Great. Thank you. As we continue the Barclays Global Autos Conference, very pleased to have with us PHINIA's Brady Ericson, the company's President and CEO. For those who may not be familiar, PHINIA was a spinoff of BorgWarner last year, but actually it's gone through an interesting history where you were part of the old Delphi back in the day and it's spun off. And so this should be a helpful opportunity to drill down on the narrative to better understand the story. Stock's obviously done very well. We'll do a series of fireside chat style questions. Anyone who has questions in the room, please raise your hand. You can also email my colleagues, Trevor Young, tl.young@barclays.com, Joshua Cho, joshua.cho@barclays.com. They can ask questions on behalf of you if you want. So with that, let's kick it off, Brady. Thank you so much.
Great. Glad to be here.
Maybe let's just start very broadly. So I think people are a bit more familiar with the PHINIA story, but maybe you could just talk about now what PHINIA is versus what it had been in the past as part of Delphi, as a standalone, as part of BorgWarner. Talk about the journey.
I'll go back a little bit farther. Actually, the previous presenter was our former parent with our friends at GM.
That's true. Yeah.
Two of the assets, part of the Delphi asset as well as the Delco Remy asset, were former kind of GM plants. And so BorgWarner bought Delco Remy back in 2015. That then came with us as well, as well as the Delphi technology that got spun off between Aptiv and Delphi Tech, and then BorgWarner bought Delphi Tech. They kept all the electronics, the power electronics type business, and they spun off the remaining fuel systems business, the aftermarket business, and the Delco Remy kind of started an alternator CV business. And one of the big differences, if you see some of our presentations out there, is that the diversity of our customer base, the diversity of our markets, and in many ways the diversity of what sectors we serve. And so we've only got 44% of our business is light vehicle OE.
Our CV business, commercial vehicle industrial, is about 25%. And we've got this wonderful thing that a lot of people don't talk enough about, which is our aftermarket business. And it's about a third of our revenues that just continue to chug away, generating good cash flows. And so I think if you take a look at our mix of the sectors that we serve is very different than our former parents.
Great. Talk about what's happened this year, and maybe you can give folks some context on the stock. Stock's up over 50%. A lot of your supplier peers are down 30% plus. I think we get maybe a number of things going on. Some might say it's high. Some might see it's share buyback. Maybe you could just give us a sense of the year as a whole. How's that gone? We'll sort of double click on the number of businesses.
So it's up over 70. I think I checked the number this morning, so just to kind of clarify. But seriously, I think one of the things that was easy is when people's expectations are that you're going out of business in two years, it's easy to grow the stock price, right? And so in that time of when the stock price was down sub 30 or whatever, their expectation was that we were going out of business. And again, our view was that we had a much more diverse portfolio than people were giving us credit for.
I think they're starting to recognize the robustness and continued growth of our aftermarket, the fact that EV penetration rates are slowing down on light vehicle, and they're starting to recognize that our CV business, although it's been soft for the last year or so and will continue, it'll come back with some of the new emissions regulations, and they're seeing good cash flow generation for our business. So I think in a lot of ways, we're just starting from such a low level that we're now kind of getting closer from a valuation perspective to our peers. And I think people are starting to understand that we're good allocators of capital. And so when we make decisions on where to allocate our free capital, we're doing that based on how to maximize shareholder return.
When your stock price is trading at four or five times EBITDA, it seems like a really good investment. That's why we bought back, I think, over 11% of our shares since we spun because we thought it was a really good investment, and we continue to generate a significant amount of cash flow. We restructured our debt at that significantly lower debt cost that allowed us to then consider expanding our net leverage target. So I think just in general, I think they've just seen a consistent performance from the team.
Great. Let's talk to some of your operating results this year. 3Q, you just raised your 2024 EBITDA margin target. It's now 14.1%-14.5%, up 20 basis points. I think what's interesting about this is you raised the margin target even though revenue has been weaker. So maybe you can just talk about some of the levers that you had on the profit line to keep margins elevated despite the weaker revenue.
I mean, part of our operating model is a very decentralized organization, and so we push a lot of the decision making down as low as possible, and we expect them to manage their business given all the market fluctuations. And they know the volumes a lot better than somebody sitting in Detroit or in China, and so they're automatically restructuring, cutting back on temp workforce, looking for opportunities to drive additional efficiency. And so we have a very clear expectation of how we want them to manage their business and to react like entrepreneurs and owners of the business, and so I think we're starting to see that value. I think we also rolled out two different bonus targets for all of the employees around the world that's focused on year-over-year economic value improvement, so we have to find a way to improve value regardless of what the market's doing.
That's really kind of ingrained in them. And so if we want to get a bonus, we have to create additional value. And people are really engaged in that and finding ways to do it. And so for us, it's really about empowering those teams, setting clear expectations, and they're really driving it for us.
