Good morning, everyone. Welcome to our Investor Day, including those of you that are on the webcast. We are excited to be here in New York City, and we have a great event planned for you today. I want to take a moment to recognize Veterans Day here in the U.S. and Remembrance Day in Canada. To every veteran and active military member, thank you for your service. Before we get started, please note that the management presentations that follow and the question- and- answer session may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. Both the screen and the handouts provide details of our safe harbor statements. Please also refer to the disclaimer and reminder slides that relate to our commentary today.
You will hear from some of our senior leadership this morning, including Swamy Kotagiri, President and Chief Executive Officer, Phil Fracassa, Chief Financial Officer, Tom Rucker, Chief People and Business Transformation Officer, and Eric Wilds, Chief Strategy and Commercial Officer. Other members of management are here today and will be around until early this afternoon to answer your questions. Our agenda for today is on the screen. Swamy will lead things off with our strategy and vision. Eric will follow with a review of our growth plans. Swamy will then return to cover operational excellence and how it is helping us drive Magna to new heights. Then we will take a short break. During the break, live attendees will have a chance to review with our subject matter experts some of our new technologies, as well as our interactive operational excellence, how it is helping us drive Magna to new heights.
Then we will take a short break. During the break, live attendees will have a chance to review with our subject matter experts some of the new technologies. After the break, Tom will describe how Magna's unique culture helps drive our performance. Phil will review our financial framework and our 2030 targets, and Swamy will wrap up. After presentations, we will have plenty of time for Q&A before the formal event ends. Following the event, lunch will be served down the hall. Between 12:00 and [2:00], live attendees will have further time to review our technology displays and operational excellence demo. Lastly, we ask that you switch your smartphones to silent or vibrate. Thanks, everyone. Enjoy the day. Now I would like to ask Swamy to come up.
Thank you, Louis. Good morning, everyone, and thank you for joining us today, both here in the room and also in the webcast. I cannot believe it. It has been four years since we had the last in-person Investor Day, and it is an understatement to say a lot has happened in the last four years. Today, I am excited to share the progress we have made, where we are going next, and how we are putting the power of Magna to work to create lasting value. Let me start with the progress we have made first, just to give you context. Looking back to 2022, I would say the industry threw almost everything at us. Through it all, we are on track to deliver adjusted EBIT margin expansion by about 190 basis points, adjusted EPS growth from $4.24 to about $7, improved adjusted ROIC of roughly 350 basis points.
Our shareholders earned an average annual return of 11% compared to 5% for our peers. I believe this is the beginning, not the peak. What gives us that confidence is our scale, our ability to integrate across the vehicle, and the Magna Business System working across the enterprise. The outcome is stronger growth, margins, and cash. I know you all want me to get to the point. What should you expect from Magna by 2030? Let me start there. Organic sales growth of 2%-4% above the market, more 200+ basis points of adjusted EBIT margin expansion, adjusted EPS growth of 15% per year or more, free cash flow conversion over 85%, and adjusted ROIC above 15%. We believe these targets are achievable because we have delivered before, and we know the strength we can build on.
Over the course of this morning, we will show you how we intend to get there. Before I get into the details, let me take a step back and talk about what drives us. Our vision is simple: advancing mobility for everyone and everything. We execute by developing technologies, systems, and concepts that make vehicles safer, smarter, and cleaner. For me, these are just not words. They guide where we focus, how we operate every day, and ultimately how we create value for our shareholders. Let me give you a snapshot of Magna today and the platform we are building on. We are the world's fourth-largest automotive supplier with $42 billion in sales last year. We have about 152,000 employees across 27 countries on five continents.
Importantly, we are present across the world's major automotive markets, with sales around $20 billion in North America, about $16 billion in Europe, and $5 billion in China. That scale and reach gives us the ability to support any major customer anywhere. Increasingly, that is exactly what the industry is asking for. That is only one part of the story. We also have strong leadership positions across our portfolio. About two-thirds of our sales come from product lines where we rank number one or number two among independent suppliers. Globally, we are number one in body structures, four-wheel and all-wheel drive systems, outside mirrors, side door latches. Why does that matter? Leadership gives us pricing discipline, cost advantages, and a seat at the table, more importantly, as customers design their next vehicles.
Let me spend a moment on the last four years, because I believe pressure tells you a lot about a company's resilience. Think about what our industry has faced: semiconductor shortages, war in Ukraine, inflation, labor disruption, the acceleration and then the reset in EVs, and most recently, tariffs and trade volatility. None of this was in anyone's plan. We did not wait for the market to fix it. We focused on what we could control. That meant securing recoveries, resetting mechanisms, rewriting contract terms, reallocating capital and redeploying assets, accelerating restructuring, and mitigating tariff exposure. At the same time, we continued to drive operational excellence across our plants. The outcome speaks for itself, with strong performance across key metrics and attractive shareholder returns. Industry tested us, we delivered, and that is the Magna you should expect going forward.
Now, looking ahead, we see three trends in our industry that play, I believe, directly to our strength. First, modularity and integrated systems. Automakers want fewer parts, fewer suppliers, and more complete systems. That plays to our ability to understand and integrate across the whole vehicle. Second, localization. More and more vehicles need to be built closer to where they are sold. Our global footprint, combined with our strong local operations, is built just for that. And third, adjacent markets. Customers in robotics, data centers, warehousing, and defense are looking for partners who can deliver automotive levels of scale, quality, and manufacturing expertise, and those are capabilities we already have. We see a roadmap of booked business and opportunities being explored that could build this into a $2 billion business by 2030, with further growth potential beyond that.
Different trends, but they all have one thing in common: they reward scale, reach, and breadth, and those are strengths Magna already has. How do we turn all this into value? Our strategy comes down to three imperatives. One, growth above market. Two, execute with excellence. And three, deploy capital with discipline. Underpinning all three is the Magna Business System, one consistent outcome-driven approach with clear ownership and continuous improvement across the enterprise. We prove what works, then standardize, and then scale across Magna. The outcomes are clear: growth above market, margin expansion, EPS growth, higher free cash flow conversion, and attractive ROIC, all driving towards a top-tier shareholder value. Through all this, our guiding principles that we have talked about remain the same: a long-term ownership mentality, pragmatic portfolio management, strong balance sheet, disciplined capital allocation. The framework hasn't changed.
What has changed is the pace of execution. We are taking Magna to a new level of performance and creating lasting shareholder value. Let me first start with the imperative growth. Our growth algorithm is pretty straightforward. Grow more content per vehicle with our existing customers, add new customers and expand into new regions, and where it makes sense, take our capabilities beyond automotive. We are well-positioned across all three with a portfolio that is largely propulsion-agnostic and aligned with the car of the future. Importantly, we already have significant visibility into that growth. More than 90% of our business is booked for 2028, and more than 60% of our 2030 sales. That gives us confidence in our targets to grow 2%-4% above the market. Eric will take you through how we get there in a few minutes. Now, let me turn to margins.
We are on track for our fourth consecutive year of margin expansion, with about 190 basis points of improvement since 2022. Operational excellence has been an important contributor to that progress. But as I've said before, we are still in the early innings. We see another 200+ basis points of margin expansion by 2030. Later this morning, I'll show you how data automation and the Magna Business System will help drive that next leg of performance. And third, capital discipline. Since 2010, we have deployed about $50 billion of capital. Roughly two-thirds went back into the business to support profitable growth, and about one-third, roughly $17 billion, was returned to shareholders through dividends and share buybacks. That balance between investing for growth and returning capital to shareholders is fundamental to how we think about capital allocation. This discipline is supported by a strong balance sheet.
Net leverage is less than 1x , comfortably within our target. From 2022 to 2026, we expect to generate about $5 billion in free cash flow, while returning around $5.5 billion to shareholders. Strong cash flow, strong balance sheet, consistent returns, that doesn't change. Before I conclude my opening remarks, let me give you an update on our complete vehicle assembly business. This is an important part of our portfolio, and we are seeing real momentum here as we add new customers and programs. With Mercedes-Benz, we have been awarded the next-generation G-Class program, which builds on nearly a 50-year partnership. We have also secured key awards with new customers, four models with XPENG and two models with GAC. We are also advancing discussions with several additional customers, giving us a clear path to full capacity with limited execution risk as we transition to a more value-add customer model.
With that shift, and with our Complete Vehicles and Seating business sharing similar operating characteristics, we are consolidating from four product segments to three: Body & Structures, Power & Vision, Seating & Assembly. Each segment will be led by an experienced, operations-proven Magna leader. These gentlemen are here with us today. They're sitting at the back, and they will be available for you to have conversation. Phil will take you through what that means for our reporting. Now let me come back to where I started. These are our 2030 targets, and over the course of today, you'll hear the evidence behind each one. Eric will show you where our growth over market comes from. I'll come back later to show you how operational excellence drives margin expansion, and Phil will show you how that translates into EPS, free cash flow, and return.
There is one important point I want to leave you with. These targets do not depend on market recovery. We assume global vehicle production grows only about 1% a year. Again, more than 90% of our 2028 sales are already booked. What I'm trying to say is we have strong visibility. The opportunity is there. Now, it comes down to execution. The Magna Business System is how we turn execution into something repeatable across the enterprise. This morning, we'll share several examples of what that looks like in practice. What does all of this mean for you as an investor in Magna? First, scale and trust. We are one of the world's largest and most trusted suppliers, with leadership positions across our portfolio. Second, capabilities that win. Manufacturing is at our core.
Our breadth across processes, materials, and systems gives customers greater freedom to design and integrate without being tied to a single solution. Third, a culture of execution. Our division general managers average 16 years at Magna. They run their business like owners, and Tom will talk more about that later this morning. That's how we create shareholder value, and that's the power of Magna. With that, let me ask Eric to come up and show you how we grow above the market.
Thanks, Swamy. Good morning, everyone. Thank you all for joining us. Swamy talked about our strategic framework. I am going to focus in my section on the growth above market. Let me start with the Magna Business System. When we focus on growth above market, how do we apply it? We apply it in that the outcome we are looking to achieve is growth above market. The aligned strategy is how we align across our organization to achieve it, and then we drive results that we can scale. To be more specific, if we focus on the outcome, what we are trying to achieve, to grow, as Swamy mentioned, our target is to grow over market through organic sales by 2%-4%, with a market that is growing about 1% through 2030. As Swamy mentioned, we are not relying on volume recovery.
