Ladies and gentlemen, please welcome Joel Elsesser.
All right. Good afternoon, and thank you for joining us for Lear's first-ever Investor Day. I'd like to extend a special welcome to everyone that was able to join us here in Southfield, Michigan, at our Global Product and Technology Center. I also want to welcome those of you joining us remotely via the web. We have a full afternoon planned for you today, including a tour of some of our exciting new products and technologies. Before we get to the agenda, I have a couple of housekeeping items. Here's our safe harbor statement. Our presentation and related discussion today will reference forward-looking statements that are subject to the risks that we outline in our Form 10-K. Also, during the presentation, we will refer to non-GAAP financial measures. Reconciliations to the corresponding GAAP financial measures are included at the end of the presentation.
Okay, turning to today's agenda, in a moment, our CEO, Ray Scott, will come up and give a strategic perspective on Lear, including our vision for the future. You'll hear from our two division presidents, Frank Orsini for Seating and Jeneanne Hanley for E-Systems. Both Frank and Jeneanne will be joined by some key members of their respective teams. Following the two division presentations, we're going to take a quick break, Mandy Rice, Vice President of Advanced Sales and Product Technology, will highlight some of the significant opportunities that we see related to the convergence of our two product segments. Finally, Jeff Vanneste, our CFO, will provide an overview of our financial performance and a summary of our outlook. Following the presentation, the team will assemble as a panel to take your questions before we proceed to the tour. Okay.
With that, we're going to kick things off with a short video that perfectly introduces this event and depicts the spirit and the passion of the Lear team. At Lear, we always seek and develop innovation while focusing on the future and the possibilities ahead. We are proud and excited to present to you the future of Lear.
Every innovation, every great leap forward, every advancement in science was the result of a person who wanted to make things better, to improve the world for the rest of us, to build a bridge over the river they had already crossed. These are people with a vision. People who don't think outside the box because they were never in the box in the first place. People who look at roadblocks and see opportunities, who approach life with a sense of wonder at what might be. People who are never satisfied with best in class. It's what being driven is all about. It's not just making the world a better place for ourselves, but making it better for everybody because we believe that opportunities come along every day, that new ideas are everywhere, and that innovation is for everyone. Lear, where passion drives possibilities.
Love that video. Welcome. Thank you for coming, for those that are here in person, and thanks for their joining us via the web. This is our first Investor Day, welcome to our Global Product and Technology Center. Before I get going and talk a little bit about the team and what we're going to accomplish today, I would like to welcome three board members here, Kathleen Ligocki, John Foster, and Greg Smith. Thank you so much for supporting us and kind of being here at our first Investor Day and what we're going to accomplish. Before I get going, I want to tell you how excited we are as a team. We have a lot we want to accomplish today.
We're going to go through a number of key issues, the team is really going to rock it, we're going to really accomplish a couple of things as far as what I want to do today is give you access to the incredible talented team we have at Lear Corporation, give you some insight to our strategy and our outlook for our business, talk about the industry trends and the growth drivers, demonstrate our financial strength, and give you some insight to our products with innovation and technology, because there's a lot of things moving, we're really excited about our position going forward with innovation and technology. In my presentation, I want to discuss three main drivers for profitable growth, our industry-leading talent, and the culture of operational excellence.
Our focus on investment and our financial disciplines, our unique product capabilities, which are perfectly aligned with the industry growth trends that we're seeing moving forward. The first thing I want to touch on is our outstanding team. Not only are they a very talented team, you can see a very handsome team. First, I'm going to start off with Jeneanne Hanley. I think a lot of you have met Jeneanne Hanley. Jeneanne Hanley is our Senior Vice President and President of our E-Systems group. Jeneanne has been with us for almost 24 years. She's incredible when it comes to business acumen, a very strategic thinker. If we think back to originally who headed up our electrification group back in 2009, it was Jeneanne. She's back at home, she's going to take that division to new heights.
The next one I want to introduce is Frank Orsini, our executive vice president and president of our seating group. I think a lot of you know Frank. He did an incredible job with our E-Systems business, taking it under his vision to brand-new heights and record performance, and I'm absolutely confident he is going to do the same thing in seating. The next one I want to touch on is, and I think a lot of you know Jeff Vanneste. Jeff Vanneste, to me, is by far the best CFO in the industry, and he has done an outstanding job for Lear Corporation. Underneath Jeff, he has an incredible financial team. The last one I want to introduce is the new addition to our team, John Absmeier.
As we talk about innovation, technology, and where we're taking the business, we now have a head of, CTO, our chief technology officer, John, and John's going to get up later on before Q&A, introduce himself, his experience, and really what he sees at Lear Corporation, really what attracted him to Lear Corporation at this particular time. I will let Jeneanne and Frank go through their team members and talk about their qualities. As you will see throughout the day, our financial discipline and history of operational excellence is ingrained in our culture and present in every facet of our business. This slide summarizes the key elements of our value creation strategy. First and foremost, we are targeting to grow our sales above industry production and our earnings faster than sales while generating significant cash flow.
We have been following a balanced capital allocation plan of investing in the business, maintaining investment-grade credit metrics, and returning excess cash to our shareholders. This has been a successful formula, and Jeff will talk a little bit more about our track record in his presentation. What I would like to focus on is our very positive outlook for continued profitable growth over the next five years. We've invested $ billions over the past decade to improve our product capabilities and cost structure. A few of our key metrics are shown on this slide.
Overall, I believe we are in the strongest competitive position in our 100-plus year history, and this gives us a tremendous cost and overall competitive advantage, at the same time, building up an incredible product lineup, which you'll see later, which the teams are going to talk in a lot more detail, and we'll have a product display that we can walk around. We have two high-performing business units that have achieved record growth with earnings growing at even faster pace. Our margins are among the best in our peer group in both segments, and we are confident with our financial discipline that those operational margins are sustainable. Our unique strengths and product capabilities will allow us to continue to drive profitable sales growth. Today, we are going to show you our unique position in both business segments.
Like I said earlier, we are absolutely confident in the sustainability of our margins in both business segments. We believe this because we have put tools and disciplines in place that deliver those results. We measure every program, customer, region, and product based on returns on invested capital and have strict requirements that will earn us acceptable returns. We will not accept business that does not meet these financial thresholds. We've had this in place for a while, and we have done all this while growing our backlog to $4 billion. As evidence of this, our return on invested capital has grown over the last several years and now stands among the highest in the automotive sector. Everything we do is focused on shareholder returns. This slide shows our track record of value creation. Since 2011, we have increased our market cap by approximately $9 billion.
Based on consistent earnings growth, strong free cash flow, and a history of returning cash to our shareholders, we have consistently delivered superior returns to our shareholders. Even with this incredible performance, we believe our best days are ahead of us, and you're going to see that today. We have the best team in the industry, a culture of operational excellence, financial discipline, and a value proposition focused on technology and innovation. The last topic I want to cover is our product alignment with the industry growth and mega trends that we're seeing. In Seating, we have consistently been the leader in profitability while growing faster than any of our major competitors. We are the world's leader in luxury seating with a 40% share.
We are also well-positioned in the fast-growing and high-content crossover and SUV segment, and over 90% of our sales backlog in Seating is in this important segment. We have the most complete seat component capabilities, including unique capabilities in leather and the overall seat craftsmanship. Importantly, our E-Systems business provides electronics and software expertise that give us a competitive advantage in developing intelligent seat applications for the future. In E-Systems, Lear is a global leader in vehicle electrical systems architecture. We also have leading capabilities in high-power electrical systems, vehicle connectivity applications, as well as significant software and cybersecurity expertise. We are the pioneer in smart junction box technology, and today, we are the leader in smart electronics. We produce the industry's most sophisticated connected gateway and communication modules for several Audi and Porsche vehicles that launched this year.
The global automotive industry is strong and growing, and two of our product segments are perfectly aligned with major trends. Global production growth led by the emerging markets, growth in crossover and SUVs, growth in the luxury brands, electrification, connectivity, mobility, configurability. Our products are perfectly aligned with these trends and will help accelerate Lear's growth going forward. Auto industry production is projected to grow at about 2% per year, reaching 106 million vehicles by 2023. This growth is being driven by emerging markets, which are expected to be responsible for 90% of the overall growth in the next five years. Lear is well-positioned in these regions in both of our product segments, with engineering and manufacturing capabilities supporting all of our products. The mix of vehicles to high-content crossovers and SUVs has been changing quickly, and it puts us in a really good position, particularly in our Seating business.
The higher seat content crossover in SUVs is the fastest-growing segment globally, and these vehicles continue to gain share in all major regions. More than 70% of the global industry growth over the next 5 years is expected to come from crossovers and SUVs. There's room for additional growth, as this segment still well represents less than half of the industry production in all regions and one-third or less in both Europe and India. Another important trend is the continued growth in luxury vehicles. This is the highest content segment of the market, and Lear is the market share leader in seating for premium brands. As I stated earlier, we have 40% of this market. The content per vehicle in this segment on average is more than double that of the overall market and can range up to several times the industry average for the highest-end vehicles.
Most new innovative features are introduced through the luxury market. Our strong relationship with these customers puts us in a great position to introduce our intelligent seat. I'm going to go a little bit off-script on this because I love what we're doing here. Sorry, Mandy, I may steal a little bit of your thunder. Mandy does a much better job, but this is something that we really created at Lear Corporation. I believe, without question, the seat is going to become a smart device. We are currently developing, with our customers, modules that hit on the key areas that we as consumers should be interested in. The BioBridge that will read your heart rate, understand if you're drowsy. The sensors and the technology and innovation is something that we create here at Lear.
Dynamic Safety, where we can actually move, and you'll see it on the product tour, we can actually move the seat in a way that protects you as a consumer in the event of a front-end impact or a rear impact or other collisions within the vehicle. modular heat and cool systems. Right now, our customers have a problem with the HVAC. You're literally trying to cool the environment or heat the environment for spaces that aren't even occupied. It's very wasteful. We're developing a system that will heat to your personal preferences or cool to your personal preferences. Why ruin that whole infrastructure with inefficiency? That efficiency is needed in other applications to run the vehicle, other applications within the vehicle. You'll see it on the tour as we go through the product. SoundZone.
This is one that we have a module. Again, our capabilities allow us to design these technologies and embed them in our core capabilities in manufacturing products. SoundZone. Right now, you have to listen to a center stack. We have mobility, ride share, customer preferences. You should be able to listen to your own music, take your own phone call, take your own text within your own seat, tied to your smart device. You're going to see the actual applications that we're developing with our customers today. ProActive Seating. A seat that actually moves to your anthropometric measurements, adjusts to your personal preference, regardless if you have a bad back for posture or comfort, or if it's a sport mode. This is the type of technology that we're developing.
I'm going to tell you, when we look at this thing, and I know there's a lot of, and I say imitation is the greatest form of flattery. A lot of our competitors are talking about what they're doing. You have to ask yourself a question. Every one of these technologies that we're talking about to make this happen, we have those capabilities with these systems. When you look at, do they have cybersecurity? Do they have software engineering and the ability to write algorithms and programs? Do they have Wi-Fi capabilities? Do they have cellular and Bluetooth capabilities? Do they have superior audio capabilities to make these things happen? What we're talking about is setting up modules that can be sourced independently and somewhat indifferent from the JIT world, where we can go across multiple different applications within the seats.
This is what's great, we're all consumers and customers. These are benefits we'd all like to see. We're creating a space that doesn't exist today with our customers that are going to make our lives easier. Sorry, I went off script there a little bit, but I love what we're doing here. It's exciting, really exciting stuff. One of the mega trends that is expected to drive tremendous growth for our E-Systems business is electrification. Over the next five years, the number of vehicles with some level of electrified powertrain is projected to grow 40% annually. By 2023, an estimated 27% of all vehicles produced will have an electrified powertrain, with China and Europe leading the way with 60% penetration rates. Looking even further ahead, the electrification trend grows to approximately half of all vehicles produced in 2028.
The incremental electrical content opportunities for Lear is anywhere between $300 for a 48-volt mild hybrid vehicle to $2,000 to a full electric vehicle. Another mega trend driving electrical and electronics growth is vehicle connectivity. Lear has been the leader in vehicle connectivity, and through organic investment in acquisitions, we have strengthened our capabilities in wireless technologies. It is estimated that nearly two-thirds of the vehicles produced globally in 2023 will be connected. Lear is well-positioned to take advantage of this trend. We just launched the industry's most sophisticated connected gateway and communication module in several Audi and Porsche vehicles, and we are quoting those applications across multiple platforms for the Volkswagen Group. We have delivered a leadership position in automotive cybersecurity as well as V2X infrastructure. The shift towards shared mobility is driving increased content opportunities for both product segments.
