Good day, and welcome to the Aptiv Q3 2026 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Betsy Frank, Vice President, Investor Relations. Please go ahead.
Thank you, Jennifer. Good morning, and thank you for joining Aptiv's third quarter 2026 earnings conference call. The press release and slide presentation can be found on the investor relations portion of our website at aptiv.com. Today's review of our financials exclude amortization, restructuring, and other special items, and year-over-year comparisons are based on Q3 2025 pro forma new Aptiv results, excluding the former EDS segment. The reconciliations between GAAP and non-GAAP measures are included at the back of the slide presentation and the earnings press release. Unless stated otherwise, all references to growth rates are on an adjusted year-over-year basis. During today's call, we will be providing certain forward-looking information that reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings.
Joining us today are Kevin Clark, Chair and Chief Executive Officer, and Varun Laroyia, Executive Vice President and Chief Financial Officer. With that, I'll turn the call over to Kevin.
Thank you, Betsy, and thank you all for joining us this morning. Starting on slide three, we delivered solid third quarter financial results, including revenue growth of 2%, which was consistent with the second quarter, and EBITDA margin of 18%, in line with our expectations. We repurchased more than $230 million of stock in the quarter, bringing our year-to-date total to more than $550 million, and we remain active in the fourth quarter and plan to repurchase at least $650 million by year-end, returning 100% of our free cash flow to shareholders during 2026. Shifting to future business, we secured roughly $4 billion of new business awards in the third quarter, bringing our year-to-date total to more than $13 billion, which reflects progress in the following strategic areas. In China, we grew bookings by 30%, of which more than 20% are tied to export programs.
In Intelligent Systems, we more than doubled European bookings, addressing the customer mix challenges we are facing in that region that are weighing on our growth. We booked $3.8 billion of non-auto awards, more than double the year-ago period, as we have established our presence in new end markets, including drones and robotics. The momentum we built in non-automotive markets has led to a significant revenue base that we are now leveraging to create incremental growth opportunities. We are on track to generate more than $3 billion in 2026 revenues, including $2 billion in A&D, telecom and datacom, and diversified industrials. As our revenues in these markets have scaled, so have the opportunities to further leverage the breadth of our product portfolio and the depth of our capabilities.
This is best exemplified by the award we received in July from a leading drone manufacturer that we discussed on our last earnings call, and the two robotics awards we secured over the past two quarters, as well as the increased amount of business we are being awarded in the energy storage and AI data center markets. I will talk more about our individual awards this quarter on the next two slides, but looking ahead, we have a large funnel of fourth quarter bookings opportunities and are on track to reach our $20 billion target. That said, award cycles may lengthen as we finalize negotiations on commercial recoveries and the pass-through of price increases, which we expect to increase meaningfully in 2027. Now let us review our business segments through the lens of the automotive and non-automotive end markets we serve.
Starting with the automotive market on slide four, we continue to expand and diversify our OEM customer base, creating more resilient revenue stream. Notable program launches in the quarter included our next-gen L2 ADAS smart camera for a leading Chinese OEM's exports to the European market. The solution combines a Chinese SoC, Wind River Kaiwu RTOS, a vision stack from StradVision, and Aptiv software features, all brought together through Aptiv's global ADAS integration, validation, and safety capabilities to deliver a cost-effective ADAS solution that meets stringent 2026 European NCAP five-star safety standards. This solution demonstrates the power of our open, flexible, and modular ADAS architecture and our ability to deploy technology from China in global markets. This is just the first of other planned launches with this OEM for export into the European market.
High-speed cable solutions for the flagship SUV and truck program of a North American OEM and a Korean OEM's next-generation EV platform, multiple advanced radar programs across Korean and major Japanese OEMs, reflecting our continued growth and technology adoption across global vehicle programs. A zonal controller with up-integrated functionality for multiple premium electric vehicle brands at a leading Chinese OEM, and high-voltage interconnect solutions deployed across multiple leading OEMs and flagship EV platforms. We also secured several important new business awards in the quarter, including two strategic ADAS awards with a China-based global EV market leader for deployment across its next-generation intelligent driving platforms in 2027. First, an L2 ADAS system incorporating a localized technology stack and components, and second, a next-gen radar solution enabling L2++ functionality secured on an accelerated development timeline.