We are driving our growth through three pathways: growing content on vehicles we already have, adding new customers and regions, and taking our capabilities into adjacent markets. What determines where we land in that range? Really, it comes down to the ramp of awarded programs that we have, the pace of Chinese customer globalization, and how quickly adjacent markets ramp. Why we are confident in what we are putting out in front of you? Let me show you on the next slide. This is our track record. Since 2000, our sales have grown about an average of 6% annually, while global vehicle production grew about 2%. How did we do it? We built the products and processes customers needed, we grew content per vehicle, we supported customers expanding into new regions, and we added new customers. Innovation has also been a key contributor to that growth.
Consider a few of our first-to-market products. Hydroformed truck frames, 25 million units. Smart latches, more than 15 million units. Our driver monitoring system, already over 5.5 million units and growing. This track record gives us confidence in our future and to continue growing. What are customers asking for today? Swamy highlighted a little bit of this in his presentation. We see three drivers: modularity, integrated systems, and development speed. How does this affect a vehicle? A traditional vehicle has about 25,000 parts. Design it in systems rather than silos, and that drops to about 15,000. Fewer parts may sound like less supplier content. For some, it is. For Magna, it is the opposite. Fewer, smarter, and more integrated products means more Magna content, because we can put it all together. Let us start with modularity and how it helps us grow content per vehicle.
Here are some of the highlights. First, our latest- generation eDrive uses high-speed motors with a common inverter architecture, one platform that scales from primary drives to secondary drives using capacity we already have in place. Second, our scalable software-agnostic compute unit supports automakers using their own AI and automated driving stacks with a path to Level 4 autonomy. Third, JITFit combines a modular seat design with automation. Now, I am going to take that one a step further. Traditional seat assembly, and you will be able to see this outside when you are at the break, traditional seat assembly is manual and difficult to automate. Parts are aligned by hand, soft materials handled, components are steamed and heated. Every step adds variability and cost. Our team did not ask how to automate the current process.
They asked, "How do we design a seat for automation?" We broke it down into smaller modules, creating flexibility in how and where the pieces are assembled. The result? Greater manufacturing efficiency, 35% less build time, and 40% less floor space. This reduces investment required to win our next program. One more point. For those of you that are aware of seating, much of seating content is directed, with customers selecting key suppliers that we have to integrate. Our modular approach shifts more design and content to Magna, giving us greater control over cost and affordability. We are already in active discussions with several customers. Modularity changes how we design a product. Integrated systems bring separate products together. For instance, our driver monitoring system integrates a camera behind the mirror with no housing retooling or additional customer assembly. It supports multiple content variants on the same production line.
In development is our integrated fascia, which combines styling, lighting, sensing, and structure all in one front end. Our integrated eCradle, which we also have a display out in the hallway. Let me drill down on this one. Today, eDrives and cradles are designed and supplied separately. Two engineering teams, two build processes, but products that work together in the vehicle. Bringing them together was an easy decision. Making it work wasn't. We simulated, built, tested, changed, and retested. The result generated improved packaging space, less mass, and less design complexity. Two quotes became one. That is a value proposition that most competitors cannot put on the table. Compared with our baseline, about 40% fewer parts, about 30% less weight. More than 10% better packaging efficiency. Equivalent performance, lower cost, and a simpler OEM assembly process. Speed to market is our third driver.
Increasingly, a differentiator in how customers select suppliers. Here are a few examples. A typical hybrid drive program takes 24-40 months. We did it in 18. It is now ramping up on the Jetour G700, awarded on a second Chery vehicle, and we have a letter of intent with a next customer. Next is a smart camera program, which typically takes 10-12 months. We did ours in under six. Finally, a complete power sliding door system from concept to production, and I am going to expand on that one. We engaged the customer early, before the design was locked. We ran engineering and manufacturing in parallel. We used proven building blocks in actuation and controls, and the result, we delivered it in 11 months. Speed doesn't come from working harder. It comes from not redesigning what already works.
Modularity, integration, and speed to market look like separate capabilities, but they are all connected. The power of Magna is our scale, our ability to integrate across the whole vehicle, and a manufacturing system that keeps improving. For customers, that means deep product expertise, integrated systems, and complete vehicle know-how, all under one roof. That allows us to combine technology, engineering, and manufacturing in ways single-segment suppliers cannot. That is the power of Magna in practice.
Now that you have heard how we are positioned in the market, I will discuss the three pathways I mentioned earlier that support our growth. More content with existing customers and programs, new customers and regions, and leveraging capabilities beyond automotive. Let me take each one in turn. The first pathway is the least glamorous, but the most dependable. No new customer, no new region, just earning more products on platforms we already support, generation after generation.
Here are a few proof points. Once we are on a program, we expanded the number of Magna product areas and grew our content. Starting in North America, the Ford Expedition from four Magna product groups to six, and 5x the content. BMW X5, four to seven, with 3x the content, and the Honda Pilot, two to five, with 4x the content. The same approach works in Europe. The BMW X1 from four to six, with 6x the content. The Audi A4 and A5, five to six, with 9x the content. The Mercedes A-Class, we remained at six groups, but we doubled the content in the process. The takeaway, every vehicle started with a handful of products. Execution, innovation, and quality earned us the next product, and then the next. The second pathway is diversification.
We intend to keep growing our core customers while adding new ones. Winning new customers is different from winning the next product with an existing one. You have to earn the invitation, prove yourself, and build trust over time. That is what we have done. In 2000, Magna was about a $10 billion company in sales, with more than 60% of that mix coming from the Detroit Three. Since then, sales with the German Three grew from about $2 billion to over $16 billion, and the Asian-based OEMs grew from less than $400 million to over $6 billion. This is not about replacing one customer with another. It is about adding. The regional story is similar. In 2000, our $10 billion in sales came entirely or mostly from North America and Europe. Today, we generate $42 billion in sales with a much more balanced mix.
China grew from effectively zero to about 11% of our sales, or roughly $5 billion. Now we ship to more than 350 OEM assembly plants worldwide. Let me spend a few minutes on China. Our business in China, as I said, is about $5 billion. In 2010, Chinese automakers represented less than 20% of our sales. Today, it is about 60%. We shifted as the market shifted. If we look at managed sales, we add another $2.5 billion in sales with roughly the same customer mix. The same content per vehicle approach I mentioned earlier is also working in China, just faster. If you look at the Zeekr 9X from two Magna product groups to four, with 20x the content. The Chery Arrizo 8, two to three, with 6x the content. The Changan X7 from one to two, with 40x the content.
Same playbook, different market. In practice, our success in China is driven by the following. First, platform proliferation. Win the initial product, execute, expand either deeper with one customer or across many. Second, new technology. eDrives and next-generation ADAS deepen relationships and grow content. Third, localization. As customers expand globally, we support them, from hot forming in Spain to vehicle assembly in Austria. It is the same approach we have used for decades. Let me give you two specific examples. The first example goes deep with one customer. It began with one front cradle on a Changan program. We executed the design, and that became their standard. One product became a flexible platform. One base structure now supports eight nameplates and 11 variants across internal combustion, battery electric, range extended, and plug-in hybrid applications. That flexibility saves development time and cost for Magna, as well as our customer.
The second example goes wide. Latches are a core technology for Magna. Our common design is proven in production, giving customers lower cost, faster development, and demonstrated quality. Today, it is used on 67 nameplates across nine customers. One example goes deep, the other goes wide. Both follow the same approach. Earn the first program, optimize the solution, then make it the standard. A repeatable formula for growth. Years ago, we made some clear decisions in China. Build local engineering, run the business with local management, develop products for that market, and move at its pace. In the world's most competitive automotive market, you win by working with the right customers before the RFQ, not after. The first two pathways I addressed are within automotive. The third leverages our capabilities into adjacent markets. Our expertise in engineering, manufacturing, and program execution extends well beyond automotive.
But growth only creates value when it is disciplined. That is why we set clear guardrails before pursuing an opportunity. Every opportunity must pass three filters: a sizable market, which is dependent on the products that we are pursuing, returns that meet our requirements, and a genuine right to win. We have applied this approach in commercial trucks and recreation vehicles. We select the market, then the customers, and scale from there. It all stays within our vision of advancing mobility for everyone and everything. The first category is adjacent mobility, where we already participate. Commercial vehicles are a natural fit. The same engineering and processes, just different customers. Recreational vehicles build on our lightweight body and structures expertise. Robotaxis span components, complete vehicle development, and assembly. In defense, our full vehicle and component supply allows us to be a credible participant. The model is consistent.
Start with one capability, build the relationships, and then expand. The second category is newer, adjacent industrial markets. Warehousing and data centers need racking and material conveyance systems. Robotics builds on our mechatronics and actuation expertise. These opportunities ultimately build on the manufacturing and scale and quality we already have. Together, these markets represent over $100 billion of addressable opportunity. With the opportunities we are actively pursuing, we have a roadmap to $2 billion in sales or more by 2030. This really is just the beginning. Together, these three pathways contribute to our target of 2%-4% average annual growth above market. As we grow, we continue to diversify. Adjacent markets increase from about 2% of sales to 4%. Our automakers outside the Detroit Three and the German Three increase to about 26%. Let me close with why we see this growth as being durable.
As Swamy mentioned, it is visible. More than 90% of our 2028 sales are already booked. It is broad-based across products, customers, and regions, with no single dependency. It is repeatable. Our approach is proven. The power of Magna is what differentiates us, and it all runs through the Magna Business System. With that, I am going to hand it back to Swamy to talk about operational excellence. Thank you.
Thank you. Back again. More on my sweet spot to talk about operational excellence. Now that you've seen our path to profitable growth, I want to take you through how we translate that growth into margin expansion, cash flow, and attractive returns. At Magna, you all know that operational excellence is our DNA, and that's how we run our business. Today, I want to focus on execution. First, why our track record gives us confidence in our strategy and our targets, and second, how the Magna Business System, enabled by data and automation, will drive the next leg of margin expansion. Executing is really what turns the growth into value. We focus on cost efficiency, productivity, data, automation, and scaling, and that's across Magna. Let me start with the margin outcome and then show you the work behind it.