In seating, reconfigurability is offering more flexibility in mobility applications. Again, I'm going to go off script here because I love this, too. You're going to see this on the product display, but when we purchased Grupo Antolin, we had a rail system and a cassette that allowed you to reconfigure the seat within the vehicle. When we got that application and those products, we brought our E-Systems team in, and we advanced it. It's very sophisticated now. We power the rails. Think about it. There's a lot of talk about what the future of mobility and rideshare can look like in the future. You're going to have to have an opportunity to have replacement seats or flexibility, reconfigurability, set the vehicle up differently. Our powered rails allow you to be tetherless, no wires.
The power and the terminal's connectors go into the rail, allowing you to give power to that seat for safety options, for comfort and feature options, for increased content features within the vehicle itself. We also believe that when a vehicle's on the road for 17 hours, you're going to need to actually have replacement parts, either refurbished parts or replacement seats altogether. This allows you to do this. What we did was we designed a rail system in the vehicle that gives you a number of different configurability options within the vehicle and is powered. We own those patents. We own those intellectual property rights, and you're going to see that today. What's great about this is there's a lot of, in theory, what the future could look like.
We're going into production with the Volkswagen Group in 2020, the interest on this from our customers has been enormous. As soon as it's that me-too concept, as soon as the customer has this type of application or feature in their vehicle, our rest of our customers are saying, "How do I get this into our vehicle?" Very unique. What the team's doing is they're designing the next generation of this feature already. We're not just sitting on what's a powered rail system that offers a brand-new feature into the market. We're onto the next generation of features that are going to take us even further. Sorry, I had to go off script there a little bit. I love that, too. We are in a great position. Both of our core businesses are in markets that are growing faster than industry production.
All of these trends, which I just reviewed, will continue to drive growth in both of Lear's business segments. In the year 2023, the combined addressable market for Lear is over $210 billion. This is my last slide. I want to give you our outlook of the business. In 2023, Lear's sales outlook will be over $30 billion, we project continued operational margin expansion for the company to 8.5% or better based on the faster growth in our higher-margin E-Systems business. We are very confident in our outlook. We absolutely believe that we have the best team in the industry, we continue to build on that team. Focusing on operational excellence, remaining disciplined to our financial metrics, and driving a value proposition focused on technology and innovation will continue to drive these results.
Today, you're going to have the opportunity to have access to some of our most talented people in the company. I get to review this daily. It's exciting, the technology and innovation. I absolutely believe after you hear what type of offering in technology and innovation that we're delivering to our customers, you're going to be as confident as we are in our future. At this time, I would like to introduce Frank Orsini, the Executive Vice President and President of Seating.
Good luck, man.
Thanks, man.
All right. Well, thank you, Ray. Good afternoon, ladies and gentlemen. My name's Frank Orsini, and I'm the President of our Seating business at Lear Corporation. Today's presentation will provide a general overview of our Seating business, our growth outlook, and why we believe we are positioned for future success in the market. You'll also hear from key executives of our management team who will cover our product technology and why we believe we will capitalize on future industry trends. David Kowalczyk, Vice President of Global Seat Engineering, has more than 30 years of automotive experience in seating. David will present our core engineering capabilities for us. Mandy Rice, Vice President of Advanced Sales and Product Technology, has more than 25 years of automotive experience. Mandy will cover the topic of convergence. This slide does a very nice job of outlining our competitive market position.
We have a high-performing seat business with a world-class manufacturing and technical footprint. We are positioned to grow profitably while maintaining strong margins. Our technology is absolutely second to none and completely aligned with industry megatrends. As seating systems become more intelligent, hardware and software solutions will become more important. The product convergence that is taking place between our Seating business and our E-Systems team gives Lear a unique market position and truly separates us from our competition. There is no other seating company in the world that has a state-of-the-art in-house technology partner like we do with our E-Systems team. This slide provides some general information about our Seating business. We have a world-class manufacturing and technical footprint located around the world, servicing our global customer base. We also have an incredible team of professionals that design, manufacture, and commercialize our products on a daily basis.
Our team is, without a doubt, the absolute best in the entire industry. At $16.5 billion in sales, we are the fastest-growing and most profitable seat company in the world. This slide highlights our global business segmentation. As you can see, our business portfolio is very balanced. We are not dependent on any one customer, product segment, or region to deliver sustainable results. This slide shows our global market share broken down by region. As you can see, we have a strong competitive position in every market that we operate in. Our global market share is 23% and growing. This slide illustrates our top programs in every major automotive market in the world. It gives you a good sense for our deep product and customer diversification. Our products are in a wide range of vehicle segments, everything from trucks and SUVs to luxury and performance vehicles.
I really love this slide because it gives you a sense for the complexity of our seating business. Seat systems are highly engineered products. We have an incredible team of engineers, chemists, scientists, doctors, and metallurgists on staff to help design the best seats in the world. A typical seat system is comprised of many different components. Metals, chemicals, surface materials, literally thousands of components coming together with harmonic precision to deliver the most comfortable and crafted seats in the industry. There's a reason we are the leader in luxury and performance seating. Our level of vertical integration and complete product knowledge uniquely positions Lear Corporation as the most capable seat manufacturer in the world. Ray and I are often asked if our customer sourcing trends are leaning towards build-to-print or full-service supplier contracts.
Recently, we have seen a shift in some of our customer sourcing strategies more towards full-service supplier contracts. Many of our customers are moving engineering resources to areas of the business like autonomy, connectivity, and electrification. Our customers are looking to Lear Corporation to design and engineer their complete seat systems. Today, I'm very proud to announce that Ford Motor Company has selected Lear as their full-service seat supplier on the all-new Ford Bronco program that will be launching in 2020. This slide lays out the size and scope of our global component business. We have a very strong market presence in every region of the world with a low-cost footprint that positions us very well for future growth opportunities. The margin sustainability is a topic that comes up quite often. We are very confident that we can sustain our margin performance.
Over the years, we have positioned our seat business for sustainable success. We have consistently invested in our footprint, our technology, and our people. Lear's financial discipline drives sustainable performance, and our backlog is very strong. Every customer, product, and region must stand on its own. Every program in our backlog must earn its right to capital allocation based on an investment thesis that each business case must return in excess of its cost of capital. We also have a number of opportunities for margin expansion as well. Market growth in luxury and utility vehicle segments continue to outpace the industry. Technology adoption will also provide opportunity. Structures and South America are two areas of the business, while both profitable, we are working to improve performance, which will drive long-term margin sustainability. Operational excellence is in our DNA.
We will continue to drive performance, which will help reinforce margin sustainability moving forward. Recently, there's been a lot of discussion around the topic of automotive structures. Having global competency in structures and mechanisms is an absolute must to deliver world-class seat systems to the automotive industry. Make no mistake, structures is a tough business, and it requires a very disciplined strategy to be successful. Our operating philosophy is part of our competitive advantage. Today, I will share some key operating principles that have allowed us to perform successfully in a very challenging part of the business. At Lear, we have a very targeted investment strategy focused on product innovation, footprint leadership, and manufacturing capabilities. We also have a very disciplined commercial strategy centered around return on invested capital. Our structures business must stand on its own. Unlike our competitors, we do not view structures as a grow-at-all-costs business.
Lear's investments are tied to profitable growth. Our growth strategy is centered around high-value components that are aligned with industry megatrends. We are targeting areas like recliners and tracks for reconfigurability, and second and third-row seating structures to support crossover and SUV market growth opportunities. Experienced leadership is also very important. We have a proven track record of operational excellence led by a very strong global team. This next slide lays out a number of growth opportunities for our seat business. Our quote pipeline remains very strong, which is supported by a global seat market that is expected to grow from $68 billion-$80 billion over the next five years. There are numerous market opportunities for growth as well. The luxury market continues to grow.
The CUV and SUV market segment is also outpacing industry growth rates, approximately 90% of our backlog is on these high-contented platforms. Emerging markets like China, India, and South America will continue to grow. In particular, China represents our largest opportunity, where utility and luxury vehicle segments will drive tremendous growth opportunities for Lear Corporation in the future. As we have done in the past, we will continue to look for acquisitions that complement our business model, add capabilities that align with industry megatrends, and help diversify our overall business. We will continue to gain market share, technology will support future growth opportunities for us as well. One of the things that excites me the most about our business are the industry megatrends that will shape the future of the automotive industry.
Intelligent seat systems will play a very important role in all of these industry megatrends that are on this page. Reconfigurable seat systems that function on electrified rails are perfectly aligned with the industry megatrend of shared mobility. Seating is the first point of connectivity with the occupant. Lear's hardware and software technology is enabling connectivity solutions such as heart rate monitoring, personalized SoundZone, and safety systems that react and reposition the seat in the event of a potential collision. Seat systems will play a very important role in electrified vehicle platforms. Lightweight seat solutions will serve to extend battery range. The HVAC system is a tremendous power draw on the vehicle architecture. Intelligent climate modules that interface with the HVAC system will provide an optimized climate solution as opposed to inefficiently heating and cooling the entire cabin.
You're going to see all these technologies and many more on our product tour today. You'll understand why we are so optimistic about our future growth opportunities. I have to tell you, I'm 100% confident that our world-class product technology is creating an incredible platform for us to continue to grow our business. Now with that, I'd like to welcome David Kowalczyk, our Vice President Global Seat Engineering, to the stage.
After you, Dave.
Thanks. Good job. Thank you, Frank. As Frank said, I'm David Kowalczyk, I'm responsible for leading the global technical seating team. Lear's engineers develop complete seat systems, seat components, and innovation for our customers. Today, I will cover Lear's seat engineering network, some key products and capabilities, and finally, I will show you some truly inspiring examples of how we bring these together to deliver high performance, highly crafted, and innovative seat systems. This slide demonstrates both the complexity of the seating business and how our engineering team is aligned to support that. Since there's a lot of information here, I'd like to highlight a couple of key points. First of all, seats are high-tech systems. Seats are the only vehicle subsystem that have to balance comfort, style, personal preference, package, and safety. Seats are high value, highly contented, and are rapidly evolving to meet increasing customer expectations.
To be an industry leader in seating, you need to be world-class in products and in capabilities. The Lear technical team is located in 25 centers around the globe. We've launched product in 22 countries, six continents. Our team is made up of over 3,000 engineers representing more than 30 technical disciplines, from mechanical engineering to organic compound scientists. Additionally, we have the ability to draw support from 2,500 E-Systems technical colleagues. In total, Lear's seating technical team has over 21,000 years of experience. Okay, I'd like to take a minute and show you some of Lear's core products in our portfolio. We are completely vertically integrated in every major seating component in the automobile, including complete seat systems, structures and mechanisms, surface materials.
At Lear, we're taking our core components, we're adding intelligence, we're embedding technologies, and we're innovating into modular solutions that can go anywhere in the world today. Only Lear is completely vertically integrated in every major seating system. In the next few slides, I'd like to give you a little bit more detail on some of these products and capabilities. Starting off with structures. Our customers expect we have structures capability. This is because many of the OEMs are still using a full-service supplier model, structures knowledge is a minimum required competency. Structures are safety-critical components. All of the load flows through the structure, it's mandatory to understand load management. Frank explained our business strategy for structure success. We are also using our capabilities to approach this business differently. For example, we've developed our ecosystem that can be built in a unique hub-and-spoke model with significantly less capital.
We have a Lear analysis tool for performing system evaluations. We simulate every aspect of the structure before we ever build it apart, this allows us to optimize the system. Our capabilities set us apart. Moving on to surface materials. Lear is the only seat supplier with capabilities in both leather and fabric. These capabilities, along with core technologies, allow us upfront access to customer studios and the opportunity to solve problems for them, such as thin profile seating or ProActive Seating, a Lear technology advancement that Mandy Rice will explain during her presentation. Our capabilities are not only important on advanced projects, it's also important throughout the product development cycle. Let me just give you a real simple example. Eliminating wrinkles in a seat. Simple problem to solve. In fact, it's quite complex, it requires a deep knowledge of how the components within the system interact together.