These awards highlight Aptiv's flexibility in delivering innovative, high-performance technologies tailored to regional needs and evolving customer strategies. A conquest award for high-performance cable management products, highlighting continued adoption across leading Japanese OEM platforms. Another award for our modular connector portfolio for a leading European OEM's next-generation modular vehicle architecture. Lastly, two integrated cockpit controller awards for Chinese OEM export programs, further strengthening our competitive position as these customers expand globally. Moving to slide five to discuss our progress in non-automotive markets, where new business awards further strengthen our confidence in the growth potential of these markets. We continue to deepen our network of strategic partnerships during the third quarter, including an expanded partnership with NVIDIA, which brings together NVIDIA's edge platforms and Aptiv's sensing, compute, software, and systems integration capabilities to accelerate the deployment of production-ready physical AI and intelligent edge systems.
A partnership with Samsung, leveraging our Wind River Cloud Platform solution to support the advancement of AI-RAN in Korea. During the quarter, we also executed multiple new program launches across our portfolio of high and low-voltage interconnect products for a leading commercial vehicle manufacturer. Collectively, these launches reinforce the applicability of our portfolio across vehicle architectures. Lastly, we launched our first radar program for a major commercial vehicle OEM in North America. A few notable new business awards in the third quarter included an award in China for humanoid robots, incorporating high-performance compute and interconnect technologies, high-performance interconnect and connectivity solutions for data center and battery energy storage applications, reinforcing how our portfolio supports next-gen AI infrastructure, an award in the medical device industry providing high-performance cable assemblies for critical patient care applications where reliability and performance are paramount.
Lastly, a key software award with a leading telecom equipment provider supporting a range of critical network infrastructure applications. Turning to slide six, I want to take a minute to talk about the setup for 2027 before Varun walks you through the numbers. Starting with the challenges, which we believe present risks to third-party vehicle production forecasts. First, the industry is experiencing significant input cost inflation. For memory chips, the favorable pricing we secured for our customers in 2026 will not repeat in 2027. We are well ahead of this headwind in 2026 due to our robust supply chain strategy. We began investing in buffer stock inventory in early 2025 for select customers who are interested in the added insurance. Over the same period, we have met regularly with these customers to flag our expectations for supply constraints and material inflation, including on semiconductors and memory chips.
As you would expect, these customers are now more strategically positioned to mitigate any supply constraints which are starting to affect OEM production schedules. On top of this, broader commodity inflation and tariffs continue to increase input costs. Second, regarding assumptions for vehicle production, we believe ongoing supply chain constraints will continue to lead to intermittent production disruption. Affordability pressures from the combination of higher MSRPs and lease rates could weigh on consumer demand and could translate to lower vehicle production. The conflict in the Middle East and Ukraine, as well as evolving global trade and tariff policies across Europe, the U.S., Mexico, and China, could further increase input costs and exacerbate current supply-demand imbalances.
Our outlook for 2027 is also influenced by current revenue headwinds driven by two luxury German OEMs that will continue through the fourth quarter of next year and largely abate in 2028, which Varun will touch on shortly. As we position our business, we're taking a more cautious posture. But these challenges have also presented several opportunities. Our resilient global supply chain, which we execute on a regional basis, includes dual sourcing and validation of product alternatives and is backed by a digital twin that covers 95% of all the parts we procure, mapped down at least four supply tiers, and covers 99% of the semiconductors we purchased, mapped down at least five supply tiers. And to the extent our customers face increased cost pressure, the resiliency of our supply chain enhances the value of our advanced technology solutions, which are high-performing, open-architected, scalable, and cost-effective.
As a proof point, last week we received a customer award that draws on all of our strengths, resulting in significant incremental ADAS content, replacing competitors' high-cost vision, parking, and surround-view monitoring systems with a fully integrated Aptiv ADAS platform built on our smart camera with latest-generation DDR5 memory for supply resilience that incorporates the vision solution from our partner StradVision, and Aptiv's full L2+ ADAS, parking, and in-cabin software and hardware tech stack. The challenging environment is creating incremental opportunities for our high-performance, cost-effective solutions, although the impact on revenue will be more pronounced in 2028.
Outside of the automotive market, we're finding significant opportunity in energy storage, data center, robotics, and aerospace and defense markets by leveraging our world-class supply chain capabilities, as well as our portfolio of compute, perception systems, and high-speed interconnects. Varun will share more on how all this is shaping our 2027 financial outlook.
With that, I'll hand it over to Varun.