Our 2026 outlook implies an adjusted EBIT margin of about 6.4%. By 2030, we are targeting 200+ basis points of margin expansion. Three things get us there. First, operational excellence. Second, contribution from higher sales. Third, mix, pricing, inflation, and other factors. Together, these get us to our 8.5% adjusted EBIT margin target for 2030. Operational excellence is a significant contributor, and importantly, it's the one most within our control. That's where I want to spend my time today. Operational excellence is not just about taking cost out. It's about creating a cycle that makes us more competitive. Lower costs across labor, material, and processes improve our competitiveness. That helps us win more business and grow above the market, as Eric talked about.
More business gives us more scale, and greater scale lets us invest back into our operations and drive the next level of efficiency. Then the cycle starts again. What's changing now are really the tools. Data and automation are helping us run this cycle faster and more efficiently. To understand the size of the opportunity, you have to know the scale of our operations. Manufacturing has been at our core for 70 years. We use more than 80 processes and more than 50 materials. In our industry, we are one of the largest operators of industrial robots with more than 5,000 assembly lines. That scale creates complexity, but it also creates tremendous opportunity. When we find a better way in one plant, we have hundreds of places where we can apply. That's the opportunity, bringing every facility closer to the level of our best.
It doesn't come from one big move, and it comes from thousands of improvements every day across Magna. It's definitely not glamorous. It's very methodical, and that's what we know how to do well. How do we accomplish that now? Through the Magna Business System, as Eric talked about. You've already seen how we apply it to growth over market. The same discipline applies to operational excellence. Find the constraint, solve it, standardize what works, and then scale it. Let me show you what that looks like. Today, we are focused on five next-generation operational building blocks. Together, they create a clear path from data to insight to action, and then to scale. It starts with a common data foundation. That gives us visibility, performance visualization, and condition-based monitoring, turn that visibility into insights. Material flow optimization and smart automation turn that insight into action.
Our standards, playbooks, and deployment model allow us to scale. That is how these building blocks support the next wave of margin expansion. To really appreciate what this looks like, you have to see it in action. Since we cannot take you inside the facilities today, we thought we would bring some of it to you in the form of videos. It is five or six videos. I am super excited about it. 30, 40 seconds for each video, so I will let the video speak. Y ou can see the passion and the excitement that I have on this one, so let us roll the first one on data connectivity.
[Presentation]
Today, unified namespace is fully implemented across all our divisions. We have more than 10,000 connected devices and about 60 million- 70 million data packets flowing every day. We have learned something very important through this exercise along the way. Connecting what we already have is faster and cheaper than replacing it. That saves investment, accelerates deployment, and gives us a trusted data foundation for what comes next, including AI. Connected data is only the starting point. What matters is the insight it delivers to our teams across the organization.
[Presentation]
And we are already seeing the impact. Across more than 5,000 connected lines, these tools can contribute an average of 5%-10% improvements in overall equipment effectiveness. Here is what that really means. Our people spend 75% less time looking for problems and more time solving them. Today, we are about 65% deployed, and we are on track to have the solution fully deployed across Magna by 2028. Seeing what is happening on the line is very powerful, but what if we could see a problem before it happens?
[Presentation]
And the early results are really encouraging. In the applications deployed so far, we have identified opportunities for roughly 50% reduction in downtime and cost of poor quality, and contributing to an average of 5%-10% improvement in equipment effectiveness. But we are still early in the deployment. Today, we cover about 25% of our processes. By 2028, we expect half our divisions to have full condition-based monitoring in place, and by 2030, we expect full coverage. The opportunity now is to scale what is already been proven. Seeing problems early is one part of the equation.
[Presentation]
The plan for the next 35 facilities is on the roadmap for this initiative. This will help reduce material movement costs by about 40%. Today, we have more than 1,300 autonomous mobile solutions in operations. We will have reduced our forklift fleet by about 10%-15%. The important point here is the sequence. First, we optimize the material flow using the assets that we already have. That reduces the capital needed for automation. Then we automate the most efficient flow using the right solution for the application. The outcome? Lower material conveyance costs. Getting materials to the right place is one piece. The next is the work that happens once it gets there.
[Presentation]
The opportunity to scale here is significant. Across Magna, we implemented over 1,800 pick-and-place systems and more than 8,000 vision inspection systems. The benefits are higher productivity, more consistent processes, and fewer defects reaching our customers. We don't automate just because we can. Every implementation has to demonstrate productivity improvement and an attractive payback. We prove the impact first, then we scale. Let me show you what that looks like in one facility. This is a structures facility with a highly complex manufacturing process. Every line is connected 100%. Mean time between failures improves 60%. That means the equipment stays up longer. Scrap reduces by 40%. Less waste, fewer defects. Material movement cost decreases about 45%. Better flow, material where it needs to be, when it needs to be. Throughput increases about 10%. More output from the same footprint. The payback? Two and a half years.
This facility demonstrates both the operational impact and the economics. What I'm most proud of isn't just the numbers. It's that we know what works, and we are scaling it across Magna to drive the next leg of margin expansion that I previously mentioned. In fact, we would be happy to, and encourage you, that we want to host you at one of our facilities so you can see it in action. These are our proving grounds. Today, we have six in full operation, and in 2027, we'll expand that footprint across North America, Europe, and Asia. The discipline remains the same, and the concepts are what you saw today. By 2029, we expect these capabilities to reach operations representing about 70% of Magna's total sales. When you add it all up, the opportunity is substantial, and we are just getting started.
Material flow and smart automation are only the first use cases. The foundation is now in place to unlock many more opportunities across Magna. You have seen some part of AI already in action, and we don't treat that as a separate strategy. It's embedded in use cases to deliver significant benefits. We are combining Magna's manufacturing knowledge and data to build tools by us and for us. For example, SmartPick coordinates material movements and has reduced conveyance resources by about 20%-25%. MAS-V automates visual inspection and reduces manual inspection effort by about 50%-80%. In the engineering, STORM is helping reduce test time by 90%. The approach is simple: Magna built, outcome proven, and then scaled. That same discipline applies beyond the plant floor. Today, we have more than 60 major initiatives underway across finance, HR, purchasing, sales, and engineering.
Different functions, same objective. Connect the data, create earlier visibility, standardize the process, and the outcome is greater efficiency in forecasting, coding, sourcing, and design. As you've seen, operational excellence will be a significant contributor to margin expansion. This isn't a one-time initiative. It is a repeatable capability. Ultimately, systems and technology don't make this happen. What makes it happen is our people. Magna's culture of ownership, accountability, and continuous improvement gives our people the ability to identify opportunities, solve problems, and scale what works. That's a good place for me to stop. After the break, Tom will show you why our culture, our people, remain one of Magna's greatest competitive advantage and how we translate that into value.
Before you go out, maybe a little bit of heads-up for those of you who were here or who were at the last Investor Day in 2022, you would have seen some technologies. That example, battery enclosure, then was a concept. Today, we have several programs in production, and you'll see one of the most complex system out there that you can see. You could walk up to the smart access of the door. You'll see that in display today. That was just a concept. This year, we are going to be producing about 1 million units. We talked about several eDrives and building blocks in the powertrain. We'll talk about the primary eDrive, and I've been, for those of you listening, the [DHD Duo] hybrid, I talked about on the earnings call with Chery, development time less than 17 months. It's on display today.
The point I'm trying to make is, we are really disciplined on showing what we believe are the technologies that have potential. We are very focused as a management team to bring that into reality, and you'll see a lot of those. You'll also see two or three interesting concepts today and things that we're working with customers, like JITFit on the seat. I think Eric talked about how we are building products for automation, thinking of process, design, and product all holistically, and you'll see the benefit of that. A lot of discussions with customers. We'll see a very interesting powertrain product today that brings onboard charger, power electronics, inverter all together. For those of you who are technically inclined, we talk about silicon carbide and GaN and so on and so forth. This doesn't need any of those. It just needs MOSFETs, right?
Very interesting economically, from a packaging perspective, from an integration perspective. I really ask you to go see the real product, not just what we are saying here. After the lunch break is done, I am happy to walk you through as much detail as you would want. With that, let's go to break.
[Break]
Welcome back from the break, everyone. I get to talk about the fun stuff, and the main reason —I have stayed with Magna for over 26 years now. That reason is our culture. Culture can be sometimes difficult to define, but here at Magna, it has been a competitive advantage for nearly 70 years. While our industry has gone through multiple product cycles, technology shifts, economic disruptions, and industry transformations, Magna has maintained a consistent approach to how we operate. Our ownership mentality is the mechanism that translates Magna's culture into business performance. It influences how we develop leaders, how we operate businesses, how we compensate employees, and ultimately, how we drive results. It is also foundational to our Magna Business System that Swamy talked about before, an outcome-based continuous improvement across everything we do. The next few slides explain why that matters. At Magna, our culture is our differentiating factor.
Accountability and our ownership mentality should give you confidence that commitments made by our leadership team get executed in our divisions. The behaviors derived from our cultures are our core values, and these are foundational and set the standard for who we are and how we operate. They also serve as our moral compass, inspiring us to live our values in action in every action that we take. We reinforce ownership through four mechanisms: entrepreneurial structure, enterprise synergy, aligned incentives, and leadership development. Together, these elements define Magna's culture and keep durable through leadership changes, cycles, and acquisitions. Let me briefly discuss each one in more detail. Our structure is deliberately designed to pair strategic oversight with operational decentralization. At the corporate level, we set strategy, targets, and capital allocation. Our groups develop and manage the portfolio, including customer and commercial relationships.
In our plants, we call them divisions, they own our business accountability for manufacturing performance, quality, and efficiency. A general manager running the business like an owner is the culture at the heart of our model, ownership mentality in its most concrete form. This interaction keeps capital discipline centralized where it belongs, while putting day-to-day decisions closer to the customer and the plant floor. Next, enterprise synergy. Decentralized ownership only works if our divisions can draw on the full weight of Magna behind them. We leverage global purchasing across a common supply base and take advantage of standardized systems and engineering standards. As you saw earlier, we have built a common automation and digital foundation, so every division starts from proven technology instead of trying to solve the same problem over and over again.
The Magna Business System gives every division one common language, so best practices can move very quickly between groups and plants. The customer sees One Magna. It really is a decentralized structure with standardization built in. This way, we can scale without bureaucracy and get the advantages of a global tier one with the speed and accountability of a startup. Third, incentives are how ownership mentality becomes a daily habit rather than just a slogan. At every level, our compensation is tied to the metrics that each person can actually influence. At the executive management level, it's measured on EBIT, free cash flow, ROIC, and shareholder value. At the group management, it carries group EBIT, free cash flow, and ROIC. Our divisional general managers are measured on divisional EBIT, less funds employed, which is a true owner's measure because it accounts for the capital they consume.