Contours in the seat, material characteristics, lamination type, the material properties are all interrelated, only Lear has the expertise and complete system capabilities to efficiently solve problems like these. Historically, seat completes were a combination of foam, trim, and structures. Seat complexity is growing. Today, when we talk seat completes, we have to talk sensors, semiconductors, software, modules, HVAC, sound systems, and core comfort products. Seat system engineering is the complete integration of all those components and a trade-off between packaging, performance, cost, and weight. It's almost a mix between an art and a science, not everybody can do this. We design complete seat systems for every market segment in the world, from emerging markets to luxury vehicles, from subcompacts to full-size trucks. This is what sets Lear apart. On these next two slides, I'd like to show you some examples that demonstrate Lear's seat capabilities.
The Range Rover Autobiography is one of the most highly contented seat systems on the market today, offering the highest level of comfort, craftsmanship, and convenience in the industry. If that's not impressive enough, the entire program from kickoff to production was 25 months. That's 30% faster than world-class timing today. There's no other seating supplier capable of developing a seat like this. You'll see one in the showroom today when you walk around. The next example I would like to highlight is the new GM full-size truck, how our customers came to us with a challenge to help reduce weight and cost in the vehicle. In this case, we got involved with our customer 13 months earlier than suppliers historically would.
We took a holistic approach, we combined our broad range of capabilities, we were able to achieve a seven-kilogram mass savings, reduce the cost of the system, and introduce Lear innovation, resulting in priceable content. Some examples of key innovations include a unique second-row in-seat storage system and an innovative acoustic sound barrier. Again, without the full capabilities and understanding of all the components, this would not be possible. Okay. We know we're developing the right products and capabilities because our customers are telling us. First, in the form of recognition. See just a list of some of the recognition we received in 2017. Secondly, our customers are trusting us with their most critical projects. For the past 30 years, the pace of change has been relatively slow. Because of this, some have even viewed seating as a commodity. Things are changing like never before.
Seats are becoming more intelligent, more personalized, and evolving at a rapid rate. With our capabilities, we are uniquely positioned to adapt to these changes. You'll see more when Mandy Rice presents on convergence. Our competitors say they never lose an award because they don't have enough capabilities like our E-Systems division, which we draw upon when developing new technologies. They might not be losing, but I promise you, we're winning. We are winning the development contracts, and we're winning the programs that follow, with over 20 in two seating advanced technology products across 10 global OEMs. I'd now like to introduce Jeneanne Hanley, Senior Vice President and President of E-Systems.
Good. Well, you've just had the opportunity to hear about our exciting and powerful Seating business, now I'm very excited and proud to be able to present to you our E-Systems business. I'm going to talk about the highlights of what we believe are competitive advantages in E-Systems and also our confidence in the growth outlook provided by Ray Scott earlier today. After I'm done, you get to hear from two key executives on our team, Steve Rober, our Vice President of Electronics Engineering. He's been with us in that role for four years. Prior to that, he ran the automotive micro business at Freescale and spent another 12 years before that, combined with Motorola and Continental in automotive electronics and sensors. His knowledge is deep, and we're incredibly lucky to have him as a leader on our team.
Bill Presley, Vice President of Engineering for Electrical Distribution Systems Engineering and Operations. Bill's been with us for 10 years in a variety of leadership positions in engineering and product management. Before that, he spent 14 years at FCA in different engineering as well as operational roles. Again, incredibly lucky to have Bill's talent on the team, and you'll see his passion for not only the product, but the systems expertise that we hold from the architecture standpoint that falls under his responsibility. I look forward to having you hear from them. What I want to convey to you today, and we'll continue to do that over the next several slides, is our advantage in E-Systems.
Not only do we have a strong global presence for each and every customer all over the world, we're positioned perfectly for the fastest-growing markets, we have an extremely strong alignment with the megatrends, with our technology and product portfolio. We have a unique business model. We're flexible and we're targeted. We're flexible because, yes, we have a core portfolio, hardware systems, software, but we're flexible in that we'll customize it for each of our customers, which not all of our competition will do. Targeted. We're targeted because we do not compete everywhere. Where we do decide to focus our investment dollars and our talent, we compete at the highest levels. We never compete with our customers. Again, that's a differentiator for us.
In addition to our product portfolio and specific technologies, we have a class-defining systems expertise that it's not just enough to bring the capability. You have to bring it at the right value proposition. I look forward to hearing more about that when Bill presents later. Finally, another key point. With the spinoff of Aptiv and Delphi Technologies, that left only Lear E-Systems as the only supplier in the world that provides the full range of electrification through electrical distribution through power electronics. We're one of one, and you'll hear that again in the presentation. Just to give a broad overview of our business. E-Systems, we're 70,000 team members strong and with 51 precision manufacturing sites and 30 global engineering centers. We're everywhere we need to be for our customers to compete anywhere in the world.
We're also well diversified, with 76% of our revenue now outside of North America. From a customer standpoint, although we enjoy very strong relationships with North American customers, we're now at a point where over 50% of our revenue comes from customers that are based outside of the U.S. From a product diversification, you can see over here on the chart that about 74% of our product line is what we will call electrical distribution systems. I'll talk a little bit more about what's included in that product category, with the remaining 26% electronics. This is just a snapshot of some of our key platforms at E-Systems. Again, as Frank talked about earlier, you can see the breadth of our reach.
What I'd like for you to take away from this is you see the full range of compact vehicles to sedans, luxury SUVs, all the way up to pickup trucks. Represented is a full range of electrification from low volt all the way up to full battery electric vehicles. Right now, today, we have electrification content in production or being developed with 15 different customers on 40 different platforms. It's big, it's real, and it's right now. I wanted to take a minute to dive a little bit further in just the technology portion of our capability and to show to you and to highlight to you the breadth of our talent. We have a broad group of specialists all over the world dedicated to R&D, application development, and partnering with our customers where they need us to be.
We've broken out for you, in particular, where we're doing our work on connectivity and electrification. The key to take away from here is we are where we need to be for our customers. We're also where we need to be to attract and retain key top tech talent. We've amassed this expertise both organically as well as through our recent acquisitions, and we remain extremely focused to continue to growing our bench and our depth in our portfolio here. We're going to talk more about product later when Bill and Steve come up, but I just wanted to give you an overview of how we think about our business and our products. First of all, in electrical distribution systems, this is the full range, as I said before, of low to high voltage systems and wire harnesses, power distribution, and terminal connectors for that range.
When we talk about electronics, of course, we have interior body control modules. We also have capability in wireless vehicle access. We do controls for audios as well as exterior lighting. That's in addition to the power electronics capability we have for electrification and the suite of connectivity systems for connectivity modules and advanced connected gateway modules. Talking about our growth and the confidence we have in the growth that Ray outlined for you earlier. When you think about the industry megatrends, Lear E-Systems is right in the sweet spot. We're right where we need to be to capitalize on future content growth, electrification, and connectivity. We all know these are some of the fastest-growing marketplaces in our industry today.
Before I dive into electrification and connectivity, and I'm going to in just a minute, it's worth taking a step back to slice through to see what it means for Asia. Asia is a megatrend in itself. The absolute growth, obviously, as we all know in this room, cannot be denied. How you're positioned for it and aligned for the megatrends is extremely important. For all of the reasons I've already said, we're positioned to gain our fair share in Asia as well with our capability with 15 different manufacturing facilities and nine technical centers in Asia alone. What's important is the customer behavior, and in particular with the domestic Chinese OEMs, we're seeing a significant pivot. They're ready to take their share of the marketplace, and what they're looking for are partners that are going to help them leapfrog and get there.
They're looking away from their domestic supply chain base, and they're looking for suppliers that bring to them the full system for improved quality and feature content and suppliers that bring technology. That's a significant opportunity for us. Specific to electrification, when you think of just the next five years, not over the long range, it gets even bigger, but just the next five years, there's 10 million vehicles alone that will be added just in China. What are we doing about that? We're doubling down in China, and we're going to open our second electrification engineering center there this year to continue to grow our base and to capitalize on that opportunity. When we talk about connectivity, I'm sure many of you know that China's gone on the offensive. They've said they want to be the leader in cellular V2X as well as 5G capability.
Right now today, we're launching a system that incorporates the leading network access device and our communication module for the Chinese market to be first to market with the best performance. Now, taking a step back and looking more broadly at electrification and connectivity, again, just in the next 5 years, electrification will be its own $30 billion marketplace. That's outside of all the other core markets. We're the only supplier right now, as I've already said, that does the whole range of the architecture. Ten years ago, we were the first to launch a mass-produced onboard charger. We started with a three kilowatt. Today, we have the full range.
We have three, seven, and 11 kilowatt production programs and are even working on development on a 22 kilowatt. Stephen will talk in even more detail on that. We're not stopping there because we believe the future is wireless. We're proud to say with our partnership with Qualcomm's Halo technology, Lear E-Systems is the leading tier 1 to integrate this wireless charging seamlessly with our customers. Connectivity. Again, in 5 years, this will be a $10 billion marketplace, and it will grow exponentially from there, as we all know, as autonomy grows even more share over the coming years. Forget about the future. Again, today, we're launching the industry's first 4.5G system. We're launching it with Audi and Porsche across nine different nameplates. We're in the leadership position today, but we're not new to connectivity.
For almost two decades, we've been in a leadership position with gateway modules, which really provide the baseline and the foundation for connection into the vehicle. We've had an aggressive investment strategy. We've invested in cybersecurity, DSRC, in cellular V2X, and of course, most recently, our advanced vehicle positioning acquisition of Exo. Today, right now, not in the future, we're quoting, as previously stated, $1 billion worth of business in 2018 in electrification and connectivity. We've talked a lot about our baseline of where we're at today, how we've invested for the future. At E-Systems, the way we're looking at it and attacking it is the future is right now. You can see why we have incredible confidence in the growth outlook for the business that Ray provided earlier.
Now, without further ado, I'd like to hand it over to the technical experts to explain in more detail. We'll start with Stephen Rober, Vice President, electronics engineering for E-Systems. Stephen.
Good afternoon. As Jeneanne introduced, my name is Stephen Rober. I am responsible for electronics engineering here at Lear. I wanted to give you an overview, not just of the electronics technology that we offer, but also how we interface with our customers, and just as importantly, how we interface with the other groups here at Lear, between the wire harness group and the seating group, and how our technology applies to the applications that they are working on currently. We have 1,200 engineers globally, of which half are software engineers, and of those, 400 of those are in Asia. Those support six manufacturing facilities. The global footprint that we have for engineering supports global customers and global platforms that they are developing.
The industry has gone through some fundamental shifts in the last five years for electronics, that they are going towards more global platforms, they are also going towards more, what we call domain controllers. Instead of introducing a piece of electronics to control a single function, they are introducing these domain controllers, which will actually control exactly what I said, a domain. In this case, a body domain, a powertrain domain, a safety domain, and we are working with our customers on that. From a product line standpoint, I want to give you a little bit of an overview before I go into the connectivity and the electrification. If you look on the upper left, the body domain controllers. As I said, we have seen this shift in the industry going from the individual functions of the body control to this domain control.
That reduces the cost and allows the customers to actually introduce more functions for that same price point. Also, that base technology that we use applies, as Mandy will talk about, as we have experience in seating sensing, seating control. That applies to some of the convergence technology that she will show you in a few minutes. Our exterior lighting control. One of the things that we have done in our electronics control has been headlight control. You would think that is not a very exciting business, once upon a time, that really was not. You were turning headlights on or off. The new generation, which we actually launched with Daimler last year, the Pixel Light Control, uses 84 LEDs to shape the beam.
Instead of having a single light turning on and off, or motors to level the headlight or turn around corners, we actually shape the beams with this system. Why that is important is it is not just about controlling those individual LEDs. It is actually taking input from the vehicle itself in terms of when you shape the beams, you can highlight and accentuate road signs, you can notch out the lights for oncoming cars or a car that is in front of you. I do not want to steal any more of Mandy's thunder, as we get into things like active safety, what this does is we have learned a lot about taking information from those vehicle sensors that are processed in the vehicle and applying it for that active safety, in addition to just this headlamp control that I am talking about.
The vehicle wireless access, the next point I wanted to talk about, is more than just simple key fobs and opening and closing your door. This has actually become a security-critical function in the vehicle, where we've had to introduce different measures to avoid people from being able to actually mimic the key fob and basically steal the vehicle. Jaguar Land Rover recently won an award for the security level of their passive entry, passive start system, and it was based on ultra-wideband technology that we delivered as part of our system to them. The smart junction boxes. This is actually dealing with the power distribution system in the vehicle. We have won an industry PACE Award, taking simple fuse boxes and actually migrating those to a solid-state control of the power distribution in the vehicle, combined with some of the body electronics.