Thanks, Kevin, and good morning, everyone. Starting on slide seven with our third quarter financial results. We delivered revenues of $3.2 billion, which grew at an adjusted rate of 2%, consistent with the prior quarter. The results include 11% growth in non-auto and a 1% decline in automotive. Looking at revenue growth by region, North America grew 5%, driven by strength in both our Intelligent Systems and Engineered Components segments. In Europe, revenue was down 5%, driven by a decline in the Intelligent Systems business, where revenue was impacted by weakness with two luxury German OEMs, which we expect to persist through the end of 2027. This was partially offset by growth in the Engineered Components segment.
In Asia Pacific, revenue increased 5%, including a 13% growth in Asia ex-China, mainly driven by growth in India, and 1% growth in China, driven by continued momentum in Intelligent Systems, which grew for the second consecutive quarter. Adjusted EBITDA totaled $567 million, and adjusted EBITDA margin decreased 140 basis points due to product mix, including lower software revenues and the timing of engineering credits, unfavorable commodities partially offset by favorable FX, and investments in both segments directed towards organic growth initiatives. Earnings per share was $1.42, a decrease of $0.06, reflecting lower operating income, offset by the benefit of share repurchases and lower tax expense. Free cash flow for the quarter was $194 million, which brings our year-to-date pro forma free cash flow to $44 million.
I will talk more in a moment about full-year expectations, though our pacing through Q3 is consistent with our outlook for the full year, given the separation costs incurred in the first half of the year related to the spin of our Electrical Distribution Systems business, inventory investments to ensure supply chain resiliency, and seasonality. Moving to slide eight to cover segment-level financials. In Intelligent Systems, revenue of $1.4 billion was down 3%, mainly driven by Europe and partially offset by growth in North America and Asia Pacific. Sensors and compute revenues were lower by 2% owing to softness in automotive. Software and services declined 11% in line with our forecast that we updated last quarter. Automotive revenues were down 4%, driven by program roll-offs and lower exports to China, with two German luxury OEMs, and excluding these would have resulted in growth of 5% for the segment.
Non-automotive revenues grew 3%, reflecting 15% growth in sensors and compute, partially offset by weakness in software and services. Intelligent Systems adjusted EBITDA margin contracted by 240 basis points, driven primarily by the lower revenues in higher-margin software and services and the timing of engineering credits, partially offset by performance initiatives. Moving to Engineered Components, revenue of $1.8 billion grew 6% versus the prior year, with growth across North America, Europe, and Asia Pacific. Automotive revenues grew 2%, while non-auto markets grew 16%, mainly driven by growth in diversified industrials. Adjusted EBITDA margin decreased 100 basis points, reflecting commodity headwinds, partially offset by flow-through on higher volume. Turning to slide nine for our 2026 financial guidance. As a reminder, our guidance is based on pro forma numbers, which are available on the investor relations website under the quarterly financial section.
For the full year, we are maintaining our income statement guidance from last quarter, with the key metrics unchanged at the midpoint and the revenue range narrowed. On free cash flow, we are narrowing the range for the full year and lowering the midpoint by $25 million - $650 million. The initial $450 million drag on free cash flow associated with spin-related costs and supply chain resiliency is now $500 million, with separation costs slightly lower than planned and inventory investments higher owing to inflation. For the fourth quarter, we forecast revenue of $3.2 billion at the midpoint, representing adjusted growth of 3%. The sequential step-up in revenue growth of 1% reflects production recovery at a North American OEM and higher commercial vehicle revenues, offset by lower vehicle production.
I would also note that software and services revenues are forecast to be lower year-on-year in line with the third quarter decline owing to the timing of enterprise awards. We expect adjusted EBITDA of $612 million and margin of 19.4% at the midpoint. The sequential step-up in margin is driven by customer recoveries, engineering performance benefits, including credits, and manufacturing performance. For earnings per share, our guidance implies $1.45 at the midpoint. I would like to conclude by sharing our initial thoughts on the 2027 financial outlook. As Kevin shared, we are planning for challenges to vehicle production. Third-party forecasts as of September are calling for flat vehicle production globally.
In our framework for production assumptions, we have anchored the top end of our range to this flat scenario, which we think is optimistic given our expectations for supply constraints and significant input cost inflation related to semiconductors, including memory chips, broader commodity inflation, and overall affordability pressures. Our results will be impacted by two further items. First, pricing and recoveries, where higher semiconductor prices will create a revenue benefit. Currently, we are estimating approximately $700 million in inflation related to semiconductor prices, primarily memory.