Last but not least, all our employees participate through profit sharing, which is a principle that goes all the way back to our founding and is written into the employees' charter. The result of all of this is alignment from the plant floor all the way up to the boardroom. Everyone is pulling in the same direction and for the same outcomes for our shareholders. The alignment is what produces faster decisions, stronger returns, engaged employees, and very close customer relationships. To reinforce this ownership model, we continue to focus on developing leaders that can run a very complex business. I want to emphasize three points here. First, as Swamy talked about it, experience. We have nearly 70 years of manufacturing expertise and the broadest capability set of any tier one Our divisional general managers average 16 years at Magna, so they've been through multiple product cycles. Second, sorry.
Second is our capability. General manager training covers the full P&L, operations, finance, commercial, and compliance. We add programs as the technology changes, automation, Internet of Things, and responsible use of AI. Last but not least, our pipeline. We have 75 graduates right now from an operations management accelerator program. They are lined up to be successor and future general managers. We also customize our assessments for them to improve both readiness and fit. In addition, we have president readiness program that gives successors the right exposure so they can step into the role. We are building experience and capability at several levels at once, so our plan doesn't depend on a handful of individuals. Succession is deep and tested, enabling seamless transitions and steady discipline execution. Our culture shows up in outcomes and results.
One indication is the consistent recognition we receive from independent organizations, industry, and perhaps most importantly, our customers. Earlier this year, Magna was named one of Ethisphere's World's Most Ethical Companies for the fifth consecutive year. We were also recognized on Fortune's World's Most Admired Companies for the 10th consecutive year. Perhaps the strongest validation comes from our customers. Over the past decade, Magna has averaged more than 100 customer recognition awards every single year. Last year, we achieved a company record of 137, which is a 26% increase year-over-year. These recognitions reflect a culture grounded in integrity, accountability, and execution. Recognition tells you how we're seen. The hardest test, though, is the standard we hold to ourselves when no one is handing out an award, which really brings me to the topic of sustainability.
Similar to how we approach quality, customer satisfaction, we do the right things in sustainability because it matters. We set the standard, share ownership to the divisions, and hold each other accountable for delivery. Three highlights here worth calling out. We now run 100% renewable electricity in Europe. We divert ed nearly all of our waste from landfill. Energy, carbon, and water are all trending down against our baseline. Of note, energy and water reduction are also cost reductions. So sustainability progress and margin progress move together in the same direction. Our science-based target initiatives, validated near-term, and net- zero targets give us clear, disciplined path to further reduce emissions while continuing to improve operational efficiency. Let me leave you with these final thoughts. Ownership drives our results, from accountability through strategic execution.
We have a global scale that supports local agility because it is important that our decentralized decisions draw on shared capabilities and the Magna Business System. Finally, we sustain our leadership pipeline with constant development and succession planning through cycles and change. Our customer recognition and sustainability progress illustrate consistent execution and responsible operations. Thank you. With that, I will turn it over to Phil.
Thanks, Tom, and hello, everyone. I am super excited to be here for my first Investor Day with Magna. In my time with the company, I have had the opportunity to see the power of Magna firsthand, including the breadth of our capabilities, the strength of our financial position, and above all, the depth and experience of our management team, and I am proud to be a part of it. Now, let us turn to our financial framework. Magna's financial framework is anchored in disciplined capital allocation. Our strategy, enabled by the Magna Business System, is designed to drive growth over market, operational excellence, and strong cash generation. We then deploy that cash with discipline, reinvesting in the business for profitable growth and returning capital to shareholders while maintaining a strong balance sheet. Together, these elements create a powerful financial model designed to deliver sustained and differentiated value for our shareholders.
As Swamy highlighted, Magna demonstrated strong resilience through a dynamic macroeconomic and industry environment. At the same time, we stepped up performance across several key financial metrics, as you can see on this slide. That progress translated to strong shareholder returns. Since 2022, our average annual shareholder return has been 11%, compared with 5% for our peer group. Credibility matters, and we take our commitment seriously here at Magna. Over the past couple of years, we have delivered on our commitments and continue to track record of hitting or exceeding the outlooks we set at the beginning of the year. In 2025, we met or exceeded our initial expectations for sales, adjusted EBIT margin, adjusted net income, and free cash flow. Based on our most recent outlook, we expect a similar outcome again this year.
Since February, the midpoints of our outlook have improved for adjusted EBIT margin, adjusted earnings per share, and free cash flow. In fact, our current range for adjusted EPS would be the highest we have ever delivered in our nearly 70-year history. We are also on track for a fourth consecutive year of adjusted EBIT margin expansion. At the midpoint of our current outlook, that would represent about 190 basis points of improvement since 2022 in what has been a relatively muted global vehicle production environment. We are still in the early stages. Through continued execution of our strategy, supported by the Magna Business System, we are targeting an additional 200 basis points or more of margin expansion by 2030. I will return to the key drivers of that improvement in a few slides. Turning to capital allocation, I first want to reiterate that our long-standing principles remain unchanged.
We will continue to maintain a strong balance sheet with ample liquidity and solid investment-grade ratings, providing financial flexibility to invest for growth and manage through industry cycles. Our main priority is investing in the business with a clear bias for organic opportunities that support our strategy to drive growth over market, expand margins, and generate attractive returns. In addition, we have the flexibility to pursue bolt-on acquisitions to strengthen our capabilities or enhance our competitive position. We also review the portfolio regularly to ensure that our businesses are aligned with our strategy. That disciplined process led to the divestitures we announced earlier this year. As we have for many years, we intend to continue returning capital to shareholders through dividends and share repurchases. Our balance sheet remains a strategic advantage.
At the end of our most recent quarter, Magna had nearly $5 billion of liquidity and debt levels consistent with a solid investment-grade rating. We are now measuring leverage using net debt to adjusted EBITDA, consistent with broader market practice and how we manage the company. Our target is net debt to adjusted EBITDA of 1x or less. We expect to end 2026 at just under 0.8x , and that is after allocating about $1.6 billion to share repurchases over the past 12 months. This financial strength gives us the flexibility to invest and return capital to shareholders across a wide range of macroeconomic environments. Our track record over the past number of years demonstrates the commitment and consistency of our capital allocation approach.
From 2010 through 2025, we invested a total of about $50 billion, with two-thirds of that, or $33 billion, supporting growth and margin expansion, and the other third, or $17 billion, returned to shareholders. That is a powerful mix designed to drive shareholder value. Disciplined capital investment is essential to Magna's growth and margin objectives. Over the past 10 years, capital spending has averaged approximately 4.2% of sales. We have the ability to flex our spending up or down, depending on business opportunities or the macro environment. In 2023 and 2024, we increased our CapEx for EV programs in North America. As the EV transition slowed, we recovered much of that investment back from our customers while retaining the capabilities to support the transition as it evolves.
For the past two years, capital spending has been below our long-term average, as we have been able to reuse assets from some of those prior investments. Looking ahead, we expect our CapEx to remain in the 4% range, supporting profitable growth while maintaining our discipline. Our strategy and disciplined approach have driven strong cash generation. Over the past 10 years, Magna has generated $13.6 billion in free cash flow, with a conversion of nearly 80% on adjusted net income. While 2022 and 2023 were adversely impacted by macro headwinds and investments for the future, cash flow has strengthened since then. Free cash conversion was close to 120% of net income in 2025, and we are on track to deliver approximately 100% conversion on adjusted net income this year. Looking ahead, we expect strong and growing free cash flow.
With continued CapEx discipline and a focus on working capital and asset efficiency, we are targeting an average free cash conversion of at least 85% over the next four years. Active portfolio management is another core element of our capital allocation framework. Swamy and Eric shared our view on how the industry is evolving and how our capabilities position Magna to serve our customers and capitalize on business opportunities as they emerge. We regularly review the portfolio to ensure our products align with our strategy and the car of the future, and are positioned to create value for Magna and its shareholders. Each business should generate attractive returns, participate in meaningful or growing markets with attractive profit pools, and hold or have a path to a leading market position. We also look for competitive advantages in manufacturing and technology that allow us to differentiate and win in the marketplace.
Our recent portfolio actions demonstrate that discipline. Earlier this year, we announced the divestitures of our Lighting and Rooftop Systems businesses. We completed the Rooftop Systems divestiture, as well as the European and North American portions of the Lighting transaction by the end of the third quarter. We expect to complete the final tranche of the Lighting divestiture, which includes China and Brazil, before the end of the year. Together, these businesses represented approximately $1.1 billion in annual sales. The divestitures will reduce 2026 sales by approximately $400 million, consistent with our current outlook. Both businesses operated at margins and returns below the Magna average. Turning to acquisitions, we do not see a significant gap in our portfolio that would require a large-scale transaction. Our primary focus remains organic growth and margin expansion with the portfolio we have.
That said, we will consider targeted bolt-on acquisitions that add technology, capabilities, market presence, or reach that can accelerate the strategy. Put simply, acquisitions that make Magna better. Our M&A criteria are disciplined and rigorous. Acquisitions must have a strong strategic fit, be accretive to earnings in the near term, and earn the cost of capital in the medium term. Any acquisition should also represent a compelling use of capital as compared to other uses, including share repurchases. Returning capital to shareholders is an equally essential part of our strategy, and that is both dividends and share repurchases. Let me start with dividends. With respect to dividends, our objective is to pay an attractive dividend that grows over time with earnings. We are building that track record, with 16 consecutive years of annual dividend increases, representing an average annual growth rate of about 10% since 2010.
Our current annualized dividend is just under $2 per share, representing a yield of approximately 3%. Looking ahead, we plan to continue to pay an attractive dividend and extend our 16-year dividend growth streak. Moving next to share repurchases. Share buybacks have been a major component of Magna's capital allocation framework for many years. Since 2010, we have repurchased about 250 million shares of Magna stock for about $13 billion, reducing shares outstanding by roughly 45% over that timeframe. As the chart shows, we have been fairly consistent and systematic in our approach. Looking ahead, if leverage remains within our target range and we are generating strong free cash flow, share repurchases will continue to figure prominently in our capital allocation plans. In October, we completed our prior NCIB share buyback authorization, repurchasing the full 25.3 million shares available for approximately $1.6 billion.