Bill will talk about that a little bit more, but it enables us to actually architect the power distribution systems in a much more efficient manner. The audio domain controllers, again, referring back to some of the stuff that Mandy will be talking about. Historically, we had delivered amplification systems in the vehicle, and it was part of a sound generation of that vehicle. As we move to those audio domain controllers, again, controlling an entire system, the high-end audio domain controller that we'll be launching next year has got over 25 individual cores running software that interoperates within the system to do things like generate all the sound in the vehicle, but also to do things like active noise control of the road, the wind noise, the engine noise. It actually acts to shape that sound within the vehicle. Not just in the vehicle itself.
This technology also applies, again, referring back to Mandy, the SoundZone work that we do as part of our work with the seating group, we shape that sound inside the vehicle to the individual passenger's requirements. The last two pieces I wanted to talk about, and the main two pieces here are, as Jeneanne referred to, our electrification and our connectivity portfolio. To cover electrification first, we have a very broad portfolio of products that we offer for the electrification of the vehicle. Starting with our distribution systems of our terminals and connectors and wires. Again, it's not just doing point-to-point connections on this, but it's understanding the power flow in an efficient manner in the vehicle and helping our customers architect that.
We've taken some of that understanding of the power flow in the vehicle and actually reduced that to a lot of the products that we offer in electronics. A lot of what you think about for electrification is the traction inverter, which controls the motor, and the onboard charging system. We deliver leading-edge onboard charging system based on what we've learned, especially from this power distribution system. A few years ago, technology-leading power density was one liter per kilowatt. We're actually delivering now less than 0.6 liters per kilowatt, again, as Jeneanne said, moving from the 3.3 kilowatt to the seven to the 11. The traction inverters for the motors, the same types of things. The latest traction inverters that we're doing as part of a belt integrated starter generator actually reaches 96%-98% efficiency at points in the operating curve, again, among the industry-leading.
Both of those technologies are still growing as we change the technology of the semiconductors we use. Rather than what we would consider to be standard semiconductors, there's a lot of discussion on the market of moving to silicon carbide and eventually gallium nitride, both of which give you more efficiency in the system. We're currently working on silicon carbide, and we actually have production deliveries of that in about 18 months. Key to the electrification portfolio as Lear is not just things we do, but things we don't do. We do not deliver the batteries themselves nor the electric motors to our customers. Those are technologies that there's other people in the market that are very specialized in understanding those technologies.
What we do is we actually take our battery monitoring technology, combine it with the batteries that are out there, again, to deliver an efficient system in terms of charging profiles and discharging profiles to balance the power capability in the batteries and to make sure that they're operating at peak efficiency. Similarly, for the traction inverters and the electric motors, as I said, we don't deliver the electric motors, but we're actually working with customers now on mechanically integrating that traction inverter and the motor to deliver a lower-cost overall system. Taking all of these pieces together, you can also combine for different levels of efficiency based on different requirements in the market. Some customers actually want to integrate things like DC-DC converters, which actually translate between the different voltages in the vehicle integrated with the onboard charger. Some want to keep them separate.
We do different things for different customers. We have the building blocks, we efficiently deliver a full system based on what the individual customer needs are. The result of this, as Jeneanne said, we are already on 16 platforms for electrification, and we'll be launching 10 more in the next year. This is a slide that most people in the industry have seen for the predictions of the level of electrification. I've been in this industry now for about 20 years, and I feel like each year for the last 15 years, people have said, "In 10 years, electrification will be a certain portion of the market." We're actually seeing that now with the growth and some of the things that have been going on, especially in Europe and some of the technologies introduced by companies in California.
If you look at the growth of the numbers of vehicles, equally important is the other curve I have up here, which is the growth of the total energy that the vehicle needs. As you see the growth trends here in general, if you just look at some of the older designs, the Chevy Volt initially launched with, I think, something like an 18 kilowatt-hour battery. The new batteries are actually in the 75-100 kilowatt hours, that's driving technology on multiple fronts. It's driving the need to monitor and control those batteries, it's also introducing the need for faster battery charging. Again, as Jeneanne alluded to, we have production systems of three and seven-kilowatt onboard chargers, those higher battery capacities are driving the world and the industry to an 11-kilowatt system and to a 22 kilowatt.
Additionally, you see a lot in the market now of fast charging. In order to really get customer acceptance of electric vehicles, the charging and the ease of charge and the speed at that charge happens is crucial. The program that we just launched recently with Jaguar Land Rover not only has a 7-kilowatt onboard charger from an AC to a DC, but it also incorporates a 120-kilowatt DC to DC fast onboard charger, and we're currently working on a 200-kilowatt version of that. Again, all of these technologies are driving things to the next level. In the spirit of that adoption of the consumer to an electric vehicle, electric charging is actually one of the key aspects, and I wanted to leave you with a piece of technology that we're currently developing with our partners, Qualcomm. This is the wireless charging system that Jeneanne mentioned.
This removes the need to physically plug in your vehicle. There's actually a couple of systems like this that are competing on the market, and you'll see some of the references to a circular or a double D technology. This is the double D technology. Qualcomm developed, both internally and through some other developments, this ability to transfer the higher levels of power. BMW recently announced the production system of a 3.3-kilowatt wireless charging system based on the circular. Again, this is the double D, but where this is better is it actually offers an increased height, up to 13 inches of height, especially for SUVs, and we've delivered 11-kilowatt systems on this and a total of six different OEMs that we've delivered this system to. It's not just the power transfer. When you're dealing with this level of power, there's other things that you have to consider.
That's safety and that's basically the vehicle interaction. Where we've added our technology to the basic Qualcomm technology is adding those safety factors in there, where we look at foreign object detection. You can't leave a coin on the system. You can't have a living object, your neighbor's cat or something, run across it. You have to shut down in situations like that. Also, there's communication that happens between the charging station and the vehicle itself to know what the level of charge is and how the interaction with the vehicle is working. Those are the things that we've provided with this overall system. Again, a very important piece of technology, which we think will start at the high end, move towards the mid and the low, but again, it will help accelerate the adoption of the electric vehicle technology. Connectivity.
When people in the industry and general public talk about connectivity in the vehicle, what they normally think of is a cellphone connection to the vehicle or the insurance dongle that you put into your OBD port so that people can watch how you're driving. There's much more to it than that. In terms of the base technology, it's not just the cellular capability or the Wi-Fi that you would think of. There's actually the dedicated short range communication, DSRC, vehicle-to-vehicle, vehicle-to-infrastructure, or potentially a cellular connectivity to the vehicle, a cellular vehicle-to-vehicle direct connection. Some of the companies in the West Coast are trying to break into the automotive market with that technology, but that's just the first step. The next step in this technology and the next step in actually making it work in a vehicle is actually integrating that into the vehicle.
Making all that information that you're transferring to and from the vehicle actually of use in the vehicle operations or updating the vehicle itself. The result of the work that we've done in these technologies, as has been said a couple of times, is actually industry-leading products, both in terms of the communication module and the central gateway, this communication with the vehicle that I've spoken about. Starting with the communication module, this is launching now, it is the industry-leading 4.5G system, which incorporates things like Ethernet and Wi-Fi capability. On the other side of this, again, to integrate with the vehicle, we have what we call a central gateway, which actually takes that information from the cellular connection and provides functions like the over-the-air software updates that you've heard so much about.
The data analytics, where you can analyze the data in the vehicle and either analyze it locally or ship raw data up to the cloud for a customer or an OEM to analyze. We provide this capability to our customers, both in terms of the connectivity and the integration with the vehicle. In this specific case of Audi and Porsche, they want to handle the cloud server side themselves. They want to control the over-the-air programming. They want to get their data and do analytics on it, basically control that portion. We do not want to compete with our customer in this range, there are other customers that want us to have the ability to do that, we can supply and we do supply that capability.
This design is by no means static, because within two years, we're working on it now, this 4.5G system will become a 5G system, also integrate the different levels of that vehicle-to-vehicle, vehicle-to-infrastructure capability that I talked about. The other piece on the connected gateway is the over-the-air reprogramming. That'll be expanded to every physical piece in the vehicle. Every physical piece of electronics will be able to be updated, also not just updated, everything in the vehicle, you'll be able to capture data, analyze the data, that data analytics will actually increase dramatically in the next couple of years as this technology progresses. This ability to get the data in and out of the vehicle or move it in the vehicle is moot without the right architecture.
On this slide, I want to show you a little bit about how these, I said earlier, these domain controllers are changing. The fundamental vehicle architectures are changing. If you look right now, what you get are individual functions like a powertrain system, a safety system, an infotainment system, the general architecture now is that our customers have added an infotainment system, which is where that cellular connection is. If you want to get information to and from the vehicle, it's directly into that infotainment, it sort of takes a roundabout path to get to the rest of the vehicle. It's not the most efficient architecture. When it was introduced, it was innovative, now it needs to be upgraded. We're working with several customers, primarily Europeans, some in other regions as well, both here in Asia, to fundamentally change that architecture.
What we're doing is introducing and expanding that central gateway to effectively be the master controller of the vehicle. Not only does it move data to and from the vehicle or within, but it actually does more coordinating between the systems. It acts as the connection point to the outside world for those basic cellular systems, but also those vehicle-to-vehicle communications and safety systems, and it acts as sort of the master to parse that information out to the rest of the vehicle. It's a fundamental change to the architecture. It more looks like an advanced computer network now than it did a standard car with electronics 10 years ago, and we're at the forefront of that, working with our customers. Part of the technology of connectivity, and this is the last slide before I turn it over to Bill for the electrical architecture piece.
One of the requirements we have now, again, I left the electrification piece with a bit of new technology that we're working on. I'll repeat the same thing here. Fundamental to vehicle operation, both in terms of operation with each other and standalone. Right now, there's a need in the industry in GPS systems for lane-level accurate measurement of a vehicle position. As we get into autonomy, it becomes even more important that vehicles know absolutely where they are and relative to each other. One of the acquisitions that we have done in the last few years has been EXO Technologies, and they're a specialist in doing that vehicle positioning. There are several competing technologies on the market right now for this improved vehicle accuracy.
The issue is most of them require extensive and expensive infrastructure, RTK, RTX-type systems, that are for a narrow focus and narrow region, and they're expensive locally, and they don't promulgate globally. What this system does, and as David Kowalczyk alluded to, we don't just have engineers, we have scientists as part of the group. A couple of the people that we got with this technology actually worked on the GPS system, but it's not limited to GPS. It's GLONASS, it's BeiDou, it's Galileo. They actually do a better job and more frequent updates of predicting some of the errors and correcting for some of these errors in the system. For example, in a GPS system, you have the orbit error, which is only corrected fairly infrequently. We actually increase that update so we know where those satellites are.
Also, atmospheric disturbances act as a lens and actually skew and take the signal longer to reach your vehicle, which actually cause position errors. We take the base technology that EXO's been working on, combine it with our software capability of over-the-air updates as those correction factors are done via the cloud, and integrate that into the vehicle itself to give you a better position accuracy. We take it a step further and integrate with what we know in the vehicle itself of the vehicle speed, the wheel angle, integrate that for dead reckoning to give you an overall system, which instead of being something like a 10 or a 15-meter inaccuracy in the measurement, down to an open-sky requirement of 10 centimeters and an urban canyon environment of 50.
It's an example of how we've taken technology that we've either acquired, developed, or partnered with, added our understanding of vehicle dynamics, vehicle integration, and introduced the technology to customers. With that, I'll turn it over to Bill Presley for electrical architecture. Good afternoon, ladies and gentlemen. Thank you for joining us. As Steve said, my name's Bill Presley, and I actually think electrical distribution systems are sexy. I'm going to talk to you a little bit today about electrical vehicle architecture and optimizing that architecture and the product portfolio that goes with it. Hopefully, when I'm done up here and we do our product tour, when you leave here, you'll look at your car and its electrical system in a completely different way. That's really what I'm aiming for today. Okay?