The second impact relates to our Intelligent Systems business, which will continue to be impacted by weakness with the two German luxury OEMs owing to net program roll-offs that conclude at the end of 2027, and lower production assumptions for exports to China. Beyond these items, our assumptions for revenue growth incorporate an incremental element of conservatism, which we believe is appropriate at this stage.
Regarding bottom line impact, the recoveries will be neutral to EBITDA but create margin dilution given the lack of margin on higher prices being passed through. We will provide more details when we issue formal guidance next quarter. Outside of the points I mentioned, we expect it will be a flat to slightly positive year, driven by the combined impact of revenues ex-recoveries, continued growth in non-automotive markets, investments supporting organic growth, and performance initiatives. With that, I will turn the call back to Kevin for his closing remarks.
Thanks, Varun . I will wrap up on slide 11. I want to close by underscoring that regardless of the near-term challenges, we continue to see significant long-term opportunity in our business, supported by our differentiated portfolio of advanced technologies. We are confident that the strategy we have built serving the automotive market positions us well as the industry adapts and evolves. We are also confident in our opportunity beyond automotive, where we continue to make organic investments across both business segments to accelerate our penetration, building on the momentum we have already established. The opportunities in the auto and industrial markets underpins our expectations that our revenue growth re-accelerates in 2028.
This confidence, combined with what we believe is a disconnect between the intrinsic value of our stock and its current trading value, is leading us to prioritize share repurchases in our capital allocation strategy, which means we plan to return 100% of our free cash flow to shareholders through at least the end of 2027, consistent with what we're doing in 2026. As we focus on unlocking shareholder value, we're evaluating the composition of our business and product portfolio, and we will provide an update in the first quarter of 2027. In summary, we're focused on shareholder value creation through strong operating execution, disciplined capital allocation, and portfolio optimization. Operator, let's now open the line for questions.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We request that you limit your questions to one initial with one follow-up so that we may take as many questions as possible. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal. We'll take our first question from Dan Levy with Barclays.
Hi. Good morning. Thank you for taking the questions. Wanted to start first with the growth outlook, and if you back out obviously the $700 million, it implies growth is roughly flat. Maybe you can just help for 2027. Maybe you could just help us understand some of the moving pieces. I know you said that's being weighed down by the reduced export business from Europe to China. What are the offsets that you're seeing there in terms of maybe some of your non-auto business doing well and perhaps other pieces of the backlog or bookings that may be launching? Just some puts and takes within the growth to help us understand what's otherwise sort of a flat growth outlook ex the recoveries.
Certainly, Dan. It's Varun Laroyia here. Thanks for the question. Listen, with regards to 2027, this is a preliminary outlook, and I do want to state, given the points that Kevin and I raised with regards to the base case being at the top end of our range, we think is optimistic, specifically given supply constraints, input cost inflation, broader commodity inflation, affordability pressures, right? So that's kind of point number one. But as we think about the overall mix of our businesses, listen, we remain confident in our growth outlook for non-automotive. That, as you've seen now for the past several quarters, is performing well. We expect that to continue, and that's backed up also by the bookings that we've seen, which have essentially doubled up on a year-over-year basis. So we feel good about that.
The automotive business, which accounts for three quarters of our revenues at this point of time, that essentially is the challenge with regards to what the vehicle production outlook is for the points that I just mentioned. As we think about areas where we are making progress, North America and also Asia Pacific, China, Intelligent Systems in China now for the second quarter has delivered a second consecutive quarter of growth, given a weak domestic environment. Our bookings on export platforms continue to increase. The final point I will share from a growth algorithm is essentially our European business and Intelligent Systems specifically, where we have talked about the fact that we have been impacted by net new programs. This includes the roll-offs, and then also the two German luxury OEMs, which have exports from the EU into Europe being impacted.
We expect that to persist through the end of 2027 before returning to growth in 2028.
Yep. Maybe, Dan, it is Kevin. I will just add to Varun's comments if that is okay, Varun. Listen, high level, as we look at the market today, it is certainly dynamic. Varun talked about the baseline off of IHS and then downside of vehicle production down 2%. In addition to that, we are concerned with respect to supply chain constraints that we are going to see some intermittent supply chain disruption, actually an increase in supply chain disruption, and that will have an impact both on vehicle production, revenue growth, as well as just overall operating efficiency.
So that is something that we are watching very closely. Now, we are in a very good position to manage through that. However, we do not have the same visibility across the supply base and the OEM base to fully understand how well their position. Varun mentioned the headwind from the European OEM.