That represented about 9% of diluted shares outstanding. We just received approval for a new NCIB to repurchase up to almost 26 million shares, and that is almost 10% of diluted shares outstanding through November of next year. Today, we are pleased to announce our intention to fully execute and complete the new NCIB authorization over the next 12 months, beginning this quarter. This flywheel captures the elements of our capital allocation model and really brings them together. Our guiding principles and strategic framework, supported by the Magna Business System, are designed to drive growth over market, margin expansion, and strong cash flow. That generates the fuel, if you will, to reinvest for profitable growth and return capital to shareholders. Deploying that capital with discipline strengthens the business and creates additional financial capacity. That virtuous cycle is how we drive sustainable compounding value over time.
Now, let me translate the strategic framework into what we call an evergreen set of financial objectives, which the targets are based on. It starts with growing sales faster than the market with our differentiated product portfolio. From there, we expand margins through enterprise-wide operational excellence and pull through on the higher sales. The combination of sales growth and margin expansion, combined with a lower share count from share repurchases, drives EPS growth. Through disciplined capital allocation and capital investment, we deliver a high conversion of those earnings into free cash flow. Collectively, these actions drive higher returns on our invested capital. Underpinning the entire framework is a strong balance sheet with a target for net debt to adjusted EBITDA of 1x or less. Swamy introduced these targets earlier, so let me provide some additional detail.
Each target uses 2026 as the base year and covers the four-year period through 2030. First, applying the growth over market algorithm Eric outlined, we are targeting organic sales growth over market of 2%-4% per year on average through 2030. To be clear, this is on top of light vehicle production growth. While growth over market can vary year to year, we are confident that the initiatives presented today can deliver that level of above-market growth over the period. Next, operational excellence and pull through on the higher sales are expected to drive at least 200 basis points of adjusted EBIT margin improvement by 2030. Our sales growth and margin expansion, as well as a meaningful reduction in the share count, are expected to drive adjusted EPS growth at a 15% or greater CAGR over the period.
Capital discipline and improved asset efficiency are expected to produce average free cash conversion of at least 85% with adjusted ROIC above 15% by 2030. The real power of any plan or set of long-term targets ultimately lies in the cash it generates and how that cash is deployed. Our targets for growth over market, margin expansion, and improved cash conversion are expected to drive a significant step-up in free cash flow over the next four years as compared to the last four. Over the next four years through 2030, we are planning for cumulative free cash flow after CapEx to exceed $8 billion. That represents an increase of more than 60% as compared to the prior four years, a substantial improvement in the cash-generating power of the business.
With our well-positioned portfolio and strong balance sheet, we expect to allocate most of that free cash toward capital return in the form of share repurchases and dividends. As Swamy highlighted, we are making a change to our reporting segments to reflect a new organization structure and the continued evolution of our Complete Vehicles business to more of a value-add model. Beginning with the first quarter of next year, we will move from four reporting segments to three. Let me explain what is changing and what is staying the same. Our Body & Structures segment will consist of the same operations currently within Body Exteriors & Structures. We are just making a slight tweak to the name. Our Power & Vision segment remains entirely unchanged. The most significant change is the combination of Seating and Complete Vehicles into a new segment, Seating & Assembly.
These two businesses share similar operating characteristics, including elements of directed or consigned material, and relatively lower capital intensity. Beginning January 1st, they will operate under a common segment leadership structure. Conversion to our new segment structure is already underway. We will report fourth quarter and full year 2026 results with our current segments, and then begin reporting with the new segments in the first quarter of 2027. Historical pro forma financial information will be provided at a later date. Let me close by illustrating what the power of Magna and our long-term targets could produce by 2030.
Based on a modest market growth assumption of around 1%, the framework implies approximately $48 billion of consolidated sales, an adjusted EBIT margin of about 8.5%, adjusted earnings per share of approximately $13, representing a CAGR north of 16%, which incorporates meaningful share repurchases, about $2.5 billion of free cash flow, and an adjusted ROIC above 15%. All of the metrics on this slide would set or match all-time records for Magna. This is what our strategy can deliver, compelling and achievable value creation. Our management team is confident that we can achieve our 2030 targets, and frankly, we even see the potential for upside beyond them. Thank you, and I will now turn it back to Swamy for some closing remarks.
Thanks, Phil. Let me bring it back to where we started at the beginning of the day. I told you we believe the progress we have made over the last several years is just the beginning, and it's not the peak. Now you've hopefully heard why. We believe Magna is a compelling long-term investment. Our scale and global reach give us the ability to support the world's leading automakers wherever they need us, and the customer relationships and leading market positions we have built over decades give us the strong foundation for growth. Manufacturing is at our core. Our breadth across products, processes, and systems allows us to bring integrated solutions to customers with the speed the market increasingly demands. We have a culture built around ownership, with experienced leaders and empowered teams.
You have also seen today that we have a clear strategy: grow above market, execute with excellence, deploy capital with discipline, all powered by the Magna Business System. Taken together, this positions Magna to capitalize on the trends and to drive sustained long-term shareholder value. That is the power of Magna. With that, Louis, back to you to start the Q&A.
Thank you, Swamy, and thanks, everyone, for your attention this morning. For Q&A, please raise your hand. We will come provide you with a mic so your question can be heard. Please stand, state your name, and your company affiliation. We ask that you please limit yourself to one question and one follow-up to allow others the opportunity to ask questions. For those of you listening on the webcast and want to ask a question, please submit your question using the form on the live stream page. All right, let's get going.
A lot of hands already.
Yeah. Go to Emmanuel right there.
We're getting the mics—
We're going.
Mics are coming around.
Someone has a question? Right there.
Great. Thank you so much. Emmanuel Rosner from Wolfe Research. Just curious if you could give us a sense of what cadence you expect within that four-year plan, both from a growth- over- market perspective, but also in terms of margin expansion. I would assume on a growth over market, some of these non-auto stuff will take some time to develop, but then on the margin side, maybe there is more low-hanging fruit up front. So just how are you thinking about it?
Good morning, Emmanuel. Maybe I will start with, look back a little bit. I think the idea today was to provide a financial framework to get you to the midterm targets for 2030. We have to look at the performance over the period between now and 2030 rather than just being very granular stage by stage. As you know, in the industry, a lot of variables, and especially our industry is known for non-linear performance, and that is the reason why I went back to show over the four-year period what we have been able to achieve, and what are the things we are doing to get to the targets that we talked about in 2030. With that said, it is built on, I would call, very pragmatic assumptions. As an example, the 1% growth in LVP. I showed you some facts on operational excellence.
There is some of the things that are 100% done, the foundational stuff. Some are around 25%, some are around 65%. So, it is difficult to pinpoint exactly how we are going to do every year, but the confidence with what we have with booked business, with the roadmap that I have shown today, we should be averaging about that 50 basis points per year. But Eric, you can look at the growth over market maybe, I think.
Yeah. From a growth over market, it is going to follow a similar path, right? It is not linear, but over that period, what we are going to achieve. And you are right, some of the adjacent markets, although we already started, right? There is some ramping as we develop new customers and we expand into that business. To give clarity to say which percentage and which year, we are doing it over the aggregate right now based on how we have it ramping, which would include automotive too, because we are ramping across, really across the entire company in all regions.
And then just coming back to your framework for margin expansion. So you have revenue growth with, at normal contribution margin, which probably already gets you to your 8%. Then you have all these net performance, that has been running at 35 basis points-4 0 basis points a year. Then you have some offsets, seemingly. Can you maybe just help quantify these buckets for us in terms of how much are you relying on revenue growth to get there? What is now the net performance expectation for the time period? And then at the same time, what are you assuming in terms of some of this inflation and other headwinds that offset some of these performance?
Yeah. Maybe I will start with the high level, and Phil, you can add some detail. When we talk about operational excellence in the last three or four years, I gave specific data in terms of this 35 basis points- 40 basis points. What I would really ask everyone to look at operational excellence is a more holistic approach going forward, right? What we are really meaning to do with that is to change the cost structure. So, you cannot sit back and say if the LVP is about 1% over this period of time, how are we getting margin? When I showed you some initiatives and how they contribute, whether it is automation or conveyance, material conveyance optimization, and so on and so forth, what it is really doing is changing our cost basis, right? To the current market conditions. The second important point is that we are able to flex.
Hopefully, the last four years showed you that, whether it is different business model, economic terms, recoveries, and so on and so forth. All in all, if you take a very pragmatic market growth and the resilience we have shown and being able to lower the cost model, and as the sales come in and the new programs come in, that should add to the margin expansion. So, I think going forward, what I would like to look at is measure us in terms of returns and the 200 basis points towards 2030. It should be a combination of all the things that we talked about. We will definitely have considered and looked at the current market conditions of inflation, working with customers, commodities as we stand today. But there are variables that change over time, quarter to quarter, year to year.
We are really focused on how to make our model very resilient to do what we have done and to get to what we talked about today. Phil?
Yeah. No, I think Swamy hit it well, Emmanuel. I think the only thing I would add is, you have identified the three major components. You have got the, call it incremental margin on the higher sales and the growth over market, the operational excellence. Those will both be significant contributors, and together would be certainly more than probably what we are targeting. But there are pressures we will have to deal with over the next four years, inflation, other headwinds that this industry will invariably throw at us. We tried to bake in a realistic set of assumptions and a target that we felt confident we could hit in a modest light vehicle production environment, with those three things at play. Yeah.
Michael.
First of all, thank you to the entire Magna team for putting today on. I know it is a lot of work. We hear a lot about the Chinese-based manufacturers having development times that are half European and American manufacturers. It seems there is a pronounced change that the vehicle manufacturers in North America and Europe are increasingly turning to suppliers like Magna for engineering, innovation, those sorts of things. First of all, am I reading that correctly? And then second, what does it mean for Magna? From growth over market, higher than what you are expecting, new business wins, those sorts of things. It seems like there is a dramatic shift, unless I am missing something here.
Yeah. Michael, I think you got that point right. We are seeing a different cadence and the speed at which the development is done in China, and we gave you a couple examples today, right? Whether it was the DHD or the eDrive system or the door access and so on and so forth. The significant advantage that we are seeing is we are able to take what they are doing, how they are looking at requirements, what are the parallel processes that they are going, what is their risk appetite, how are they looking at specifications, and so on and so forth. If we are able to compare and contrast and be able to bring together to all our other customers how we have been able to do it, because it is not just us looking at it. We have been able to work on several programs and launch them.
