly, or we're a leader in ICE. That would be four-wheel drive, all-wheel drive, dual-clutch transmission. Over the past number of years, as electrification has grown, we've developed and invested in powertrain electrification. Fully eDrive for electric vehicles, hybrid drives, and we've won programs across the spectrum, whether it's components like motors, inverters, or systems like hybrid drives, hybrid dual-clutch transmission, fully eDrive for electric vehicles. Another point would be our body and chassis business, where it's also powertrain agnostic largely, but we did see the opportunity to develop battery enclosure technology, which is a high content system using many of our core technologies like metal forming.
Right now we develop that business organically, and we're now one of the most, if not the most capable supplier in the product category. Every EV needs a battery enclosure. We know the electrification shift is happening. It's undeniable, but as it happens, even if it happens more slowly in North America, we're really well positioned across the portfolio to support the industry regardless of powertrain configuration. Another development I think's been favorable is, you know, the initial configurations were EV specific, ICE specific. Now we're seeing a more balanced, you know, single platforms with both powertrain technology or all three powertrain technologies, which again enables us to serve the OEM in a more balanced way. I mean, that's positive for us as well.
80% you're agnostic on either side and the 20% that you're not, you know, when we had primarily North American companies pull back in the EV, Europe a little less so, but still a little slower growth. In China it's gangbusters still. How are you able to kind of, you know, modify your capacity? Were you able to get your refunds from some of the OEMs? Just give me the idea how you kind of navigated that?
Yeah, you know, well, especially as you mentioned, I mean, China's continuing to see strong EV growth. Europe's continuing to grow EVs, you know, again, maybe a little bit, a little bit less than before, but North America was really the big impact. We invested a lot to be prepared to support the EV market in North America as that has kind of pulled back. It has resulted in discussions with customers for recoveries for investments that we made, which has materialized. We had a recovery we talked about in the fourth quarter.
Yeah.
North of $400 million. We're continuing to dialogue with our customers for additional recoveries that we're working on in 2026. That did allow us to de-rate some lines, repurpose some lines, and enable us to reuse equipment to a level we've really never done before, which, you know, resulted in lower CapEx in 2025, and we're planning for, you know, below, call it long-term average CapEx again in 2026, because we invested a lot in 2023 and 2024, and we're now able to.
There's sort of a silver lining there, right?
It's, you know, we've managed through it really well. Obviously, we'd rather have the volume than the recovery, but the recovery does enable us to at least recapture some of our costs and repurpose some of the equipment.
I'd add that if you look at the powertrain side, those facilities, rather than, let's say, having a brand-new facility to do, let's say, eDrive, we are producing the eDrive in the same facility as we're producing a four-wheel drive system. We're producing the hybrid DCTs in the same facilities as we're doing the traditional DCTs. We're utilizing the same capacity, utilizing the same labor source. That gives us flexibility to move things around if volumes are higher or lower.
Yep.
One way or the other.
Exactly.
Funkily, yep.
Perfect. I guess given the global uncertainty we've seen, in the high price of vehicles, we're trying to ask many of the suppliers that are here with us, just how do you feel about the overall automotive industry in 2026 from, you know, a demand standpoint?
Yeah, Louis, you want to take that?
If you look at where we gave our outlook last month, and we were calling for relative to 2025, a little lower production in North America, and a little lower production in China, and a little bit higher production in Europe.
Mm.
If you look at it on a net basis, on a Magna-weighted basis, because we're stronger in North America and Europe, our business is bigger, we would be down about 1%. Obviously, global events have kind of had an impact on oil prices and, you know, economic uncertainty, so that could have an impact overall on demand. You know, I'd say at this point, we're not seeing it. I mean, so far, so good after a couple of months. We're gonna have to look at it as we give our update in Q1. We have to look at what that might mean to production and adjust if there's a need to adjust. IHS at this point hasn't really made many changes to our key markets, so that's helpful for us at this point.
You know, I think we've shown over the last number of years our ability to flex both the cost side and the capital side where production has come in less than what we expected. We expect we're gonna be able to continue to do that.