Before we get to that, I just want to give you a couple of fun facts about electrical distribution systems so that you understand the scale of what we're dealing with when we talk about electrical distribution systems. We have over 1,200 customer-interfacing engineers working in 21 development centers around the world. Those engineers will manage 40,000 changes this year on 277 programs globally while they launch 127 new products in 36 of our manufacturing facilities. Very complex, very dynamic, 40,000 changes. Those changes are largely driven by our customers reconfiguring systems and adding content and function during mid-cycle actions or model year changes. We have to remain very nimble and flexible as a manufacturer, but we have to stay disciplined in our engineering scope. We have to stay disciplined so that we're delivering robust product to the customer in the field.
We do engineer, ladies and gentlemen. 70% of the product we manufacture is engineered by Lear in-house. That means we're providing logical and mechanical design services to the customer, and we're participating in the development of architectures that are a decade into the future. That 10 years of vision puts us on the horizon. It gives us a first-hand seat of what the future holds and what technology and products are needed to fulfill those future needs.
We are a full architecture solution provider. What that means is we have expertise in every one of the building blocks that are associated with the electrical vehicle and the distribution system. Some of them you're familiar with, like wire harnesses or the terminals and connectors. What some people don't know is that our entire product portfolio is scalable all the way from the traditional 12-volt system up to the high-voltage systems. That gives us a unique advantage. We're able to take a holistic view in the system and optimize that system to deliver dense functionality. As an example, you heard Stephen Rober talk about the solid-state junction box. What Lear did with that first-to-market innovation is we removed mechanical relays from the car and replaced them with solid-state drivers.
What that meant was that we could monitor and intelligently deliver the amount of current that was going to the system. Now we were able to downsize the wire because we didn't have to survive the mechanical fuse event, because we knew exactly how much current would be there all the time. When we downsized the wire, copper wasn't strong enough. We had to come up with an innovation in conductors through alloys and claddings that maintain the strength, but allow the conductor to work right in the system. When that was done, don't you know the terminal didn't fit, we had to reinvent something there. The point in me telling you that really long story is that an innovation in one building block of the architecture often drives or requires an innovation in another building block of the architecture.
If you don't have that in-house expertise, you can't really drive that innovation. Jeneanne said it earlier, right? I'm going to say it again is, we're one of one. Because we have expertise in every one of the core building blocks, we can make those trade-offs and drive those innovations. If you don't have that in-house expertise, you're only participating in a part of the future of the vehicle architecture, but you're not driving the future of the vehicle architecture like Lear is doing today. Here's one of the questions I always get, and I know somebody's got it is, "Bill, isn't the future of electrical architectures going to eliminate wire harnesses? Aren't wire harnesses going to go away?" I'm going to hit that head-on for you in a minute later in the presentation. We're going to talk about that.
One of the demonstrations that you'll see in the product tour today is called the Lear Virtual Proving Grounds. The Lear Virtual Proving Grounds and the way it works is a trade secret. What it allows our engineers to do is simulate every electrical and mechanical aspect of the electrical distribution system prior to building a single part. Now, why is that important? Well, there's two key reasons. One is time, one is complexity. Vehicle development cycles continue to rapidly shrink. Six, seven years ago, a development cycle was five years. Today, we're delivering vehicles new to market in less than 36 months. The second thing is complexity. Wire harnesses and electrical vehicle architectures are no longer batch-built. They're tailor-made.
The customers are ordering only what they need in the vehicle architecture for the vehicle so that there's no giveaway or there's no penalty to the car for weight or space. The key to optimization is to be able to rapidly and accurately simulate what impact your design decisions have on the vehicle. Our customers typically follow a build, test, rebuild, retest philosophy. What that means is they build a prototype, they physically test it, they see how it compares to the customer requirements, and then they modify it. Problem number 1 with that is time. A physical test failure can cost you three months in the development cycle. That means your customer is either going to the field with unvalidated product, or it means you're asking them to delay the launch for three months, neither of which they really like.
The second problem is the complexity I talked about. You can't possibly build every single variant on the car and test it. There's not enough time, and no customer in the world would accept that validation build. The key to being able to that is what I said, is simulation. This technology could not be bought on the open market. We had to develop in-house this technology, and it was another convergence between seating and E-Systems. We took finite element analysis expertise from seating. We built unique computational algorithms that were specific to electrical distribution systems, then we built our own internal materials catalog to understand how the materials would behave in the car. We wrapped all that up into the Lear Virtual Proving Grounds, today we have a state-of-the-art defining tool set that allows our engineers to optimize every single aspect of the vehicle architecture.
It's not just our processes that are innovative. We're forward innovators. We're proactive innovators. We're constantly looking at the market to see what industry trends or what external trends are going to impact the vehicle. We're turning those into mega trends that you've heard everybody talk about. We're taking those mega trends and we're saying, "What are the key functional characteristics that the future products of the world will have to have?" As an example, everybody knows about shared mobility. What that means is cars and trucks, they're going to be on the road a lot longer, you have to have product that can survive a much heavier duty cycle. Some of the things you'll see on the tour today are advanced technology that's available now. Things like adaptable power scaling, which utilize a feature-based approach for power distribution.
What that does is it reduces the size and the weight of the architecture, it also makes the vehicle easier to assemble, it gives our customers a better first-time throughput. You'll also see our alternative conductor technology, which is enabled by our Lear scalable terminals and connectors. You'll see that we've gone green. We're using natural fiber routing aids, biodegradable fillers, and we're recycling waste material. That's enabled through high-speed data connection systems. The second thing that's happening is electrical centers or electrical distribution is going from centralized to zoned. They're taking those big fuse and relay centers everybody's used to seeing under the hood of your car or under the instrument panel, they're distributing that throughout the car to the area or the zone that actually needs the power.
They're doing both of these things for one reason. We're trying to create more physical space in the vehicle itself. The reason is, as electrification comes on board, it's going to add another layer of electrical content. As things like autonomy come on board, it's going to double the electrical content because you're going to see redundant systems throughout the vehicle to support autonomous driving. Once you've laid out your architecture, it becomes a game of conductor selection because you're literally trying to wedge your conductors into the space that's left. Nobody says, "I'm going to make this trim have a really weird shape so I can fit the wire." They tell the wire guy, "Get out of here, man. The trim's got to look like this." We're doing this trade-off analysis all the time.
As an example, wire, been around for a really long time. It's pretty low cost. It's very reliable. You can change it very quick. It's very reconfigurable. We can rework wire harnesses to support our customers in the field, at dealerships, in their plants. It doesn't package well. It is literally a round peg in a square hole. In some instances, you're going to have to position yourself where real estate's at a premium. Flex circuits are a great answer to that. That's the one everybody's talking about today. Flex circuits are going to replace wire harnesses. Flex circuits, they package really well because they're nice and flat. You'll see some of them on our product over there when you do the tour today. But they're relatively expensive, and once they're in the car, they are very difficult to rework. They are very difficult to reconfigure.
If the customer has a problem, they've got a problem that they now have to come up with a new engineered solution in the field. We're looking at what we think the market penetration will be over the next 10 years. The main point, the main takeaway is, regardless of what that technology is, Lear has been enabling that technology for a long time. Flex circuits, the one that's getting all the play now, the new one, we've been putting that in cars with our terminal, and connector portfolio for 20-plus years. It might be new to some, it's not new to us. Regardless of what the vehicle needs in the future, we're ready to deliver that. That's important because every customer has a unique idea of how the vehicle architecture should be implemented. You can think of the vehicle as kind of a layered cake.
There's going to be this 12-volt base system, but on top of that, you're going to have layers. You might have a 48-volt mild hybrid. You might have a full electrical. You might have autonomous on top of that. The key to staying relevant is that your product needs to be scalable, meaning it has to be optimized for the usage to eliminate waste in the car, which usually takes the form of space or weight. It has to be adaptable. You can't be a one-trick pony. You have to be able to adapt to new terminals, to new architectures, to new technology. That's the key to staying relevant.
I got to tell you guys, as an electrical engineer by trade, I could not be more excited about being in the auto industry today because we are going to see a massive explosion of electrical content as human machine interfaces increase, as electrification increases, and as autonomy comes online. I couldn't be more proud to be part of a company that has products and processes that are aligned to deliver the future today. With that, ladies and gentlemen, thank you for your time. I appreciate it.
All right, Bill, I think it is safe to say we all find electrical distribution systems sexy now. We are going to take a 20-minute break. Sorry about my voice. There are refreshments in the back. The restrooms are to your right, so through the Craftsmanship Center. It is about 2:00 P.M. now. If everyone could be back in their seats by 2:20 P.M., we would appreciate it. Thanks a lot.
Ladies and gentlemen, our program will begin in five minutes. Ladies and gentlemen, please take your seats. Our program will continue. Ladies and gentlemen, please welcome Mandy Rice, Vice President, Advanced Sales and Product Technology.
Good afternoon. I am Mandy Rice, and I have responsibility for advanced sales and product technology for the seating division, and I also have the exciting opportunity to lead our convergence team. Today, you learned about the strong performance and capabilities we have in seating and the tremendous opportunities that we have in E-Systems. Both of these businesses clearly have bright futures on their own, but I am here to explain why they are even better together. As industry changes and moves more toward greater electrification, connectivity, and shared mobility, Lear's convergence perfectly positions us to deliver the most intelligent seat in the world. With our seating and E-Systems capabilities, Lear is transforming the seat into a smart device, and only Lear has the complete capabilities to make this a reality. We know the market wants this because our OEM customers are already asking for it.
Let me give you three quick examples. In a recent article, Nissan said that interiors are becoming increasingly important. They are looking to deliver beautifully crafted, intelligent mobility, and Lear is making this happen. Audi is looking for different configurations for their interiors. Imagine if you could open an app on your phone and you could adjust the seating position to a work mode and ride back to the airport today with your colleagues. Lear can do this. BMW wants to create personal seating environments for their customers that are intuitive and connected with individual comfort preferences, and Lear has the solution. The N2 seat is a smart seating device that adapts to your personal preferences and connects you to the world. Here you see our suite of intelligent technologies, BioBridge, SoundZone, Dynamic Safety, modular heat and cool, and ProActive Seating.
Each one of these products will be sold as a modular system with technologies embedded within Lear's core capabilities. This product strategy allows us to commercialize these technologies independent of the seats they fire. Let's talk more about each one in detail. As we move into the era of autonomous vehicles, safety continues to be of utmost importance. Our Lear Connexis V2X communication technology helps vehicles sense impending collision, which activates the intelligent seat mechanisms to properly position the occupant in the vehicle and minimize injury. Other vehicle safety systems like airbags are reactive. Lear's Dynamic Safety is proactive, anticipating a safety event before it happens. This technology is particularly relevant as we start to think about how we will use vehicles differently in shared mobility applications. We won't always be sitting in standardized seating positions.
Lear has a dedicated team of safety and software engineers that are making our seats safer like no one else can do. One example of how seating and E-Systems are better together. BioBridge is Lear's smart biosensing technology. It uses Doppler and radio frequency sensing, which makes it non-intrusive. You don't need to touch anything or wear anything, which makes the system extremely convenient. Think of it like a Fitbit in the seat, only better. It reads your heart and respiratory rates, and it also detects stress and drowsiness to help prevent driver distraction and promote safety. As our BioBridge technology advances, we will be able to transmit even more sophisticated medical data to your doctor if you wish, using Lear's Connexis V2X communication technology through our secure network connection using Lear's cybersecurity expertise. Lear's ProActive Seating is our intelligent seat adjustment technology.
It has preset modes like sport, comfort, wellness, and custom settings to adjust to your individual needs. It also has intelligence and dynamically adjusts as you drive. If you're driving your sports car around a sharp curve, Lear's ProActive system will give you extra bolster support is to hold you in the seat. If you're taking a long road trip on the weekend in your SUV, ProActive Seating continually adjusts your lumbar to keep you comfortable throughout your drive. No more switches or fumbling around with the side of your seat. Lear's ProActive Seating offers a simple, intuitive comfort solution to enhance your driving experience. As electric vehicles extend in range, the power demands in the vehicle must decrease. HVAC efficiency is becoming more and more important. Lear's modular heat and cool system is a personal climate environment that offers the perfect solution for HVAC optimization.
There is no need to heat and cool the entire cabin when you can create a comfortable climate environment right within your seat. It is a beautifully crafted, self-contained modular system that can be used on Lear seats, or any seats in the industry, as a perfect climate solution for electric vehicles. Lear's modular heat and cool system is an optimized, lightweight, power-efficient system that adjusts temperature automatically using sensors and intelligence. ConfigurPlus is a state-of-the-art rail system that is configurable and electrified. Lear acquired this technology through our Grupo Antolin seating acquisition and evolved it by adding electrified capability through convergence. This system allows for different vehicle configurations, like a work mode, cargo mode, and a sleep mode. They're all right on target for shared mobility.