Some of it is just very early involvement with suppliers and so on, and that is where we believe we have the advantage. We have been able to go and talk to them in terms of, "Here is how we have done, here is a program." Sometimes it comes down to giving a specification versus what is the final objective and the feature that the customer is looking at. If we can give them trust that we can do it, let us write the specification, bring it to you approve it, and then we will bring it to solution. We are seeing that as an advantage. There is a lot of those discussions across other OEMs right now, to get that speed in development and so on. I think that is where we have the advantage, because we have done it.
The question was, does it help outmarket growth? Yes, we believe it is definitely a competitive advantage, right? If we are able to help our customers bring something faster to market in a more economical and efficient way, we believe we will have an advantage in winning more business.
Okay, we will do Andrew, and then is it Michael over there? Yes, Andrew, then Michael.
There is Andrew, yep.
Thanks for taking the question. Andrew Percoco at Morgan Stanley. I appreciate the additional disclosure around operational excellence and what you are doing on factory automation. I am curious to what extent you are seeing your OEM customers sort of require you to do that, or see you as maybe having a competitive advantage, not just on the cost side and your ability to provide cost-effective supply chain, but also quality management, speed. Are there any examples that you can maybe provide that indicate that this is something that the OEMs are actually looking for you guys to do going forward?
Yeah. I think first of all, the fundamental reason why we wanted to do it was to meet the competitive pressures and to evolve with the industry, right? As I said, and this is not just a statement, the true DNA of Magna is manufacturing, and quality, delivery, and time, and being competitive is an imperative to the market. All of us have to do that. These are just ways of addressing that. But as we go through our normal process, we see tools that will enable us to do things faster and more efficiently. To be more directly answering your question, yes, there are some OEMs who are looking at how you automate, what you automate, right? I would like to look back and say, "What is the outcome?" Is it better quality? Is it better efficiency?
Is it more revenue per square foot, more revenue per head, and so on and so forth? I think it is self-driven, to be honest with you. At the end of the day, the customer, if you deliver in time, competitively, with good quality, they will let us do what we need to, right? The big thing, as Tom mentioned, is we have that ownership mentality. What we are able to do, what we tried to show you today, is how we are leveraging lessons learned in one place so you do not have to reinvent somewhere. The tools have enabled that even further, taking us to the next step.
That is helpful. Maybe just to follow up on just the investment needs to kind of further automate your footprint. I think you mentioned 4% of sales is the expectation for CapEx, I think, over the planning horizon. Should we expect the cadence of that to maybe be a little bit more front-end loaded as you look to advance some of this factory automation, or should we think of that as broadly linear over the forecast period?
I would look at automation and the capital deployment no different than any program, right? Go through the same discipline, and as I mentioned, typically around two to two and a half years is what we are seeing. We're doing project by project. The foundational piece of connectivity is in place, as I talked about. The visualization is in place pretty much. The rest is just going to be case by case. When Phil talked about the 4%, we are including what we have in the roadmap for the initiatives of operational excellence in that bucket already, right?
Yeah, if I could just maybe add, much like growth or margin expansion, probably not going to be linear, but kind of plus or minus that 4% is what we'll typically plan around each year as we kind of go through the period. Next.
Hey, Michael Glen from Raymond James. I just want to go back to the 200 basis points. I'm assuming that most of this is within cost of goods sold, and you break down three components of COGS, labor, overhead, and materials. Can you give some insight into how the 200 basis points will break down across those buckets? Thanks.
Look, the 200 basis points, I think you've got it right when we think about the majority of that coming from incremental pull-through on the higher sales and the growth of our market, and the operational excellence. I would expect it across the board. You heard about some of the initiatives in Swamy's section on operational excellence around reducing material costs, reducing overhead in the plants, reducing obviously direct labor as well. I would expect contributions across the board towards that. There's probably a little bit of SG&A in there as well. As Swamy mentioned, we're extending a lot of these initiatives even beyond the factory floor into some of our administrative functions as well.
I am probably not going to provide more specifics around that, Michael, but would just say the 200 basis points will be predominantly gross margin improvement, maybe a little bit of SG&A, but across the board. I mean, the initiatives are broad and are targeted at virtually every area of the enterprise.
Following on that, just as we think about decremental margins for your business with all of these operational excellence initiatives, like we used to think about decrementals of, say, 20% or 25%, depending on the business line. How do those change in the future?
I would say the decremental margins, that is an average that Louis or Phil or I talked about, and it would change. Seating as a group would have a lesser number, maybe in the mid to high teens. The more capital-intensive, like the Body & Structures business or powertrain, would have been in the low 20s. But the best way to look at it, Michael, is as we are doing everything that we are talking about, we are able to bring that cost structure to a lower level, and that is how we are getting the margin expansion and the flow-through with incremental sales. Difficult to pinpoint exactly as we stand today. I always look at two or three things, which is, where am I getting the margin expansion? What is my revenue per head? Or given the footprint, how effectively we are using it.
It is difficult to pinpoint exactly changes by program, changes by region. But if we track to what we have been talking about, I think we have been in a good place.
Yep. Yep.
Go ahead.
[inaudible]
Mark Delaney with Goldman Sachs. Thank you for putting the event on. I was hoping you could share more on the non-automotive opportunity. You talked about $2 billion in 2030. Could you share more around what areas are driving that and how booked that revenue is?
Yeah. Eric, maybe you can add. I will start. I think the key is we are still in the early innings of the adjacent markets. When we talk about this business, it does not have the visibility of three or four years down the road, right? Like 2028, I could say in our normal business, 90% is booked. I think we feel pretty comfortable with the $2 billion number that we talked about based on where we stand today. A lot in terms of commercial vehicles and recreational vehicles, good visibility already in place today. We are seeing, I think Eric mentioned in his section today, warehouses, automation, and structural systems. We are looking at data centers, similar, and some other actuation systems and so on for robotics and other general automation areas.
I would see in the early part more in the B&S segment and the Complete Vehicles from an Assembly perspective, but we are seeing opportunities in other areas too, but too preliminary to comment at this point. I would say good roadmap to $2 billion, but possible upside there.
That is helpful. My other question was trying to better understand assumptions Magna made around mix in the automotive business as you look out over the projected timeframe, and specifically, how are you trying to incorporate the growth of the Chinese OEMs internationally and what ramifications that may have on your Western companies in terms of the programs that they are producing and the volumes? Thanks.
Yeah. A couple of points to mention again. One, the 1% growth in LVP, right? Obviously, it is different in different regions. I talked about complete vehicle a ssembly where I gave the examples of XPENG and GAC, and there is other discussions. That is kind of like the beachhead as they are doing CKD, SKD to start off. As they are looking at full vehicles being built in Europe and the localization discussions, we are at the table. There is a lot of those discussions happening. When I say 2028, 90% is booked, that means there is a clear visibility on which program, which customer, and so on and so forth, right? In China, we have grown about double digits over the last 10, 15 years. Very deliberate on which customers, which programs, and we are not taking every product line that Magna has.
One other key point, we are really focused on producing in China for China, and we have been able to make that shift, roughly 60%+ for Chinese OEMs. As they move to different parts of the world, we believe we understand the system, they know us. We have been able to win business comparatively in China at or better than average margins of Magna, which shows our strength there. As they proliferate to different parts, we believe it is a good opportunity for us. We really have not made too many assumptions beyond what we have seen as history of Magna.
Can I just add one thing? When you look at the Chinese OEMs coming to Europe, we're not looking at the overall market to grow. So it is, as you referenced, it's a mix shift. When they look and they need to establish a supply base, because the supply base isn't fully established as far as from China shifting over, it does put us in a great spot for the initial points we've made with Magna Steyr, with having vehicles starting to build those relationships, and then as they look to localize, to already have relationships in that region that we can expand on.
It helps us to balance that entire market that as the mix shifts, much like we did in China, as Swamy said already, we were 20% before, we shifted to 60% with the market, that we're kind of balancing and able to hold our position in that market.
Hey, Joe.
Thank you. Joe Spak from UBS. Swamy, maybe just to pick up off that last question. You looked at that slide, you're not really assuming a lot of growth from the D3, G3, which is probably prudent. You are showing a lot of that good growth from other customers, and then the new market, which looks like it adds maybe 50 basis points-100 basis points to the growth of our market. The flip side of what we were talking about earlier with the Chinese moving faster is that maybe some of those programs don't have the same lifespan as legacy programs, and it seems like there's a higher probability for volatility with some of those programs. So, I know the 1% light vehicle production, you're not assuming a lot of growth, but the growth of our market is key to the story here.
So maybe you could just give us a sense of how you go about your forecast in terms of maybe accounting for some of these unexpected shifts that might occur and what the customers are telling you, how that gets distilled down internally.
Yeah. I think, Joe, one of the key things you got to take away is what Eric showed in his slides, right? We've been able to increase content per vehicle with various customers over time, as you saw. Some of the legacy customers that we've had, and we are very strong, we still are very focused on the programs that we have been, and we continue to increase that. We are not giving up on that. But if you go back 15, 20 years, the content was pretty small. The number of products we were putting was very small. And not all programs have the longevity that you just talked about. So, what I'm trying to say is the volatility is not completely new, and that's where we have to think in terms of the economic terms, what are some of the capital discussions.
There are some cases where, I think I've spoken over the last two years, we ask the customers to put in capital with us. So that gives a little bit of, call it skin in the game, right? So we're doing all of these things to look at it. There is no one answer to say, "We know exactly how to do it." So it's a combination of these things. When the Europeans started proliferating in the U.S. market 15, 20 years ago, we had to go through the same thing. So, we're going to follow the same playbook, and we feel pretty good about it.
The second question is going back to the CapEx assumption, 4% over the planning period.
Yeah.
I guess in the wake of recent midterm elections here in the U.S., if some of your customers do make a second go at higher EVs later on in the decade, does that maybe need to step up again? Can you reuse some of that investment? Is there some sharing of CapEx like you just talked about? I guess also related to some of the political landscape, do you see the possibility for your customers to pause on some geographic sourcing decisions, and how does that impact your planning?
Yeah. There's three questions in there. I'll try to go one after the other. The first one really talked about the EV piece, right? If you looked at it, we looked at engineering core investment, and we've talked about building blocks, and you'll see examples as you walk through. Part of that is in place. If the EV, whether it's eDrives or hybrid systems and battery enclosures come back, we have the core engineering done, we have the products, it becomes program capital, right? That's one. The second thing you will see is that the CapEx is in place, right? The one that we have gone through. We've been able to flex by bringing some of the outsourced value in, and we can always flex and go back to that.