Yeah. I would just add, we're, as Louis said, we're monitoring it. Not a lot to report on at this point, but as he said, so far, so good two months into the year. Then again, you know, whether it was COVID or semiconductor chips or hyperinflation, I mean, I think the business model that we've developed and implemented and managed at Magna has really enabled us to kind of deal with whatever comes our way, and I think we're running a very similar playbook, or we will if need be this time around.
You could segue into margins a bit.
Yeah.
You guys are one of the companies that are driving margin improvement. I think that you are expecting 40-100 basis points of EBIT margin expansion in 2026. How are you able to achieve that in such a tough market, and what are some of the drivers behind it?
Sure. Just to level set everyone, you know, when we provided our outlook in February, we did indicate we expected adjusted EBIT margins to be in the range of 6%-6.6%. At the midpoint, that's up 70 basis points from 2025. That's really gonna be driven by operational excellence initiatives across the enterprise. We started that a few years ago, and through last year, we've generated around 150 basis points of margin expansion from net operational excellence initiatives. Think of that as continuous improvement, cost savings, big initiatives like Factory of the Future, and that would be sort of net of normal course customer price concessions. With 2026, that would get us closer to 200 basis points over the four-year period.
That's a big driver of the margin increase, and that's kind of volume indifferent, if you will. At the midpoint of the guide, it would assume, you know, so of our 70 basis points, call it half or a little bit more than half would be net operational excellence. The other half would be good pull-through on the higher revenue that we expect, because we do expect a higher revenue year-over-year as Louis talked about. You know, within that range really depends upon how the volume and mix kind of play out as we move through the year. We do expect a little bit higher equity income this year as well.
Mm.
Overall, those are the big drivers, and I think really if you go back three, four years, you know, margins did compress at Magna like they did at many auto companies and suppliers with the inflation that came through beginning in 2022. This is really our ongoing journey to get the margins back up to where they were. This margin improvement, I think, is, you know, we really feel like we're in the early innings, and it's something that can continue for the next few years and as we continue to work our way back up to our, you know, historical margin levels.
That's true.
I wanted to go through growth over market and the guidance this year. The growth over market guidance pretty impressive, you know, 0%-3% this year, I think excluding complete vehicles +1%-4%. I think one of the better sort of growth over market sort of embedded in 2026. Can you just maybe help us with the building blocks of what's driving that? Is it new programs coming online that maybe people aren't thinking about? Just maybe walk us through sort of the growth over market in 2026?
Yeah. I mean, our business in 2026 is essentially 100% booked. Our sales reflect really our assumptions on volumes for every single program out there. That's kind of the mix impact and the launch impact. We do have a lot of launches that are going on all over the world with multiple customers, and that's definitely a big contributor to our growth this year. If you look at what's happening in complete vehicles, it's declining. We come to the end of production on the BMW Z4 and the Toyota Supra. Volumes are actually up overall because we're launching on the XPeng and the GAC business.
It's just that the revenue is such that you may recall us talking about the outgoing programs being on a full cost basis, how we're accounting for that, and the incoming programs with the Chinese are on a value-added basis. Net sales are down, but our volumes are up in that business.
Basically 100% book business, and then we'll trend in line with sort of the production assumptions in the guide.
Yeah. I mean, it's really driven by, you know, if we have a lot of content on next, you know, incremental launches, that's a big driver, the content.
I really think you got to look at kind of growth over market over a period of time because it is very much launch dependent. Last year we talked about it for the full year, I think we were -1% growth over market as we anticipated very much launch and some of it was geographic driven in China relative to what we saw in 2024. Moving into this year, you know, the 1%-4% excluding complete vehicles is again driven mainly by the content on the launches coming out. Over a longer period of time, we continue to target, you know, low single digits growth over market across the portfolio and very confident that we can continue to deliver that.
I may touch on when it hit cash flows.
Sure.