That headwind will continue through the end of 2027. So I would say those are the overall kind of negatives that I would look at. Positives, look, bookings are strong. The mix of bookings with, as Varun touched on, China local OEMs, both for export out of China into Europe and elsewhere, specific programs we are working on now with European OEMs with respect to some of the China-based solutions or technologies that they plan on implementing in the European and other global markets. Those are significant opportunities. Again, the strength we are getting out of non-automotive is very strong. Underneath all of that, though, we just overlaid an incremental level of conservatism above and beyond the range of flat to down 2% from a vehicle production standpoint, just to ensure that we captured anything that we could reasonably envision occurring in a market as dynamic as this market.
I think there is an element of a reconciling item that I would just characterize as a fairly significant level of conservatism as it relates to our outlook, just given the environment.
We'll take our next question from Joe Spak with UBS.
Thank you. Good morning, everyone. Just first question, just want to start back on the $700 million of recoveries that you're talking about for 2027. I understand it's preliminary, but how set is that number in terms of the conversations you've been having with your customers? And you made it seem like that's equal to your cost headwind, because I think you said the margin impact is just sort of dilution. I want to make sure you don't think there's going to be any leakage, so to speak, from the commodities, or is some of that leakage embedded in that other 30 basis points impact you talked about from commodities and FX?
Yeah, I would answer it this way, Joe. It's Kevin. Listen, just given the order of magnitude of the inflation, one. Two, we've been having discussions with our customers for the last, I would say, six to nine months with respect to sizing the potential risk or issue. And the negotiations we're having with respect to, obviously, we can't absorb this cost, and if our OEM customers want parts, they need to sign up for the increased prices related to semiconductors. That's certainly our posture with our customers. That's the position that we're taking, and our commercial organization is executing on that plan.
Okay. Second question, Varun. If you look at the preliminary 2027, looks like EBITDA is fairly flat year- over- year. You are talking about 100% of free cash flow being returned next year. Any guidance or commentary on CapEx plans? Should that be pretty flat? What about working capital? I can imagine that being a little bit more of a headwind given the higher cost inventory and maybe some timing issues with the receivables and the recoveries. Any color there would be helpful so we can calibrate the potential free cash flow return.
Yeah, Joe, I think that is a great question. Given the recoveries aspect of it, as Kevin mentioned, good conversations taking place with our customers, and it is not just the point about recovering the cost inflation, but also the net working capital impact. I will not be giving a cash number here, but what I will share with you are a few elements within the framework. For example, when you think about 2026 and the EDS spin-related separation costs, we do not expect those to reoccur in 2027 in this preliminary view at this point in time. With that being said, with the inflation moving up, that essentially is what we are working through with our customers. Without getting their support and commitments, we cannot ship parts. We need those commitments coming through, including from a funding perspective.
Beyond that, as you can imagine, we are taking a fine wire brush, working through CapEx plans and other elements to ensure wherever we can be more judicious about non-contracted capital expenditures. We are working through that piece, including working with our supplier communities and looking at structures whereby we could mitigate some of that net working capital impact.
I would say, Joe, that maybe again, getting back to the comment of the question that was asked earlier. Listen, operationally, we have plans to address any of these sort of headwinds, whether it is inflation, whether it is investment in inventory, which you are right, given the inflation, that would be a natural outcome. However, we have offsets in CapEx, in expense, in payables, in other areas of inventory that we have in place to drive that investment down. On top of that, although our plans and our intentions are our customers compensate us for all these investments, I mentioned we have incorporated an incremental level of conservatism into our outlook as it relates to 2027 to contemplate things that we do not have perfect line of sight to at this sitting here in early November at this point in time.
Yeah. Very fair. Thank you.
We will go next to Andrew Percoco with Morgan Stanley.
Great. Thanks for taking the question this morning. I just want to stick to 2027 here for one more second. When we think about the preliminary revenue outlook, I just want to make sure I understand the moving pieces here. It sounds like you are assuming, you are taking essentially market growth and assuming growth under market. Is that a fair way to kind of interpret the preliminary revenue guidance for 2027? That is essentially offset by non-auto growth. I just want to make sure I understand kind of the conservatism and the moving pieces baked into the revenue guidance specifically for 2027 as it relates to the auto business.
Andrew, yes. It is Varun out here. Yes, if you think about kind of the range, we start off with the base assumption that is out there. These are the September third-party forecasts. So starting with that is at the top end of our range, and then below that is essentially where we are ranging it, given the various elements from a macro perspective, but also supply constraints, among other things. So that is correct.