I think we feel pretty good that it's not going to be a huge cycle, right? The second part of the question, you talked about how the customers are thinking about it. We followed the customer footprint, and most times they are the importer of record. We have followed their OEM assembly plant strategy, and the good thing is we have the footprint. As they shift, it's not going to be from today to tomorrow, it's going to be over a period of time. We'll be able to flex through that process in a pretty good way. The political condition, I'm no expert. You can give a better answer than I do.
Yeah, right here, for Alex. Maybe right here. Yeah, good.
Thanks. Alex Perry from BofA. Thanks again for doing this. Maybe just a higher level question, I guess, Swamy, expanding upon your CPV comment. What allows you to expand CPV on current platforms so significantly? I think the example of 5x-ing the content on the Ford Expedition was really interesting. Are you seeing a trend where the OEMs want to work with less suppliers, and then how does that play into your favor given your scale and diversity?
Yeah. It's not just about going to fewer suppliers. Definitely that's one variable, but really you have to bring value to the table, right? We talked about the —it's an old example, but I'll use that, driver monitoring system. It was sourced as camera separately, mirror separately, the ECU was sourced separately. We put all of the two things together. We didn't change what the consumer would see. It's the same value proposition, but from a vehicle perspective, the cost is down, but the Magna content is higher. We did that with the old time— the latch. Used to be a mechanical latch. We made it the power systems latch and so on. Today, if you go, you look at the smart access. There's a software, there's an actuator. The beauty is also on the platform. It's one actuator that goes across many platforms, across millions of units.
That's one way of thinking from a platform perspective. The other thing, look at castings, right? You can do a lot of consolidation in two or three castings. There's very few people who can do that, from a structural viewpoint there. If you look at battery enclosures, that was one of the big investment cycle for us. Why we did it? We had frames, battery enclosures, when and if they come, could be the floor, could be the structure. There's not many people who can do that. We are talking about cradles. I think you saw the example. The cradle and powertrain, two different things. Even in an OEM environment, it's looked as two separate things. We are bringing that together to reduce weight, to reduce cost for the OEM, without giving up any functionality, drivability, performance.
There's not many people who can do a structural casting and a powertrain with the drivability, with all-wheel drive, four-wheel drive capability together. That's increased content for us. Our all-wheel drive, four-wheel drive system, roughly $500, 15%-20% of the market, because that's all you have, right? Largest supplier in that category. Today, we are doing primary and secondary drives. If you add that possible content, it could be 3x- 4x that, right? These are some examples. I can go on for the next half an hour, but I think I've proved my point.
Really helpful. Then maybe just to follow up on operational excellence. I guess you laid out a lot of initiatives. Maybe just give us more color on which one of the initiatives you think is going to drive the most meaningful margin progression, and is it the material flow optimization? Then any metrics you can share on sort of the next-gen factories and how they're performing versus maybe the prior gen? Thank you.
Yeah. I think I would look at it as two pieces. You cannot do any of the initiatives. I call the material conveyance and the light automation as the initiatives, and they are the result because we are able to look at the data in a very intelligent fashion and make it accessible at the fingertips to the people who really do the jobs on the shop floor. The first part of it is foundational. I feel pretty good that we have done that. Without that, you cannot do the other. So, why did we pick material conveyance and light automation? Because those are the two we saw the opportunity. Doesn't mean those are the only two, but as we said, we want to be very deliberate. There is enough work to do on these two. We want to get there. Predominantly, those are the two.
I gave you an example. By the way, the example that I gave you was a casting plant in U.K. Not an electronics, not a white glove factory. This is like hardcore manufacturing. They're able to see the benefits that I just talked about, 10%-15% improvement in equipment effectiveness, footprint savings. I don't want to pin the savings to a specific initiative, because if I do the correct value stream mapping, if I do the material conveyance correctly, I reduce microstops, I reduce unplanned stoppages and so on, at the end, it should show up in the efficiency of the plant, right? It will show up either in MOH and SG&A reduction, or it'll show up in material savings and direct labor savings, increasing our contribution margin. I think that's the best way to think about it.
Okay, we'll go to Ty, then I think Tamy over there.
Yeah, go ahead.
Hey. Hello. Ty Collin, CIBC Capital Markets. Thanks for all the comments and thoughts today. Just first one, turning back to some of the non-auto opportunities that you discussed today, especially for some of these opportunities that are newer territory for you, how are you thinking about your hurdle rates as you approach those? Is it fair to say that this work would generally be higher- margin stuff that could mix up your margins over time?
Yes and yes. I think we are looking at it no different than a project, how we look at all the projects that we go through, right? Most of the times, the way we think about it is, it has to be returns-based, but the program management execution is profitability-based, right? Once you win it for a certain hurdle of return, now you got to make sure you run it and get the profitability. If it does, then the returns will automatically come. That's the fundamental concept. That's no different. We are being very deliberate in saying we're going to use our existing capacity, capability that we have before we scale further. That's why I said it's mostly in the B&S and the Complete Vehicles side of things.
The reason why they're looking at suppliers like us is because of the scale, the robustness, the reliability, and the quality requirements, right? Obviously, we are looking at the save from both profitability and returns. It's got to be accretive for us to be able to do that, because we're bringing value to the table.
Yeah, no, I think that's really important. We've put the $2 billion target out there. We feel very confident in our ability to hit it. I would expect not only is that accretive to growth, as Joe mentioned, but accretive to margins and accretive to returns for Magna. It's why we're doing it. I think the early returns, I guess, for lack of a better word, are positive, and we're really excited about what we see. I would say, as Swamy said, we're approaching it very carefully, very deliberately, as I think you all would want us to. But we are approaching the market as One Magna. We're bringing the full suite of capabilities to those markets. If you look at the segments, it's maybe a little bit tilted.
On the industrial side, maybe a little bit tilted to Body & Structures, maybe versus the others. But we see opportunities across the portfolio to grow not only in the adjacent mobility, but in the adjacent industrial markets as well.
Okay, great. The world's obviously a very volatile place. It doesn't look like that's going to change anytime soon. I think Magna's done a lot over the last five years or so to kind of protect and insulate yourself from some of that. Is there any more work to do on that front when you think about things like hedging, contractual terms, the configuration of your supply chain to sort of position yourself for a more volatile world?
Ty, I think the key, the meaning of volatility is something comes up that you didn't expect. But I think over the last four years, we have done a lot. Hedging for power in Europe, which was not needed five years ago, it's in place. Looking at commodities in the same way. We talked about several economic terms, resetting labor terms at the start of SOP versus when you're winning. A lot of changes are in place, right? I think the key is resilience and how quickly can you react to it, and I think the organization has been able to do that, and we leverage that quite a bit. We feel pretty good in terms of making assumptions, but that doesn't mean we captured everything that we know, or we don't know, actually. Anything we know, at least we have tried.
Yeah. All right, Tamy.
Oh, yeah.
Thank you. Hi, good morning, or good afternoon. Tamy Chen from BMO. Phil, just wanted to ask, why now for combining Seating and Complete Vehicle Assembly into one segment? Are we still going to be able to see that margin improvement in Seating from some of the new programs coming on?
Yep. Sure. Thanks, Tamy. Maybe I will answer the second part first. The short answer is yes, we do. We continue to be very confident in the ability of our Seating business to expand margins, not just with new programs and better economics, but also the operational excellence activities that are happening in that business. So, we still feel very confident in Seating is a great business. It earns really strong returns on invested capital, and we see the margins improving as we go forward as well. As for the timing, we just felt like right now was a good time to combine those businesses under one segment. They do share similar characteristics, as I said, around a lot of directed content in Seating. Complete Vehicles is moving to more of a value-add model now with its new business, which is more consigned material.
They are relatively similar in size from a revenue standpoint, and we just felt now was a good time to put them together and then kind of report them that way. They will be under one leader in Simon Kew, starting January 1st. I think for the first year, we will still provide some revenue color so you can get a sense for how each component of the segment is doing, and then also some qualitative margin color too, just so you can get a good sense for. I think margin improvement in Complete Vehicles, we have a clear path to that, particularly with the new value-add programs coming on, because revenue is a little bit lower, but margins are much higher, and then the margin improvement in Seating.
As you look at the margin expansion target that we have set of at least 200 basis points, I think that segment in particular has the potential to do a little bit better than that over the period, just given what is happening there right now.
Okay, thank you. My follow-up question is, I just wanted to confirm the 90% of business booked for 2028. Does that include the COEMs outside of China? In terms of localization, I am not sure if there is already some business booked aside from the CVA business in Europe by the COEMs, or there are still discussions at this point. If it is the latter, what is the unlock for them? Are they waiting another year or two to see how their kits are doing in Europe before they really secure business for localized content within Europe? Thanks.
Tamy, I will not answer for the OEM of what their strategy is, but what we are seeing is an opportunity, CKD and SKD, right? Obviously, we are doing that through our complete vehicle assembly, but we are having discussions to be able to provide value and saying, "What does it take for harmonization in Europe?" That is one part of it. The second thing is the localization. As they are addressing, as you know, we have a footprint, so what is the right content and what can we provide and how we can help? It will be difficult to decipher exactly how much of the COEM localization is already in versus not, because it depends on sourcing and hundreds of programs. It is a combination of the two. The localization content of Chinese OEMs in Europe, I would say, is not pretty significant as we stand today in the business, right?
There is some, but it is not significant.
There is some.
Yeah.
If that does become a big push, that could be a tailwind.
All right, we will go to James and then up front, and then we have one from the webcast.
Yeah.
James Picariello, BNP Paribas. Relative to Magna's total targeted growth over market of 3 points, can you just help unpack the growth trajectories at the segment level? Does Power & Vision lead, followed by Body & Structures, with a more separate outlook for Complete Vehicles and Seating?
Yeah. I would like to go back to the growth framework overall, because it is difficult to break it down by segment, but I would say it is pretty much across. B&S , significantly large, very good market position. So it might be a little indexed towards the lower side, but still continues to grow. P&V has typically been higher a little bit, and that continues a little bit that way. Because of some programs ending, some coming on, and some of the value-add stuff that Phil talked about, the Seating and Complete Vehicle Assembly, we will see growth there. Obviously, the $2 billion in the adjacent market side of things will add up. I do not know whether I can break it down exactly. We will continue to grow in China with the COEM penetration too. We see a good path there.