I mean, to all the auto companies I cover in the supplier world, I mean, I think you've got the highest free cash flow. If I've got it correct, $1.6 billion-$1.8 billion is the range for 2026. How sustainable are those levels? We'll probably, once we get through the cash flow a bit, we'll talk about some of the priorities of using that cash.
Yeah, sure. It was, you're exactly right. Our full year outlook was for $1.6 billion-$1.8 billion, so call it $1.7 billion at the midpoint. Actually, down a couple hundred million. We actually had a very strong free cash flow year in 2025 of $1.9 billion, aided a lot by some of those customer recoveries I talked about, in the fourth quarter. The point on free cash flow, I think it's really important. You know, the free cash generation capability in the business is very good. We do expect that level in terms of a conversion on net income. The guide would be roughly a little bit more than 90% of adjusted net income at the midpoint.
Wow.
I think we expect that we can continue at that level. You look at it's really the walk, you know, we are down $200 million from 2025, but it's mainly, you know, we have higher earnings which are helping. We do have higher CapEx. As I said, last year, we did have lower than normal CapEx or lower than expected CapEx levels because of some of the repurposing of the equipment we were able to do and some of the programs that got pushed out.
Despite higher CapEx, despite, you know, slightly unfavorable working capital, which includes some of the customer recoveries I talked about, we're still gonna generate very strong free cash flow at $1.7 billion at the midpoint, which is enabling, you know, the next step, which I'm sure we'll get to around capital allocation. The cash generation is quite good. We expect it to continue to be very strong with working capital management, managing our CapEx within long-term averages of around 4%-4.5% of sales, and then continuing to grow earnings should set the table well for continued capital allocation for the benefit of the shareholders.
Maybe we could just roll into the strong free cash flow. I think you said you had a goal to repurchase all 22 million shares available under the current buyback plan in 2026. Also you'll, I mean, of course, have money to invest in the business. We could also. We have some credit investors that have talked to you. We wanted just maybe a little color on the balance sheet and your high rating and how you feel about the rating, you know, relative to your peer group, which is typically much lower rated.
Yeah, I mean, I would say, you know, capital allocation at Magna really starts with the balance sheet. It always starts with maintaining a strong balance sheet. Why? Because that enables us to drive the strategy, invest, take advantage of opportunities in the marketplace through cycles. That's always been a hallmark of the company, so it starts there. The solid investment grade ratings is always been part of the capital allocation philosophy. We're currently A-minus rated across all three rating agencies. You know, we would endeavor to keep that rating. Our leverage is right in line with where it needs to be.
That does create the ability with $1.7 billion of free cash flow after dividends to allocate, you know, all of that, basically all of that free cash flow toward share buybacks and maybe a little bit even a little bit beyond that. We have some cash on hand as well. It starts with the balance sheet and then it goes to investing in the business to support growth, support margin expansion. That's R&D, that's CapEx, winning new business, growing the business.
Beyond that, it would be continuing to pay a competitive dividend, a dividend that we can increase as earnings grow and we've increased our dividend 16 years in a row now. Where there's excess capital, we don't really see the need to do big M&A at this point. Maybe a tuck in here or there. It does free up the bulk of that excess extra cash flow or excess capital to share buybacks, while still keeping leverage on side and well within the rating.
Really helpful. Love to shift a little bit and go through the segments, and do a dive into each segment. I guess, you know, first, what factors contributed to, you know, the expected margin expansion if we start with, Body Exteriors and Structures in 2026?
Sure, I'll take that. Bodies, exteriors, and structures, or BES, is our largest segment. It's about 40-ish% of total company sales. We do expect margins to range in 8.2%-8.8% EBIT for 2026. That's up from 8.1%, so call it up around 40 basis points at the midpoint year-over-year. That's despite revenue, expecting revenue to be kinda flat to up slightly, flat to up 3%. What's really driving that is good pull-through on the revenue growth, number one, and then continued contribution from, you know, operational excellence, initiatives as well. Both of those would offset. We do expect less contribution from commercial recoveries in BES this year than we had in 2025.