ConfigurPlus is an untethered power system to add features like heat and cool and recline, while still allowing you to rearrange the seats without having to connect or disconnect from the vehicle. Although ConfigurPlus is ideal for the future of mobility, it is ready today. This product is already in production now, and the electrified version will launch in 2020 with a major European OEM. SoundZone is a personal audio environment that provides each person in the vehicle with their own secluded, connected space to either listen to music or watch a movie or take a personal phone call. You'll be able to experience SoundZone today on the product tour with the Audi A6 with its noise-canceling capabilities. Our Seating and E-Systems engineers worked together to integrate the complex headrest system with the audio domain controller within the vehicle to create a seamless execution.
No other automotive supplier has this type of in-house expertise. Lear Corporation is making the seat a smart device, and we're doing it now. ConfigurPlus is already in production, with the electrified version launching in 2020. modular heat and cool solves a real industry issue with HVAC efficiency, and Lear has strong customer interest with seven advanced development projects underway. Lear has an advanced development contract with a major OEM for BioBridge, who will be first to market, and we also have three additional OEMs who have in-vehicle evaluations going on right now. All in all, Lear has over 20 advanced technology projects with 10 global OEMs, and this is something that only Lear can do. We know the industry is changing fast, but no other company has two powerhouse divisions like Seating and E-Systems working better together today to make the intelligent seats of tomorrow. Thank you.
Now I'm pleased to introduce to you Jeff Vanneste, our Chief Financial Officer of Lear Corporation.
Thank you. Well, I hope you're feeling as good as we are about the possibilities within our Seating division, our E-Systems division, and even more importantly, the convergence of those two. As Mandy mentioned, my name is Jeff Vanneste, and I'm the CFO of Lear. Today's focus is primarily about showcasing our product and our technology and indicating how those products align with the various mega trends in the industry. What I'd like to do today is review our track record of superior performance, show how Lear has consistently outperformed our peer group, show you why we believe we are in the best competitive position in our history, and then provide a longer-term financial outlook for the business. This chart highlights our sales and earnings performance over the past five years. At a growth rate of 7%, our sales have grown two times that of industry production.
More importantly, earnings have grown much faster, at an 18% annual rate, and margins have improved by over 300 basis points to 8.4%. Given our strong operating performance, our low leverage, our low effective tax rate, and the benefits of our share repurchase program, our earnings per share have increased at a 25% annual rate. Lear has a strong history of converting earnings to cash. Over the last five years, we've converted 94% of our net income to cash. Since 2012, we've generated $4.3 billion in free cash flow. We've also deployed our capital in a balanced way. First, we've invested in the business. We've improved our footprint and product capabilities and further enhanced our product capabilities with seven strategic acquisitions. Finally, we've returned excess cash to shareholders through our share repurchase and dividend programs.
Given this level of performance, we have consistently outperformed our peer group across every major financial metric. This chart compares our sales and earnings growth versus our peers since 2012. Over that time frame, our sales growth is 200 basis points higher than our peers. More importantly, our growth in earnings and earnings per share is significantly better than our peer average. Across other metrics that drive shareholder value, our return on invested capital and free cash flow conversion have far outpaced our peer group. Over that same time frame, our shareholder-friendly actions have returned more cash to shareholders as a percentage of our market cap. This level of performance simply does not happen.
It's the result of investing in the business over the long haul, an unrelenting commitment to customer service and operational excellence, maintaining a constant focus on profitable growth, and having the best team in the industry. Given our financial performance and track record of returning cash to shareholders, we have delivered superior shareholder returns. Over the last five years, our total shareholder returns are more than two times better than the S&P 500, our peer group, and better than most notable companies like Google and Apple. That outperformance has continued through the first six months of 2018. However, despite that level of performance, Lear continues to trade at a discount to our peers.
We believe that provides shareholders with a valuation opportunity as our revenue continues to grow, especially in E-Systems, the company continues to perform, margins continue to expand, and the company continues to generate significant amounts of free cash flow. As I said, we believe we are in the strongest competitive position in our 100-year history, and that the best days still lie ahead. This slide provides some perspective on where we were financially heading into the 2008-2009 downturn and the significant improvements we've made over the last 10 years. Over that 10-year time horizon, sales have increased $4.5 billion, annual operating earnings are over $1 billion higher, and we are now generating $1.2 billion in annual free cash flow. We've improved our geographic vehicle segment and customer diversification, and now North America now accounts for less than 40% of our overall revenue.
In Asia, primarily China, accounts for nearly 20% of our annual revenue and 25% of revenue if you include non-consolidated sales. Over this 10-year time frame, our China sales have grown from $700 million to over $4 billion. As customer vehicle preferences have changed, Lear has benefited from the growth of CUVs and SUVs, which now account for about 45% of our overall sales. Now we're far less reliant on GM and Ford. Our top five customers now account for 60% of our sales versus 75% of our sales 10 years ago. Our overall margin profile has improved 360 basis points. Both our segments are operating at record levels. Margins have expanded in all regions, and our profitability is well-balanced by region, by customer, and by platform.
There are still opportunities for improvement in certain regions and product segments, such as our structures and mechanisms business and regionally in South America. Our current balance sheet is one of the strongest in the industry. At a half a billion dollars, our net debt is 25% of what it was in 2007. At 0.9 times, our gross leverage ratio is less than one full turn of EBITDA. Our corporate credit ratings have improved significantly, and we are now investment grade with both S&P and Moody's. We have never been in a better financial position, nor had more financial flexibility. In contrast, our number one seat competitor has leverage ratios that are actually worse than what Lear's was before the 2008-2009 downturn.
We see this as a competitive advantage, as OEMs are increasingly looking at the strength of the balance sheet as part of their criteria for sourcing new programs. We do not believe a downturn is coming. Let me say that again. We do not believe a downturn is coming. What we wanted to do is provide a snapshot of the potential impact of a lower industry volume scenario. Here we've modeled a 10% lower global volume scenario off our 2018 guidance. Under this scenario, our sales would be down $2 billion to approximately $20 billion, which does not include the impact of about a billion dollars of incremental backlog each year. After taking various mitigating actions, we would remain solidly profitable with overall margins in the mid 7% range. We would also continue to generate significant amounts of free cash flow.
Given our current liquidity of more than $3 billion, we will maintain our current dividend program and look to be opportunistic with respect to M&A and other potential opportunities. Now I'd like to review our financial outlook for 2018 and our targets for 2023. Although we do not provide quarterly guidance, I wanted to highlight some of the macroeconomic headwinds that we've seen thus far in the second quarter. A fire at a Tier 1 supplier, Meridian, shut down a number of OEM assembly plants for several days. In Brazil, there was a nationwide trucker strike. We've also seen lower pass car volumes, primarily with Ford and primarily in China. Despite all that, we are very confident in our full-year guidance, which remains unchanged from what we provided initially in a Deutsche Bank conference and then subsequently after our first-quarter earnings call.
At the bottom of this page, we've added a few additional items of guidance in red, other expense, equity earnings, and not controlling interests that we typically don't provide. It's intended to provide you with additional information to more fine-tune your models. Ray has already previewed our 2023 sales projections in his presentation. Given an industry growth assumption of 2% and segment growth assumptions of 4%-5% above industry in Seating and 6%-8% above industry in E-Systems, our 2023 sales are targeted to be over $30 billion, which represents a 7% annual growth rate. Operating earnings are targeted to grow at 8% annually, reaching approximately $2.6 billion in 2023. We will be able to grow the business while maintaining a margin profile of approximately 14% in E-Systems and 8% in Seating.
Company margins are targeted to expand to the mid-8% range, driven by E-Systems growing faster than Seating and our HQ costs growing at a slower rate. We will continue to convert a high percentage of our earnings to cash. We expect free cash flow in the 2018-2023 timeframe to be double of what it was in the 2012-2017 timeframe. We're committed to maintaining investment-grade credit metrics and a balanced capital allocation, which includes continuing to invest in the business, investing in strategic M&A, and returning excess cash to shareholders. Now I'd like to turn it back to Ray for some closing thoughts.
Okay. Is this on? Had to have a little Led Zeppelin, didn't we? Come on. Okay Kashmir ? So you can tell we all got to select our own music to get the intro coming up the stage. Listen, great job, you guys. The team did an outstanding job. Thank you so much. And really, like I said, I appreciate you coming to our first-ever investor day. To really summarize, you got to see and have access to the incredible talent that's within Lear. You'll see more talent on the tour within the product group. But you can see we're very well-positioned from a team standpoint. We're going to remain very focused with what is at the culture of our company, our operational excellence. We're going to continue to stay focused at what we do best within the DNA of our company.
We will not lose, and we're going to stay focused on our financial discipline, the metrics that drive this company to get the results that we've had over the last several years. I think what you've seen today and I get asked the question all the time, what is the biggest thing that I've seen as far as being the CEO of this company, besides the great team, is the incredible product, innovation, and technology we have to offer. The best days that I have within this company are sitting in product and process reviews, and those are some of the most fun that we have, is understanding what we have, the capabilities, and where those opportunities are going to lead us. We have a tremendous amount of capabilities, both on innovation and technology with these product groups that are aligned perfectly to these mega trends.
I hope you have an idea of the different products that we have. With that, real quick, before we get into Q&A, it's not just investment in the product and process. We're going to continue to invest in this outstanding team, and I would like to bring John Absmeier up to the stage and have him give you a little bit of insight about Lear Corporation and what he's seen so far. Come on up, John.
Thanks, Ray. I had to play some better music. Sorry. Thanks a lot, Ray, and thank you for this opportunity at Lear, which I believe is an opportunity of a lifetime for me. I'd like to briefly introduce myself and tell you a little bit about why I joined Lear. I'm a car guy that loves technology, and in the past 22 years of my time in the automotive technology space, I've worked on all the coolest tech that's now finally becoming a reality. Things like autonomous driving, connectivity, and electrification. I joined Lear from Samsung, where I led automotive strategy and innovation, which resulted in the acquisition of Harman, as well as the launch of their DRVLINE autonomous vehicle platform. Previously, I spent 19 years at Delphi.
I established Delphi Labs at Silicon Valley and led their autonomous driving program, which demonstrated the world's first coast-to-coast road trip by an autonomous vehicle. I'm passionate about technology and mobility, and I joined Lear because our industry is in a period of tremendous change, as you all know. I believe Lear is very well-positioned as a tier 1 player in all of its segments, and there's a lot of opportunity to do more. Firstly, Lear has the best leadership team that I've had the pleasure to work with, and I really, truly believe that. It also has outstanding financial performance, the ability to execute, and excellent technical capabilities in all of the key megatrends affecting change in automotive. There's a lot of upside, too. There's room for growth, and there's opportunity to shape the future of mobility.
I'm excited about this opportunity because Lear has all the ingredients to invest, innovate, differentiate, grow, and create value. Lear is a leader in seating, where more and more technology is being demanded by consumers, making it a key differentiator for the car makers in today's market. Also in the future, as we see new car-sharing, ride-hailing, and autonomous business models becoming mainstream, the value of technology in seating increases significantly. As you saw today, Lear's also a leader in electrification and connectivity, which will completely reshape transportation with safer, smarter, and more efficient technologies. From Detroit to San Francisco, from Tel Aviv to Shanghai, we're witnessing a legendary 100-year-old company transforming not only its future, but also the future of mobility, I could not be more excited about the opportunities ahead.
I look forward to chatting with all of you today. Thank you very much. Thanks again, Ray.
All right. If you guys give us a minute, we're going to set up some chairs. Then we're going to bring all the speakers back up for some Q&A. We'll do about 30 minutes on the Q&A. We're going to have two microphones floating around the room. If you do have a question, just raise your hand, and someone will come to you with that. If you could, when you ask your question, please start with your name and your firm name for the benefit of the speakers. Okay, let's just give them one more minute. Then we'll get started with the Q&A.
I'm from JP Morgan. Thanks for taking my question. First question is, if you could just talk a little bit more about vertical integration in seating. You've made some great acquisitions in recent years with Guilford Mills and Eagle Ottawa. Are there any other interesting areas like seat heating and cooling or something else? Do you intend to continue to not want to get too deep into, say, structures, which is another obvious area?