Difficult to break it down by segment at this point in time.
Okay. On the margin expansion front, of the implied 50 basis points per year of margin expansion, can you help size what portion of that would be self-help, and are there any timing nuances with respect to the self-help savings for that 50 basis points per year? Thanks.
Yeah, I mean, I would say, James, as we said, it's not going to be linear. A lot of it will depend on what's happening in the macro. But the two major components being the self-help and the operational excellence will be a big contributor, and then obviously the incremental margin on the growth over market, coupled with we're not expecting much from the market itself. Those will both be, I would say, big contributors. Rather than talk about each individually, we really would rather talk about them in the context of an overall margin construct for the company.
I think when you look at the operational excellence and the incremental margin, if you will, on the higher sales, more than enough to offset inflation, other headwinds we'll face, headwinds we see today, headwinds we don't see yet that are going to be coming our way, and still feel very confident that we'll be able to achieve that margin expansion over the period. I think we're in a good position, I think, to expand margins every year. Is it going to be 50 basis points every year? Probably not, but certainly, that's the path that we're on. The only thing I would say, you had asked previously about the segments. We see margin expansion opportunities across the segments. I mean, as you're sitting here today, B&S is about, I think the current- year outlook, about 8.5% EBIT. P&V is kind of high 6s.
Seating & Assembly is maybe 3%, low 3s. We see margin expansion opportunities across all three segments. As I said, maybe a little bit more in Seating & Assembly, just given where they're at in time and space. But good opportunities across the board.
Thanks.
Maybe Dan, back there. Right.
Thank you. Dan Levy, Barclays. Wanted to just double-click on inflation. First of all, maybe you could just talk about within the sales forecast that you have, how much you are assuming of that $6 billion-$6.5 billion of revenue improvement is recoveries from inflation? Then as far as the different operational initiatives that you have, are some of these just meant to keep inflation in check? Or is the idea that even with these operational initiatives, you are still more than offsetting the inflation? So, how much within the recoveries and how much of it is just self-help and how much actually you can get?
No, great question, Dan. As we get hit with inflation, whether it is commodities or electronic components like DRAM, I mean, it is on us to either go get recoveries from our customers. In some cases, it is automatic, in the case of much of our steel and aluminum. In some cases, it is a negotiation, like it has been for more recently with some of the DRAM and electronic components inflation we have seen. The objective is to get recovery either through an index or a pass-through from the customer. That typically is dollar for dollar, so then it is on us to mitigate further in our own operations to protect the margin, and that is what we try to do. The operational excellence really comes into, number one, help mitigate the impact of the inflation, and then number two, protect the margin or expand margin as we go.
I would say in terms of the 2%-4% over the period, we certainly have seen near-term inflation pressures this year. I think the expectations are those pressures will extend into next year. Then beyond that, I would say we did assume some reversion, if you will, to more normal levels over the period. So it is not a material component of the 2%-4% growth over market, if you will. But that is the Magna playbook, which is mitigate where you can, seek recoveries where you cannot, and then through the operational excellence framework in the Magna Business System, protect margins and keep us on that trajectory to expand the margins 200 basis points over the period or more.
Great. Thank you. As a follow-up, I want to ask a question on your slide on active portfolio management, and you gave a few criteria that you are looking for, return profile, market position, competitiveness. In the past, you once talked a lot about megatrends. I think that the key theme sort of in global auto today is what is going on with sort of China risk. So, as you assess your portfolio, how does the China situation affect each of these sort of criteria points within the portfolio? Where are you in terms of portfolio review? Maybe we could get a sense of what percent of the portfolio is sort of China neutral, China positive, China negative, and how that then mixes with hitting these three criteria of what remains in the portfolio.
Yeah, I think the portfolio assessment is not a one-time thing, Dan, right? We continue to do that because, as you said, the market is dynamic, and if it changes, you have to be dispassionate about it. First of all, I think what we do in China is for China. So there is not much that we make somewhere and ship to China or vice versa, right? Now, regarding the portfolio impact, you talked about, we have been very focused and deliberate in China of what we do. For example, when we do our Body & Structures, it is complex castings, hot stamping, large stamping, and assembly. We are not looking at making parts that are in 200 ton- 400 ton presses, for example. If you do not have a competitive position, for example, mold and paint, we did not go.
But on mirrors and mechanisms, we said we could have a platform, we could scale. I think Eric talked about one platform does multiple variants and millions of parts. We are there. So we are looking at what is going back to the guiding principles I talked about. Do we have a chance to win, and what is our competitive advantage? That is how we are doing in China. It changes by region. I talked about restructuring in Europe substantially, right? Of the 40+ divisions, restructured, consolidated, closed, and so on. A large part of that was in Europe. So it is different in different regions, different places of the world. In lighting and rooftop systems, we believe the market is fragmented. We did not believe we are the consolidators or we could have a path in the future. That is why we divested.
So, I think the principle will be exactly the same going forward. I do not see a gap today, and that is why Phil said, "I do not see anything in terms of mergers and acquisitions today." But divestitures, we continue to look, right? I mean, it is going to be every year, and we have to see where we play.
Hi, good morning. Thank you for taking my question. Clara Sornay with ARGA Investment Management. I think when we are looking at the dollar content differences between China and North America and European vehicles, we are wondering what kind of content and product wins do you need in order to be able to close the gap between those regions?
Good question, Clara. I do not think we look at it from the lens of, do we need to close the gap? Because the type of vehicles and the segments that we have in North America are different. For example, SUVs and trucks, they have frames, and battery enclosures are huge, and so the content will be very different here. The segments are different in China and in Europe. In Europe, we have a significant play in powertrain, eDrive systems and dedicated hybrid transmissions and DCTs and so on. So it is different by different region. I think we will be focused on, again, going back to the same thing, which customer, which platform? Do we have longevity? Do we have a moat around the product that we have? So I do not think we will go after just pure CPV or pure revenue.
It has got to meet these principles, right returns, our ability to sustain for the long term, and that is how we grow.
Could I?
Please.
If I could add in too, if you look at the dates, from the North America and Europe, and you look at China, that growth has happened in a much shorter period of time. So we are building momentum versus if we extend it. Then I think we talk a lot about COEMs coming to Europe. That provides a big opportunity for content per vehicle growth as they localize for us to help them either bring products or develop new products, when they come to that market.
Thank you.
All right, we have a comment and a question on the webcast from Rajat, JPMorgan, for Eric, actually. "Great color on increasing content with existing customers over time. How have annual pricing negotiations evolved with these customers?"
I think when we look at anyone that talks about automotive knows there is constant pressure from the OEMs, right? They are trying to drive affordable products and develop new technologies and features. So there is always tension, right, on the pricing side. But I think what you see is that with our content growth, we are not buying the business. You can see from our margins, you can see from the opportunities, we are actually providing the right solutions. A lot of what Swamy talked about with operational excellence and how we manage our business allows us to continue to drop our cost basis so that we are able to put forward competitive offers and competitive pricing to our customers. I do not see any of the cost pressures going away, and it continues as different cycles. It will always be there. It is, I believe, always a constant.
But the results here show that we are able to compete and we are able to drive down our cost structure so that we are able to have competitive offers to our customers while at the same time maintaining the margins that we want to.
And if I could just add, with operational excellence, we always target to generate benefits that would exceed annual normal course customer price concessions and direct labor inflation. So the operational excellence works hand in hand to enable us to offset that and continue to expand margins.
Any further questions? We have one over here.
Right there.
Hey, Mithil Munshi, Bernstein Research. I have a question about the integrated systems. So I know the strategy there is lead to higher content per vehicle, but do you see any change in stickiness between customers or stickiness between vehicle generations as you guys are packing more things into kind of one sales motion?
Stickiness question, the two old examples I mentioned in the e-latches and the DMS, we have seen that, right? It has gone to the second generation now, and we continue to gain traction in that. Some of the more recent examples are new, right? There is a lot of interest in it, and it will take time to proliferate. If you go back, if you do everything that we talked about and follow the playbook, we believe it will, right? But it remains to be seen. But we are seeing a lot of interest, for example, on the eCradle and the powertrain technology that I talked about. JITFit, the seating, it was an example that you will also see, right?
Started off, there is very good probability that we will come and talk about it in a short period of time about a win, but there is others who are looking at it. I think the stickiness will come.
Thank you. As a follow-up, because these are more, I would say, highly engineered components as you are stuffing things into this 1 sq ft, do you see the re-engineering cost between vehicle programs increasing or decreasing?
I think one of the biggest point that I addressed previously was having a platform strategy when you develop your products. For example, when we do the eDrive, we look at it as a motor, inverter, gearbox, power electronics, as an example. We know what the market is, we know what the power levels that we want to compete in, and we build our strategy around it so we do not engineer every application, right? The reason why we are able to do the DHD that you will see outside for Chery in 17 months is because we are taking parts from this platform that we had and we put it together. That is lesser engineering, lesser integration, better comfort in validation, and so on. If we are able to do that means we are able to win, and it also helps the customers, right?
Short answer, I think platform thinking and proliferation and standardization is better for all of us.
Thank you.
Any further questions? Okay, I will pass it over to Phil.
Okay. Thanks, Louis. I have got one more announcement before we wrap up. I wanted to let each of you know that Louis Tonelli, somebody well-known to most of you, will be retiring at the end of February. Louis joined the Magna finance team in 1997, moved into investor relations shortly thereafter, and has led the function for the last 26 years. During that time, he has played an instrumental role in shaping our investor relations strategy and messaging through an ever-changing environment, and he has been a consummate professional throughout. Louis, I know we will have time between now and February, but on behalf of Swamy, our leadership team, and all of Magna, I want to thank you for your tremendous contributions over the years and wish you the very best in retirement. But not yet.
We have identified Louis' successor and expect to announce our new Vice President for Investor Relations later this month. As I said, Louis will remain with Magna through the end of February to ensure a smooth transition and give you all a chance to wish him well. With that, we are going to bring today's event to a close. Thank all of you. I wanted to thank all of you for joining us, both live and on the webcast, and a special thank you to the Magna team behind the scenes who worked so hard to make today such a success. For those of you with us in New York, I invite you to stay for lunch, spend some additional time with our leaders and our displays, and please make sure you check out the operational excellence experience off the hallway there before you leave.
Thank you all, and enjoy the rest of your day.
Thank you.