Net-net, us continuing to expand margins there and that's a business where we have strong positions in both bodies and structures as well as exteriors in that segment.
I guess just rolling into Power & Vision. Really with 5%-7% weighted growth over market. I think it's the strongest segment for this year. Can you just talk about you know what's driving that growth if we just isolate that segment and then maybe walk us through sort of the margin profile of that business this year?
I mean, talked about it a bit earlier, like in terms of the launch of. I'd say it's really launch and mix and new programs as well as just mix overall being strong in that segment in 2026 relative to 2025. Margins we're expecting between 6% and 6.6% this year versus about 4.5% last year. I would say the big drivers are really the pull-through on the higher sales, given the growth of our market. Operational excellence continuing to be strong across all of Magna segments, but certainly our Power & Vision is contributing. We had some commercial hits last year and some warranty late in the year. We expect some rebound from there, so commercial should be a positive.
It's neutral for Magna, but it's positive in Power & Vision, and warranty should be positive as well in Power & Vision. Then lastly, equity income is up across Magna. Most of it is in Power & Vision, and that's also contributing to the margin expansion.
Maybe we'll transfer over to the seating business. You know, one of the top manufacturers in seating of all different types. You know, how are you navigating the ebbs and flows in seating? What are some of your core competencies that, you know, put the moat around some of the best parts of your business?
Yeah, I mean, our seating business is a very good business for Magna. We do expect in 2026 for sales to be down a little bit, kinda mid-single digits%, if you will, due mainly to the end of production.
Some roll-offs.
At a roll-off at a Ford program, the Ford Escape in Louisville, as that plant goes down to get retooled. That's probably the biggest single impact to the top line for us in 2026. Now it's a high-volume program, so we got a lot of content on it. But later in 2026, we will launch some replacement business and other high-volume programs, including with the European OEM that we've talked about for some time, like, the importance of us. We've been working on the margin. We are gonna launch some replacement business with a European OEM that should have better economics. It will have better economics than the program it replaces, and that'll provide some benefit in 2026, but a lot more in 2027.
We expect, despite revenue being down kinda mid-single digits, we expect to, you know, hold margins reasonably well. Margins will be down slightly, call it 35 basis points, and it's mainly the operational excellence. Again, that's a recurring theme at Magna, but in seating we've kicked off a lot of operational excellence initiatives to mitigate the impact of the lower revenue. It should enable seating to kinda hold margins pretty close to prior year levels despite the volume impact. As new programs come back on, including some of the replacement business with Ford in 2027, I think we'll be in a really good position to continue to expand margins as we go.
Perfect. Then I guess, not to go off track, but before we go to complete vehicles, you've used the term, you know, operational excellence quite a bit, and I think it's a pretty important margin driver across all the segments. Can you just help us understand exactly what you're doing there that's driving, you know, that level of margin improvement, even in some of your segments that are softer this year?
I mean, I would say it's always been a core competency at Magna, but I do think, yeah, as you've seen the last 3-4 years, and again in 2026, we're stepping it up. I would put it into two main buckets. You know, bucket one would be your normal continuous improvement initiatives across our plants. We've got over 350 plants around the world. Each plant will have a double-digit number of CI initiatives, as they call it, to generate savings in the division, which then roll up into the company, and that's a big component of it. Then the other piece. That's a lot of little things, literally thousands of initiatives every year that add up to be a pretty big number.
We do have some larger company-wide initiatives, if you will, around Factory of the Future, automating our facilities. We've got 140 of our plants now on a single digitized architecture, where we're able to monitor what's going on in the plant kinda real time across the company. I think that will ultimately lead to less downtime, more predictive maintenance, et cetera. We're also employing a lot more AMRs, automated material handling in the plants. Factory of the Future automation would be the kind of the big project that's kinda going along with, you know, the thousands of other projects. Is there anything you'd add, Louis?
I think you got it.
I guess let's just go through complete vehicles then. I think, you know, expected to be a bit softer in 2026. Maybe just walk us through how you're thinking about that business, both this year and longer term? I know there's some program roll-offs, you know, with like the Ford Escape, for instance, that's pressuring that business. How are you thinking about that business, you know, this year and then longer term?