Okay. That's helpful. Then maybe if you could just talk a little bit about the incremental margins that you're assuming before some of the recoveries. Obviously pretty strong relative to what you've seen this year. So can you just maybe talk through what some of the assumptions are there in terms of what's the driver of the improvement in the incremental margins as we go into 2027?
Yeah. Listen, so let me start, and then Kevin, you can certainly add if you have any additional comments. So, putting aside the point of dilution from recoveries related to material inflation, our overall incremental margin algorithm of the 26 - 27 points on revenue growth ex-recoveries, that remains. So starting off with that. Given the broader inflation on commodities, oil, copper, gold, silver, and obviously the impact into resin, that's some of the FX and commodities and other commodity inflation that we're seeing, which essentially we plan to offset through performance initiatives. But that's really how you should think of it. The overall growth algorithm for incremental revenue has not changed, but we're just highlighting the fact that there will be a margin dilution effect associated with the recoveries that we anticipate coming through the top line.
Okay. Thanks so much, guys.
We'll go next to Mark Delaney with Goldman Sachs.
Yes, good morning. Thank you for taking the questions. I wanted to better understand what is happening in China, and with bookings on China exports at over 20% of the mix year to date, can you help us better understand what that means for revenue for China exports next year compared to what I think was about 10% this year? More importantly, if you could also touch on the margins on that business that you are winning. Are there different margins associated with the recent bookings?
Yeah. No, Mark, it is Kevin. So, it is a good question. The China team has done a great job as it relates to commercial pursuits, quite frankly, across both business segments portfolio. A lot of our discussion more recently has obviously been with respect to the Intelligent Systems segment and their impact as it relates to exports out of China and the platforms they are on. This year, I believe it is roughly 10% of our revenues are on export platforms from China into Europe and elsewhere, again, within the Intelligent Systems segment. Next year, based on bookings, that increases to mid-teens. So we have made significant progress. There are more commercial opportunities that they will execute on the balance of the year that will likely increase that particular mix of business.
We are working with three of the China local OEMs on their current activities as it relates to manufacturing in Europe and South America that will provide incremental benefit as well. As it relates to margin profile, it is roughly in line with our overall margin profile. That is dependent on using China-based materials and inputs, including China-based SoCs. To the extent one of our customers is interested in a Western-based SoC, obviously that is a more expensive solution for that particular customer. But to date, as I mentioned in my example, we have had a lot of success, especially in Europe and Southeast Asia, leveraging the China-based cost structure and design capabilities to meet the needs of Europe and other markets.
Thanks for that, Kevin. My other question was about the program roll-offs that you mentioned with the two German luxury OEMs. Maybe the company can size that headwind more quantitatively, and then just the reason for that occurring. Is this a situation where Aptiv did not win the follow-on business and maybe needs to adjust its strategy in the future, or is this more about those German OEMs just having some challenges internationally? Are they thinking about China and maybe those vehicle models just are not being continued in the future? Thanks.
Yeah. There is an element of both, quite frankly. It is two luxury German OEMs. It is a significant part of our, I would say, in Europe, we are overweight German OEM revenue mix. About a third of the headwind in 2027 comes from just softer schedules, principally on export platforms. I think you probably can guess who they are based on historical dependence upon the China market for the premium brands as a place of business. That is about a third of it. The balance is a mix of a legacy program that we won some replacement business. We alluded to it in our last quarter earnings call. That replacement business initially was going to be run across another vehicle brand.
The runoff of that particular program would be partially offset by the launch that actually started last quarter on one of the luxury brands, but did not end up launching on the second vehicle platform. We alluded to it in the last quarter earnings call. That has had an impact as well. That would account for roughly a little over a third of the balance, and I think the total value is kind of a couple hundred million dollars, $250 million-$300 million of headwind.
We will go next to Emmanuel Rosner with Wolfe Research.
Oh, great. Thanks so much. First, starting with the expected $700 million in inflation recovery in 2027. I think in the past, you have quantified your memory buy at around $175 million, so $700 million would potentially be 4x that. Can you just maybe just clarify what is in that $700 million? Is that literally sort of like a 4x inflation, or are there other pieces that are going into it?