Let me answer the first part of that question, Ryan. You can see the way we're looking at the seat system. Our focus has been on priceable features. We believe that the seat is going to become a smart device. We think there are some opportunities that will help accelerate those modules that we're looking at. There isn't a significant gap in what we have to offer. The modules that we're developing for our customers today, I think one thing to step back into seating, we're really creating a space that doesn't exist today. Some of the challenges we're developing these programs with our customers is really rewriting statements or requirements that are aligned with these modules. We have the capabilities. There isn't a significant gap in respect to something that we're looking for.
I think in seating, if there was a regional play, obviously the acceleration, we see the opportunity in China. We feel that, in respect to one of our competitors, there's an Achilles heel there, having a good portion or 40% of that market or higher, because we're seeing the domestic Chinese look at their share of wallet differently. They're becoming much more traditional in how they source. If we could accelerate that opportunity and accelerate that through manufacturing capabilities within China, that might be an area we'd be interested in. There's nothing glaring that we need that can continue our growth strategy in seating. In respect to taking on structures, we have what we believe is the capabilities within our own house of structures. I'm not going to go out and try to aggressively grow our structures business unless there's some negotiation that means a lot more.
What I mean by that is if we can pick up JIT business or significant other business, we might consider it. I hope we shared today with you, the opportunities in front of us are amazing, and I think if we just stay focused on what we can control as far as these growth engines, that's what we need to do. Getting distracted by someone else's problems is not where I want to take this company and the energy of this great team.
Okay.
For me, if I did the math right, it looks like maybe you're looking for about a $750 million increase in operating earnings on about an $8 billion increase in revenue, which is something like a 9% incremental margin, which compared to in your 10% downside scenario slide looked like about an 18% decremental margin that was assumed there. Can you just talk about what is a normal course contribution margin at Lear? Does it look different from an incremental versus decremental perspective or from an electrical versus seating perspective, et cetera? Thanks a lot.
I think we'll see a margin profile as a whole on incremental margin of about 15%-20%. There's some investment cost that goes along with having that significant amount of business coming on board, especially within our E-Systems business. We intend for the margin profile to stay in E-Systems around that 14%. Given the fact that there's more investment, it would require more return given the returns we need to support the cost of capital. We continue to see our seating margins longer term in that low 8% range. We think we can continue to grow, as we've indicated, and still maintain a margin profile like that in each respective division. In total, as we grow more in E-Systems than we do in seating, and the HQ cost, if you will, grow at a much slower rate, our overall margin profile will increase.
Thank you.
Hi, it's Richard Hilgert with Morningstar.
Yeah. Hi.
Really great presentation. Thanks, everybody.
Thanks
For putting that on. Couple of questions. One for Frank and Jeneanne. In respect to the growth that you see coming with revenues in each respective segment, what is the average dollar content of a complete seat today and a complete electronic system today, versus because of the technology growth, the content growth, what it's going to be in 2023, and how much of that is part of the growth rates that we're seeing for each one of the segments? Frank, you had mentioned about complete seat sourcing, and I'm wondering to what extent in both segments, not just seating, but how much is directed sourcing a part of that trend that you're seeing developing, and what happens with directed sourcing as time goes by? Last question is for Jeff.
We're seeing so much of the technologies and software development and more technical engineers having to come into the industry and somewhat of a shortage there. With your margin expansion that you're expecting, what are some of the offsets in some of the other margin areas of the business, so that you can continue to spend in R&D to develop all of these technologies going forward?
I'll start with the seating questions. I appreciate the question. From a content per vehicle standpoint, we've always said that the midpoint range right now is about $700, just over $700. We see that growing in the future to the mid 700 range. That's publicly what we've shared, and we still believe that that's still going to be the case. Now, the thing I'll tell you is, as technology adoption comes on and some of the potential ranges that we showed with INTU Seating and things of that nature where we range that from 250-750, we do believe there's further opportunity. A lot of this will come down to the technology adoption, how quickly it gets introduced to vehicles, how many seat systems in the vehicle will see the technology applied, and how many technologies per vehicle will obviously factor into all of that.
The CPV content for seating, we absolutely see growing to that mid 700 range in that time frame. On the full service sourcing plans and the strategies there, that contract gives Lear Corporation the ability to source the components on the seat system. It absolutely factors into our strategy of vertical integration on very key components, where we want to control the system. On the structure side, we'll probably look at quoting some of that to see what the best opportunity is. As I mentioned, our strategy is around return on invested capital, and we want very solid returns in every aspect of the business. It gives Lear the ability to control that sourcing. What does that mean? That means that directed sourcing, we can shift that model more towards Lear components if that's what makes sense for us.
Overall, directed sourcing is still a theme that's explored by many of our customers in all of our markets. For the most part, full service contracts gives Lear Corporation the flexibility to decide where those components will reside.
Okay. On the E-Systems side, there's a very broad range. If you just think of the base architecture, it can be anywhere from, let's say, $500 to $1,700. When you start to think about electrification, it can be as small as adding an incremental $50 or so for start/stop, up to $300 on a mild hybrid, all the way up to $2,000. There's incremental opportunity on top of that if you're adding on with a wireless charger for another $1,200, for instance. Just communication now, so a third layer on top of the base and electrification, now you're adding the communications capability. Same thing. Lower-end content could be around $65. It could go all the way up to $200, $250 just for high-end capability for over-the-air updates.
Again, one day when we see autonomy coming on, you could see this increasing even up to, let's say, $450 up on the super high-end level of connectivity in both our communication modules and connected gateways alone. A really broad range. An average probably doesn't do it justice, just to give one number.
I think just to close on your third question with respect to how we're going to fund the additional investment. Lear historically runs very lean. That's kind of our DNA, and we'll continue to do that. That said, there is going to have to be some level of incremental investment to support the growth, especially in the technologies that we've highlighted today. That said, the amount of incremental investment will pale in comparison to the level of top-line growth. It will be incrementally more, grow at a much slower rate than what our top line is. The other part of your question is with respect to where to find talented people, I think you're right, it is getting harder and harder. I know Ray has talked about this a number of times, kind of our approach towards that.
Yeah. Obviously, that's an issue. That's not just a Lear Corporation issue. That's an industry issue. When you talk about retaining and attracting talented software engineers, which is exactly what we're doing, bringing in specialized engineers. You look at the field of technical experts we have with some of these modulars that we're building and developing for our customers on electrification and connectivity. It takes a different way of looking at acquiring talent. We have a cybersecurity office that we've opened in Ann Arbor. We have, obviously, our Southfield facility. We have Munich, we have Shanghai. Jeneanne just announced a brand-new facility that we're putting in Beijing. We're not looking at this thing Southfield-centric. We have to look at this thing holistically. John, we're so excited about having John as part of this team.
I think it shows our commitment to this innovation and technology. We've never had a chief technology officer. He just fits perfectly with this team. John's in California. John's going to be in Israel. John's going to be in China. His team is going to be global in nature. We have this greater purpose in respect to we have core products that we're developing. We also know that to retain and attract that type of talent, we're thinking dramatically different on how we do that. Now, not being in a position where you're just trying to manage through difficult issues and you have these type of opportunities, the technology and innovation is a really attractive play for new employees coming to the company.
I think John just elaborated a little bit because he sees what's going on. You say, "That's a really good place to work and what they're doing as far as the product and where Lear is going to be five years from now." We are looking at that. We're really flexible on how we look at bringing in talent into this company.
Hi, Itay Michaeli over here from Citi. Maybe just start off with two financial questions. The first one. We think about the 30 basis points plus margin outlook through 2023. Maybe just talk a little bit about the cadence. Is that mostly pre-2020 and post-2020? Secondly, maybe if you could just comment on the unconsolidated outlook through 2023 and how might that affect the overall margins and profitability if we include that?
Well, if you look at the cadence, it's pretty clear between 2017, including 2018, through 2020. It's really our backlog. We do anticipate, as we have a history of, is that third-year backlog, by the time it comes into the first year, historically, at least over the past several years, has been double what we first announced. We would anticipate that. We would anticipate continuing to see a backlog of $1 billion-$1.5 billion a year fairly ratably over that timeframe. Maybe a little bit back- or end-loaded because of the timing of when some of these technologies are going to gain more penetration into the marketplace.
I think as we go through that, you'll see the margin profile continue to get higher as an overall company because the pace of E-Systems growth is going to be greater than Seating over that time horizon.
Just secondly, on the Smart Seat, can you talk a bit more about the content per vehicle opportunity in each of the five features? How much of this potential revenue is in 2023 versus maybe being beyond that?
Yeah, Frank, do you want to go ahead?
Yeah, sure. We chose intentionally not to break down too much disclosure on that in light of the fact that this is public information from a pricing standpoint. What we've done is we've said that we believe that those five technologies can range between $250 and $750 per vehicle. And the way we looked at that was it really does depend on some of the actual application of the technology. Some of it may see the driver's seat application. Some of it's in all four seats. If you stack the technologies and end up with BioBridge and the proactive seat system, now you're in the higher ends of that range. What we'd like for you to use for the modeling is somewhere between $250 and $750 for these technologies.
Let me elaborate a little bit on our strategy. We're probably conservative in how we look at the Smart Seat, but I'll ask you a question. What's great about this is not just our OEM customers, but we're all customers, and we're in vehicles every single day. When you get into a vehicle and you can determine what body temperature you want, your personal body temperature, regardless if it's 80 degrees out or 20 degrees out, you can determine what you personally like as far as comfort, as opposed to hitting 90 degrees or 80 degrees in the whole cabin and trying to figure out if I'm at a comfort level. Also the SoundZone, where you can actually get in and separate yourself into your own ability, connected to your smart devices. These are features as customers, end customers, I would think we all want.
To me, it's more of a me too approach, that when we get these programs developed and we're conservative in how we look at it, our other customers are going to have to really start pulling on that because you're going to have a vehicle that's in production that has that type of feature that I'm sure as customers, you say, "Why don't I just tell my seat what temperature I want my body? Why am I hitting buttons that have to go up and down?" Why can't I have the ability to connect to my smart device where I don't have to listen to a center stack and everyone has to listen to that phone call?
I can take my own phone call. The vehicle's right over there, and I hope that you get in and understand what we're talking about because you can still communicate within the vehicle. Rideshare and all these type of technologies are going to be perfect for the trends. I think what's important, too, is we're building these in modules. It's a different approach from a business model standpoint, agnostic to JIT, meaning we can be flexible with these modules. Customers can ask for the intuitive seat holistically, or they can pick different parts of the module that they prefer for their customers. The range of CPV can change based on what customer preferences are.
We're really excited about what's going on with those modular concepts, and it is becoming a pull from our customers, like I said, with a number of these features, that once they see it going in production and we announce a production award, it's that, "I need that, too.
Hi, this is Armintas from Morgan Stanley. Jeneanne, you mentioned that after the Aptiv-Delphi spin, you're the only tier 1 player with complete electrical architecture capabilities and the message here is you're better together with electrical architecture and seating. I'm just trying to think through how core power electronics, for instance, is to the seating business. On the flip side, the Aptiv-Delphi spin perhaps puts pressure on other powertrain players to develop their own powertrain capabilities. Just curious how you're thinking about some of these capabilities within the business that may not necessarily be core to sort of the integrated product.
Jeneanne, you want to?
Yeah. I'll take a stab at that. I think it's very important, I think, maybe for some reasons that aren't even as obvious. With these new technologies, it's not just about who has a product or says they have a capability. These customers are relying on partners that they can count on so that they're going to deliver it, and deliver technology they understand how to work with them, they know how to get through their validation cycle. What we've seen is where we've been asked a lot of times to work on these advanced products is because we have relationships on the other side of it. As Bill talked about earlier today, putting it together in an efficient package. We've already talked about really huge CPV numbers, right?
There's no doubt that the CPV is going to increase, but they need to work with a partner who's going to balance it along the way. You have to do it within the time window, and when you're negotiating with multiple different suppliers, you're only going to be able to accomplish so much. There really is not only a performance advantage, a relationship and trust advantage, but there is an efficiency advantage where, of course, the content's going up, but you can still do it in the best way and the most efficient way.
Let me add to that comment, too. I think one thing that we've found, which has been shocking, is the amount of this unprecedented change in the opportunities. I think if we were sitting here a year ago, we'd be telling you, wow, in the new technologies, we're quoting $400 million, and today it's over $1 billion. One of our issues that we look at when we talk to the customers, we talk to the OEMs, and they love our value proposition within E-Systems. They actually value it. You have the mega tiers out there that, in some respects, are competing directly with our customers. I'm interested in how that is going to play out long term. Either somebody's going to get commoditized or somebody's going to lose.