Yeah. It's not Escape. Escape is succeeding in North America. Complete vehicles, as Louis said earlier, the Z4-
Yeah. Sorry.
Z4 and the Supra are rolling off. They rolled off kind of in the first half of the year. We are ramping up with the Chinese OEMs. Net net sales are down because of the mix of full cost versus value add. Net net it's down in sales, but not much impact on an economic basis. Our margins are holding in there. We continue to have discussions with customers about new opportunities. I think it's still an area that we're pretty confident is gonna continue to be a solid performer for Magna going forward.
I think the wins with the Chinese OEMs were significant, you know, in terms of Chinese OEMs looking to get a little more local in Europe. With XPeng and GAC, we're able to assemble the SKD, the modules for them now in our facility in Graz, Austria. I think that, you know, that was enabling sort of a bridge for those OEMs into Europe, and I think as that continues, that can create not only more opportunities for us in complete vehicles in Graz, but also, you know, other Magna businesses in Europe as well.
That's a good point, actually. We've always done well in terms of component and system content on the vehicles that we're producing there in Graz.
Perfect. Well, we know you guys are very global. We've kind of asked every panel this: How are you dealing with your commodity inflation, potential supply chain disruption, whether it's DRAM or aluminum, even steel, and of course we have, you know, oil at, I don't know where it is today, but, you know, plus or minus $100?
Mm-hmm.
So-
Yeah.
It will affect, you know, resins, you know, certain plastics that have, you know, derivatives of oil. There's a lot to navigate right now in the cost side.
Yeah. No doubt, particularly in the current environment. I, you know, I would say we're managing it as we always have, very actively. When you think about different commodities, you know, steel and aluminum as an example, you know, the majority of what we're exposed to is covered either under OEM resale programs or through annual contracts, so we don't see significant exposure there. We do have exposure to resins. Much of our resin buy is tied to indexes, so suppliers can adjust prices as indexes move. If oil remains high for an extended period of time, you know, that would be something we'd have to manage. We would see higher costs, and then we'd have to work with customers to recover those costs, as we've done in the past.
With respect to specifically DRAM, we do have DRAM exposure. It's not huge. We've said it's under $100 million, but we are coordinating with our customers on the issue. First, foremost, we're managing it such that we haven't had any disruptions, nor have we disrupted any customers. We do see the potential for higher costs. We're working to mitigate as we speak. It's a very fluid situation. Where we can't mitigate, we're working with our customers to get recoveries where, you know, where we can. We did include in our full year guidance in February a net headwind for the year in P&V for DRAM, but continuing to manage it.
Again, I think, as Louis said earlier, I think if Magna's kind of proven anything over the last five, six years, it's the ability to manage through situations like this in terms of avoiding disruption, maintaining high quality, high customer service, and then, you know, getting recoveries where we're unable to mitigate cost increases. Obviously, there's lags involved and that sort of thing, but I don't view this situation as any different.
Just a level set. Other than DRAM and Power & Vision, as Patrick said, we haven't really assumed much change in our outlook that we provided in February. It basically was neutral on net input costs, so we're gonna have to revisit that as we get to the end of the quarter and see how that might impact us going forward.
As far as DRAM, there's a lot of fear maybe a month ago before we had a lot of new problems, but.
Yeah.
Bigger problems. What I understand DRAM, the chips are available, just they got a lot more ex-
Yeah.
Expensive.
Price. It's a price issue.
This pricing, which is a lot different than 'cause there were some big reports that were saying DRAM's gonna end, you know, autos are in trouble again. They kinda compared it to semiconductor shortage, which, to me seems completely different than what we had, you know, during COVID, where you just couldn't get chips, and this is like, you can get them. They're kind of more expensive, and you can navigate it a bit. Do you assume it's a very different issue?
We do see it as more of a price issue than an availability issue, but one of the reasons the price is going up is the.
It's just availability.
Is the data center market is pulling.