Yeah, it's mostly memory, Emmanuel, it's Kevin. It's mostly memory. There's some semiconductor as well that's in that number. That's where those two areas of the year is where we're seeing the significant inflation. I think depending on node, price increases on a year-over-year basis are significant. It varies a bit by what technology, quite frankly, node, what technology that you're actually using. Some are actually, the year-over-year price increases are actually higher, some lower than that 4x that you're talking about.
Got it. Kevin, you conclude your remarks with saying, "We're evaluating the composition of our business and product portfolio, and we will provide an update in the first quarter of 2027.
Yeah.
Can you just talk to that a little bit more? Obviously, the update is in the first quarter of 2027, but what are you looking at?
We're looking at our portfolio of businesses, our portfolio of products, with a backdrop and context of current market challenges and market opportunities, our outlook for revenue growth and margin profile, and the competitive position that those businesses are in. I would say, what you would expect, Emmanuel, it's just a deep dive and a very detailed evaluation, just given the current environment.
Understood. Thank you.
Yeah.
We'll go next to Itay Michaeli with TD Cowen.
Great. Thank you. Good morning, everyone. Maybe a first question on the 2027 outlook. Can you share what you're assuming for China export versus domestic next year? I know this year it's been a significant drag on just overall outgrowth relative to LVP. Maybe just help us with what you're kind of preliminarily assuming for next year on those fronts.
Yeah, our preliminary estimate is down slightly, Itay, which I think is the expectation of most people given some of what we're hearing out of Europe. China market flat is kind of our baseline outlook. We have the downside with the China market or China vehicle production actually declining. Listen, I think there is a scenario that is out there that exports don't decline, they just move to different markets, so African continent and elsewhere. But for now, our overall view has been fairly muted vehicle production across, quite frankly, every region at the top end that Varun walked through. And then, as I said, down 2% in the more conservative scenario.
That is helpful. As a quick follow-up, maybe just talk more about the humanoid robot award that you mentioned with the Chinese OEM. I am curious whether that opens up additional awards for humanoids for you.
Yes, it does. We are active in the robotics space across all regions, obviously including China. In China, they are very much China-based solutions. In Europe and North America, they are very much Western solution from an input standpoint. We talked about where we bring value perception systems, high-speed cable assemblies, advanced compute. Those are the principal areas that we are focused on. We see significant opportunity there. I think as we have talked about in the past, we think a more likely high-volume use case is with AMRs versus humanoids at this point in time. Our view is that is a more challenging technical challenge. We are working with a few of the humanoid developers, both in the U.S., as well as in Europe and in China, but most of our robotics focus is in and around AMRs.
That is very helpful. Thank you.
We will go next to James Picariello with BNP Paribas.
Hi, everybody.
Thank you.
Just to first revisit Emmanuel Rosner's question regarding the 2027 revenue bridge. Is the $700 million in recoveries purely a year-over-year figure, or is it relative to the base of $175 million in memory recoveries for 2025, which I believe is incurring a low double-digit percent increase this year?
Yeah.
Is the year-over-year recovery $500 million or $700 million?
Yeah, it is $700 million. So the year-over-year is $700 million. 2026, and I do not know if it was a part of your question, as I mentioned in my prepared comments, Jim, the team did a very good job in terms of, in mid-2025, locking up both supply as well as price on memory. So 2026, as we have talked about in the past, impact on Aptiv as well as our customers was actually relatively minimal from an inflation standpoint, given the nature of the contracts we have had. As we head 2026 into 2027, given what seems to be the continued tightness in the memory market, obviously prices have increased again, depending upon the technology and the particular supplier of memory.
Got it. That is clear. Thank you. Can you just share any 2026 guidance color by segment in terms of how you are thinking about core growth and EBITDA profitability for the fourth quarter here for Engineered Components and Intelligent Systems?
Yeah, James, it is Varun out here. Listen, overall, we feel good about the guide we have given from an enterprise perspective for the fourth quarter. So that is going to put that piece out there. From a revenue perspective, I will share with you, as I mentioned in some of my prepared comments, it is production recovery at a North American OEM that was impacted by a supplier fire a year ago. Our commercial vehicle revenues are robust, and as Kevin mentioned also earlier in his prepared comments, we have been winning some good business with next-gen high-voltage and low-voltage programs. So that is going to continue to come through strongly. It is offset by lower vehicle production more generally. I think that is out there in the market in any case, and then obviously the software and services piece also that I called out.