Where we have a value proposition is where our customers tell us over and over again is, "We love the space that you're in." We've been rewarded with incredible growth. I remember when I was running E-Systems, it was $1.6 billion in lost money, and we were looking for direction. Now it's $5.5 billion, and we have this incredible $2.5 billion of business we're quoting. I just get reminded by our customers, and I'm thinking of just the comment on the non-convergence of seating components, is that they love us in that space. My concern is if even for a moment, there was noise around us spinning off or getting rid of a particular component, that quoting activity dries up. It dries up. We've never seen this type of activity, and we have an incredible product lineup that's well-positioned for that growth.
Our customers are saying it's ours as far as making sure we're hitting numbers, we're competitive, we have the technology, we have the capabilities, we got quote and win it. I'm concerned that all that would just lock up. We wouldn't have those opportunities.
One more, if I may. When I talk to investors, one of the differences they bring up with you versus Aptiv, for instance, is the perception that Aptiv has a stronger connectors portfolio. Maybe you could sort of help contrast and compare your portfolio versus some of your competitors, just so-
Yeah, go ahead
We have a better understanding of what you can do.
They might have a more extensive portfolio just because their portfolio's been around longer. We're investing significantly in developing new terminals and connectors, some of which you'll see on the tour today. Every one of the terminals and connectors that we're bringing to market are both adaptable and scalable, meaning they have unique selling points that's taking advantage of things like miniaturization and high durability, because it keeps going back to what we're saying. With the constant increase in content, the old technology is old technology, and it's becoming obsolete very quick because it's becoming a real estate fight inside the car. Unless you're more compact, more efficient, and lighter, you're going to become obsolete relatively quickly.
Good afternoon. It's Joseph Spak from RBC Capital Markets. I guess I first wanted to touch on structures in a slightly different way. I know you talked about your processes and your sort of commercial discipline. What happens if an automaker now comes to you and says, "In order to either win new business or even retain existing business you have, we're going to need you to invest some capital to support the structures as well"? How do you view that analysis? Do you look at the program holistically? Are you willing to commit capital for the right programs?
Yeah. The customers have come to us and asked for help. I think there's a lot in respect to structures that isn't just taking at a particular price for a return, because structures is something that you really have to audit the manufacturing capabilities of that particular design. Again, like I said, we have a number of things that we're focused on that are creating greater value for our shareholders than some type of build-to-print job in structures. At this point, we've been reluctant to even engage in those type of discussions. Now, with that said, I think that this issue's going to play itself out over the next second half of this year into next year. Lear had some issues relative to some structures, so we weren't immune to it.
Our business was $1.4 billion, and we had one plant. Theirs is $5 billion, if that number's right, $5 billion consolidated, non-consolidated structures business. That's a big issue. We're reluctant to take that on. Now, new programs, what we're seeing is in the quoting queue of where those opportunities are presenting, it's the new program. No one wants to move a structures business mid-model year. It's a lot of risk. Validation-wise and otherwise. Yeah, totally. The new programs that they're quoting, our customers are quoting, is where we're seeing where we're going to take advantage of it.
Jeff, just one for you. You put up the nice chart, pie chart that had how you spent the cash you generated, I think from 2011 to 2017, 40% was returned via buyback, another maybe 20% or so to M&A. If we think about the cash you sort of laid out over the next timeframe, 2018 to 2023, should we expect that pie chart to look pretty similar?
I think that if we had our choice, there'd be a skewed in the other direction, more towards M&A. I think we'd be better served to provide value through investing in M&A versus shares. We're always out there looking for M&A. If we had our choice, we would skew that probably complete opposite of one another.
If we looked at them together, is that the amount of cash we should expect you to spend between the two, you have a preference for M&A over buying back shares?
I would have a preference, I think we would have a preference towards M&A. Yeah. If we were to prioritize, it's obviously invest back in the business and then some type of acquisition.
Okay. Thank you.
Over here. David Leiker.
How you doing?
You have a great message. Thanks so much for sharing it. Just follow up on that last question, Jeff, on the M&A side. Where would it focus? I know you don't want to get into details about it, but there's some adjacent areas, signal processing. There's autonomous driving sensor portfolios and integrations there. There's more on the electrification. How would you characterize that, and what kind of scale do you think something could be?
Do you want me to get that one? Yeah. I'll tell you what. If we're to prioritize it, E-Systems is our priority. Like I said, we have a solid seat business right now. There might be some regional things that we may want to look at from an acquisition standpoint, but with E-Systems, you look at the market and the market size that we're going after, inductive charging, we believe that that's a great opportunity for us. Anything that would excel inductive charging, we believe in, the connectivity, the electrification. Even with E-Systems, we look regionally, too. How do we accelerate our manufacturing footprint in China, would be a priority for us. Those are the type of acquisitions that we're going after because we are building incredible relationships with the domestics in China in respect to electrification.
How can we accelerate that type of growth with those domestics? That is our priority as a company when it comes to acquisitions.
Are there any products or technologies within E-Systems that you feel you're a little bit behind on that you would focus on more for acquisitions?
As far as quoting business, no. Like I said, it's accelerating our capabilities. Yeah, we'd love to accelerate inductive charging. I think we'd love to accelerate our capabilities within wireless at a faster pace, but we have those capabilities today. There's nothing that we're really missing. It's more of how do we accelerate it quicker to get at this growth.
To that end, Ray mentioned the most exciting time of his day is when we look at the products. That's always the question that gets asked, which is, okay, who do we need? What do we need? Where do we need it to make sure that we can take that technology and put it in a vehicle?
Colin Langan at UBS. You mentioned in your presentation that you're on 16 electrified platforms, 10 more are launching next year. Any color on how many are pure EVs and that you're supplying the inverter, converter, the major dollar components? Also on the ones that are 48 volt, can you remind us what are the big dollar, I think you said it's about $300 of opportunity. What are the actual products that drive that dollar?
Sure. Today, we didn't necessarily break it down by the type of technology that we have today. We do have a big presence in the charging systems, and we have leading efficiency in that area as well. We do offer the DC-DC converters and the inverter technology. Sometimes, the converters are offered separately, sometimes they're packaged within the converter or the inverter as well. When we talk about the 48 volt, similarly, in addition to the converter system that you talked about, there is an incremental content that's with the 48-volt system itself and the connector systems. Those are the primary components for that.
When you're talking about the different platforms, these aren't just wiring being added to the platform. These are actual other sub-products, or is this included you're doing the high voltage cable as part of a contract?
When we're looking at electrification, it's the whole range of it. We have battery management electronics that we have on it, as well as the cables, as well as the connectors, as well as the power electronics. When we talk about our numbers as well as the number of platforms, it's any or all of those products that are on the platforms.
Got it. Can you talk on E-Systems wiring overall? I've heard some pushback from your competitors that there's differences between build to print and systems that you're doing engineering. Do you think you do a lot more build to print than your peers? Do you think it's balanced?
No, 90% of our programs we engineer.
Is that?
I've heard that, too. That's wrong. Flat out wrong. We engineer our own programs. I think Bill can hit on this.
I hit on that some, right? 70% of what we're manufacturing, we've engineered in-house, but we're also the engineering source on architectures, like I said, that are 10 years in advance. We're actually sitting with the customer inside their facilities, putting together logical solutions on the system side and then turning that into an actual physical manifestation. What they like about us and why they come to us is things like the Lear Virtual Proving Grounds, where we can demonstrate this is what the system impact will be to the total vehicle. That's becoming something we're known for in the industry, and it's opening up customer bases to us that we haven't been a part of before just because of that capability.
Just, if I could squeeze one more in. Actually, you talked about in your presentation the risk of going to domain controllers and cutting out wiring. I just want to make sure I understood the takeaway there is that we're going to see less traditional wiring, but we'll make it up in dollar content on other components being added, or did I misunderstand that?
No, I don't think you'll see less traditional wiring. If you go back to the chart we showed, there was a percentage of penetration we see by circuit type. As an example, we talked about flexible printed circuits being 1% of the market. We don't mean 1% of the cars in the market will have flexible printed circuits. We mean there are layers in the architecture. You'll have traditional wire and, say, flexible printed circuits that will exist simultaneously in the vehicle, but on a car that might have 3,000 circuits, 30 of those might be this flexible printed circuit, and you'll see them in areas like headliners or seats or A-pillars where real estate is at a premium and that round bundle doesn't want to butt up against the flat surface to make the transition. Does that make sense?
The dollar content opportunity is not shrinking because of these higher dollar components. Is that not right, I guess?
The dollar content of the electrical distribution system is going to continue to rise just because feature content is being added to the car. The trade-off that you see in the circuit penetration that we talked about is going to be a result of physical space that's left in the car to actually package the electrical system.
All right, thank you.
Great. Good afternoon. It's David Tamburrino from Goldman Sachs. Got a couple of questions. First, as we circle back to the margin expansion portion here, I think if I understood the presentations correctly, you should have a continued mix or increasing mix of software with the incremental hardware that you're putting in for all the features. Then in one of the responses earlier, you also said that revenue growth should outpace what that incremental spend growth is. I'm just trying to understand how much conservatism or Lear conservatism is being baked into that 8.5%+ margin when you should have a higher mix of software content and less % of revenue spent on R&D.
I think if you look at the 8.5+, it really is towards the low end of that 30+. It's right around 30. To the extent it's above 30, we could potentially see both the margin expand and pure dollars expand. That's where the 8.5 comes from. It's basically winning at 14% in E-Systems, let's say going from 5+ to 8+, and then seating going from 16+ to 22+ with an 8% margin profile and HQ costs growing in the ZIP code of, let's say, 3%.
You throw all that math into it, and that's kind of where that 8.5+ margin profile gets you to.
Okay. The underlying is there's upside there, just history of conservatism with your guidance.
It's five years from now.
Understood.
Yeah.
The second part of it, you showed your calculated ROIC for the overall business. Another one of your competitors on the seating side showed they had about a 70% ROIC that's going down to 50% from some of the growth. Is it that drastic of a difference between the seating business versus your E-Systems business for what your return on invested capital is?
E-Systems, both are returning well in excess of our cost of capital. If you look at the comparison of the two segments, E-Systems is earning more in excess of our cost of capital than Seating is.
Okay. Just lastly, if I think about moving towards 2023 in your E-Systems business, you talk about the over-the-air update capability, the V2X deployments that you should be having. How much recurring revenue stream could you have as a percentage of that $30 billion target out in 2023?
I'm sorry, did you get the question?
Yeah. From his, you know.
From his-
I don't think we understood the question.
Yeah. What I'm trying to ask you is if you are giving OEMs the ability for over-the-air updates and you're servicing them-
Yeah
you should be able to generate revenue that's recurring on an installed base of vehicles, right?
Yeah.
Yeah.
If you have a significant amount of V2X deployments, particularly in China, as they're looking to build that out, there should be recurring revenue associated with that. I'm trying to understand how much of your business in 2023, as a percentage of $30 billion, could be a recurring installed base versus tied to production of vehicles.
Yeah. It's a good question, and right now, our revenue forecasts don't include that revenue stream.
Got it.
Right now, we're talking just about the products that we offer. There's a potential for us to expand. I know with, John, even in the first couple of weeks he's been here, we've already been talking about pairing our capabilities with other opportunities, but that's not represented right now.
That's not in our number. Probably more on the conservative side there in respect to what those revenues could generate.
Thank you.
Okay. Joel, I think that's time. We're going to do If I could real quick, I think this is the last time we'll be up on stage, then we're going to do the product tours, which we're real excited about. Again, I'd like to thank those that came here today in person. I'd like to thank the Lear team. You guys did an outstanding job. Terry Tanous, thank you for everything. RJ for setting up the facility, really appreciate it. Again, I think we're going to close out the call with the web call right now. Again, I just want to remind you, like I said, we have an incredible team, very talented team. We're going to keep adding to that incredible, talented team in the areas that we focus on, which is innovation and technology.
We're going to stay diligent on our culture of operational excellence, and we're going to stay committed to our financial disciplines. What got us here as far as return on invested capital, it's the same business we're quoting under those same metrics, and we're growing that business, and we're going to continue to invest in our product and our innovation and technology and our talent. Thank you for your time. We really appreciate you joining us here today for our first Investor Day. Joel, you're up.