Sucking it up.
Pulling hard. You know, as semiconductors, I do think ultimately the market will compensate for it. There'll be new players, there'll be new capacity. That may take some time, but in the interim, we're looking to other sources of supply, and then obviously working with our customers to get recoveries.
Sorry, did you quantify the DRAM cost impact?
What we've said in the past has been it's under $100 million of annual buy.
Gotcha. You wouldn't be able to pass that through to the customers at all?
That’s the annual buy, so there’d be a price increase off that as we were talking about. It’s just a question of, can we recover some of that from our customers? I think we will recover some of that. What we don’t believe we can recover, we’ve included an estimate in our outlook for a net headwind for the year in P&V. That P&V margin expansion that Louis Tonelli talked about of the, you know, good growth, operational excellence, it’s sort of embedded in there, and we’re still able to expand margins.
I mean, it's not a huge number.
Both legacy.
If it's $100, even if you double, it'd be $100, then you reclaim half of it could be $50. I'm not giving numbers, but it's not.
Exactly.
A game changer. Yeah.
Exactly. Certainly at the company level.
Yeah. Perfect. Well, I just wanna do a quick pulse check, see if we have anyone in the audience that'd like to get any in here.
Yeah, go ahead.
Yeah.
Thank you so much for the question. In terms of the battery enclosure, is there an opportunity for you on the BESS side or are your battery enclosure business strictly for automotive? 'Cause LG is kind of repurposing their capacity into battery energy storage.
Oh, I don't know. Yeah. I would say we're primarily geared toward automotive, although I would tell you know, if you know, if Swamy were here, he'd say, "Look, if we have the ability to utilize capacity to serve other markets, existing capacity and without a significant incremental investment," then we'd certainly be open to doing that. But I'd say right now the battery enclosures business is mainly geared toward you know, our light vehicle business.
Excellent.
Yes.
Thanks for the presentation. When we think about your customer exposure, pretty diversified obviously, but when I look over at Europe, a lot of activity going on there with plants reshuffling by the OEMs. I just wondered, anything that you're gonna be addressing or need to address in terms of utilization of your facilities, additional restructuring opportunities with pretty fast payback?
Yeah.
Anything on that front that we should be thinking about in 2026?
Well, that's, I would say, 2026, yeah. I mean, that's been ongoing for a few years now.
Yeah. It's not.
You know, European production is well off peak, which was.
Right.
... 21 million units or what have you. We've been doing a lot of restructuring in Europe for the last several years. I don't know exactly the count on facilities we've consolidated, but it's
Big number.
It's quite a few, and I think that will continue. Typically when we do that, it is a short-term hit from a restructuring standpoint, but then does provide you know longer term benefits to us. It's really more right sizing you know getting margins back to where they were as opposed to net margin accretive, if you will. I think that's continuing in 2026, and I think Europe is where we're seeing most of that.
If we think about 2025, 2024 and that level of restructuring, how's 2026? More of the same or less?
Yeah.
More of the same. Pretty confident.
Any numbers you can share with us on how much you're spending on restructuring?
I think it's about $100 million this year.
$100 million?
$100 million or less, we're expecting this year.
Okay.
Yeah.
And-
That's already in our outlook and in our free cash flow expectations.
From a utilization standpoint, I know it's 350 plants. It's a little bit.
It's tough to do utilization, but it's been improving.
Really what I'm thinking about here, is this something we should assume continues for the next couple of years? It's an ongoing challenge.
Yeah, I mean, I don't know. I would say it. For Magna, it's been a systematic thing. I mean, we don't sorta sit around for several years and all of a sudden you got $1 billion of restructuring. It really is something that we try to manage annually and kinda systematically adjust capacity where we need to. We do have an amount of restructuring every year that we plan for. You know, it's been a little bit elevated the last couple years, but I would expect that to continue to manage capacity kinda proactively, if you will.
Thank you.
Yep.
Any more out there? On the tariff recovery, can you just talk about how much tariff recovery you had in 2025, sort of what's assumed for 2026?