Within the two businesses, our Engineered Components business is expected to grow in line to maybe slightly higher than what they have been tracking to. Our Intelligent Systems business more specifically continues to be impacted by the net program roll-offs that we talked about, but also the exports going from Europe into China. As I mentioned, excluding some of those declines, that segment would have grown, so that continues to impact the Intelligent Systems business. With regards to margin, as you would have seen, Q3 was still a net price decline for us. As I mentioned, Q4, it is customer recoveries, engineering performance benefits, but also engineering credits that typically occur in the fourth quarter, and then some incremental manufacturing and performance initiatives, which is going to drive the margin. That obviously is across both segments.
Yeah, so maybe just a. So, Q4 revenue growth increasing, part of that is a year-over-year comp benefit. So, revenue growth increasing. When you look at EBITDA margin and operating margins, as is typical, Q4 is typically our strongest quarter, just given timing of engineering recoveries and customer credits, items like that. So that should translate into the highest EBITDA and operating income margin profile for the quarter. Current outlook has both segments growing from an overall growth standpoint. As is typical, the fourth quarter tends to be stronger margin profile for both businesses, especially the Intelligent Systems business. Thank you. Just given the nature of engineering credits and recoveries there.
Thanks.
We'll go next to Tom Narayan with RBC.
Yeah, thanks for taking the question. The first one on follow-up to Mark's question. Kevin, I think you said 10% of Chinese revenues you guys have are on export platforms and Intelligent Systems, and next year you'd get to mid-teens, and you're making significant progress. Just curious how you're able to do this. Other tier ones we talk to say it's up to the Chinese OEMs to determine what gets exported and what's used for domestic. Is this something specific to Intelligent Systems where you can impact the Chinese OEM decisions?
Well, I think what's important, Tom, is that your engineering organizations, your commercial organizations are deeply embedded with those OEMs, that they understand what their product plans are, what specific programs will be for export, which as you can imagine, they need to be homologated differently, right? They need to meet different standards. So, there's an element of a different system, different features, different maybe some calibration of technologies. So, if you have a strategic relationship with the OEM or you're fostering one, you will get visibility to what their product plans are, and then you need to be competitive, right? So, it isn't a matter of one day a vehicle is a domestic platform and then the next day it's being exported, right? Just the homologation requirements, the regulations of, quite frankly, every country requires certain amount of unique items or unique standards that you need to meet.
Therefore, it needs to be contemplated or planned for in advance.
Got it. No, that makes sense. As a follow-up to, I think, Itay's question on the 2027 China production forecast, your own forecast. It looks like the EU finally has some teeth with some policy changes on Chinese exports. I think I heard you say you expect exports flat from China and then flat to down on total China production. I know S&P has exports down in 2027, but then domestic sales up. With overall China production, I am just curious, are you guys just being conservative here, or is this what you are seeing and you expect?
Yeah, listen, I think there is a little bit of. At a high level, our general view is exports will be down in China.
The domestic market will be flat to up slightly. That is our view. There is some of that, one could argue. That is our base, that baseline assumption that Varun talked about, the starting point. That is our baseline assumption. We have a second scenario that we referred to, where vehicle production is down 2%. That is comparable for the China market. I think there is a question of how much do those export volumes or the potential slowdown in export volumes impact that down 2%. I would say at this point in time, we are not that precise. We would also say, though, there are discussions with our Chinese OEMs and the Chinese governments. Exports may be down in Europe, but I think their base plans today are they will make up those declining exports in those markets with exports elsewhere.
We will see how that plays out. As it relates to vehicle production, we try to give investors a range. The baseline is off of IHS, so that from a comparability standpoint, it is easy to compare what we are saying to what others are saying. Overlaid on top of that was an incremental level of conservatism as it relates to revenue, earnings, and cash flow that we overlaid on top of that, contemplating some of the challenges that could arise in the market. Then our second scenario is vehicle production down 2%, which again, we overlaid an additional element of conservatism as it relates to revenue, earnings, and cash flow, again, to contemplate all of the challenges and uncertainty that is currently going on in the world. That is how we have bracketed the two.
As I mentioned, we have included an incremental amount of conservatism to make sure that we could capture everything that we could reasonably contemplate from an outcome in 2027 or an environment in 2027.
Got it. Thanks for providing the 2027 guidance.
Thank you.
That will conclude today's question and answer session. I will now turn the call back over to Mr. Kevin Clark for any additional or closing remarks.
Thank you, everyone, for your time this morning. We look forward to following up with you following this earnings call. Take care and have a nice day.
The call is now complete and thank you for joining.