Yeah, sure. In 2025, you know, came in midyear, so we talked about our, kind of our tariff costs in 2025 being around $160 million is the number we kinda talked about. We were able to recover most of that from our customers such that our net tariff exposure was around $30 million. We talked about less than 10 basis points headwind for the year, and we hit that number. We're expecting a similar net impact in 2026, so call it less than 10 basis points again or roughly that $30 million, if you will. That reflects the annualization of tariffs off of 2025 as well as higher mitigation as we look for new suppliers or look to localize activities and as well as, you know, some higher recoveries from customers as well.
You know, there's been a lot of action in the tariff front the last month or so, as everybody knows. We're still working through the Supreme Court case and how it impacts with, you know, IEEPA going out, Section 122 coming in, potential refunds, how that might affect customer recoveries, et cetera. Right now, I wouldn't expect a windfall for Magna. I think we'll probably be close to what we're planning on already, but we'll be in a better position in a few weeks with the first quarter call to kind of provide more color. Right now, we're not expecting material change from what we've already assumed.
Customer recoveries. Are customer recoveries for higher input costs expected to remain neutral year-over-year in 2026? Could you just maybe walk us through that?
As I said earlier, I mean, we're excluding the DRAM. We're expecting to be more or less neutral, and we'll have to look at it if prices remain elevated. It may have an impact on the future oil prices in particular. We'll have to look at that. We're pretty much neutral in 2026 versus 2025 other than the DRAM.
I guess multi-year contribution, you know, of the operational excellence initiatives. I guess as you sort of look longer term, you know, 2026 and beyond, can you just maybe walk us through sort of the cumulative impact?
Yeah, sure. We've really talked about it, kind of this margin expansion piece of the operation. Like, you know, historically, we've always done operational excellence to try to offset customer price concessions, kind of be neutral for the year. It's really, you know, the last three, four years we've generated this net margin improvement. Through 2025, the three-year period, 2023, 2024, 2025, about 150 basis points. After this year, we'll be closer to 200 basis points. Again, I would say I've only been with Magna six months now, but I've never seen as concerted an effort across an enterprise around operational excellence as I've seen here.
I do think if Swamy were here, he'd say, "Look, we're in the early to mid-innings, and we would expect continued, you know, margin uplift from operational excellence, you know, for the next, you know, few years," if you will. And that again will help us ultimately get our margins back to where they were, you know, before pre-COVID.
Pre-COVID. I wanted to end with a deeper dive into China. I guess with 60%-65% of the China revenue tied to Chinese OEMs, I guess how does Magna expect to participate in the Chinese OEM export expansion that seems to be taking off?
Yeah, I mean, it starts first with serving the Chinese OEMs in China, which we've done. You know, if you look at our business in China today, our consolidated revenue, it's about $5 billion of our revenue or about 11% of our revenue is with in China. That's about 60%-65% of that is with Chinese OEMs. If you include our unconsolidated JVs, so revenue that's not in our consolidated number, our China revenue that we manage, quote unquote, would be more like $7 billion. Again, with you know, call it close to 2/3 of that with Chinese OEMs.
The OEMs we serve are the kind of the household names, if you will, Chery, Geely, Changan, BAIC, BYD, and those are the players that have been the biggest exporters, if you will. Serve those guys in China as we have. Also, as they export, we're supporting them. As they localize, we talked about earlier with complete vehicles as Louis talked about supporting them as they localize. We you know we believe we're very well positioned to serve our customers both in China, outside China as they grow. We grow, and when we talk about growth over market, that will be a huge component of our growth over market longer term, 'cause we got strong share with our Detroit Three, German Three customers.
We wanna maintain that and then really continue to outgrow the market, in China with the Chinese OEMs.
Perfect. We're exactly at time.
Awesome.
I wanna thank the Magna team, Patrick and Louis, for a great conversation, and thank you all for joining.
Thank you so much.
Thanks, Alex. Appreciate it. Thanks for having us.
Well-positioned, guys. Well-positioned.
Doug, thank you.