When we're talking about cost controls, how much of this is sort of fixed versus variable? And just any double click on cost, what's driven this?
Well, I think it's going to be a little bit of variable and a little bit of fixed. We guided down a little bit on our CapEx spend, just coming in a little bit lighter as folks are saying, "Hey, do we really need it?" Where I think maybe in the Delphi technology with some of the other legacy they had is like, "I have a budget, I'm going to spend the budget," because that's what they do. And for us, it's kind of like, "Well, maybe do I really need it?" Because if I spend it, that's going to hurt my economic value numbers, so maybe I don't spend it. And so I think people are being a lot more judicious on what they do need to spend the money on when they see the volumes coming down. They're adjusting the fixed cost.
We generally have our operations managing about 10%-20% of the labor workforce is going to be a temp workforce, so they're managing that. Our teams, without kind of being told, are saying, "Hey, given the volumes, can we shut down for a week or two weeks over the holidays? Run full speed and then do a shutdown to try to minimize costs as well.
Maybe you could talk about the segment mix as a driver of the margins and the differences between fuel systems and aftermarket. Maybe I'll just start with an overview for folks. I think fairly clear aftermarket is aftermarket. Fuel systems is what was the old sort of fuel injector technology of Delphi. The differences between the two segments and how that drives the margin.
Yeah, but the one thing, there's two different margins. There's the operating income side of things, and that's where we say that for our fuel systems, it's delivering over 10%. That's a good number. Aftermarket over 15% is our initial kind of guide. The thing that makes it a little bit closer is from an EBITDA perspective, they're not that much different because pretty much all of the capital equipment is in the fuel system segment. And so therefore, when we look at EBITDA, you got to add about five or six points to fuel systems and maybe one or two points to the aftermarket. They get a lot closer. The other thing to kind of remind folks is about half of the revenue in our aftermarket segment comes from our fuel system segment.
So we actually have margin in the fuel system segment, and we share some of the profits, and we sell that to the aftermarket, and they make a little more. So overall, yeah, aftermarket is good because I make a little bit of money on the fuel system side, and I've got really good margins on the aftermarket side as well.
Customer mix. That's obviously been an issue for folks. To what extent has that been a drag at all for you this year on the top line of rebilling?
Yeah, I mean, our top customer was the one that was just in here. They're right around, I think, 14%-15% of our revenues. And I think our top five make up 35%. I mean, we don't have a lot of concentration in customers or any particular program. And again, that's the benefit of having a third of our business aftermarket, a bunch of commercial vehicle, and a very diverse light vehicle OE customer base. And so we only have one customer over 10%. I think the next one's probably going to be in the mid-single digits. So there's not a huge amount of concentration. And luckily, GM is probably one of the best as far as managing inventories in North America and is not doing as much restocking, having adjustments for that as well, so.
That's helpful. Let's frame price costs because you've actually done very well on recouping costs. The price line in your bridge has actually been quite strong. Maybe just give us a little context on how you've been able to have this relatively strong pricing and how that nets out in terms of price costs and any looks at sort of how that may trend in the future.
Yeah, I mean, the aftermarket had a big chunk of that, I think, in our price block the last quarter. And again, it's just a year-over-year carryover. And so we had a number of inflationary costs where prices got kind of rolled in, and we're seeing that benefit. A little bit of offset, obviously, with we're raising prices that much to offset higher costs. There's some offset, but it's obviously helped margins a bit. Aftermarket has a lot more flexibility. I think in 2022, I think we pushed through four price increases that year. And it's more just kind of across the board. There's not a lot of negotiation like we had with the OEs to accommodate those costs. At the same time, we kept growing too. So it wasn't as if we were pricing ourselves out of the market.
And part of the reason is that we've got great quality. We've got a great brand name in the Delphi name in the aftermarket. And our first-time fill rates are north of 90% when everybody else was struggling during the pandemic and supply chain disruptions. And finally, I think similar to our OE customers, the aftermarket customers want a supplier who's committed to stay in combustion because they know they've got 20, 30 years, 50 years more of service parts they have to service. They want a supplier who's committed to continue to invest as well as to meet their delivery requirements.
Great. I want to pivot to the strategy, but related to that, let's just talk a bit more near term. We just had the election. Two areas that are coming up a lot. One is sort of changes in EV policy, and the other is on the trade settings. So if we could just double click on how this affects things for you going forward, let's just start with EV. You heard about the idea of extended ICE, right? Extending ICE platforms. To what extent is this a benefit for you? And is it fair to assume that if ICE platforms are extended, it's not - I mean, there is some capital and there's some operating expense that you have to commit to this, but not so much. So maybe you can give a sense of ICE platforms are extended.
Yeah, I mean, just to be clear, from our strategy standpoint, nothing's changed. Our view was that EV penetration rates will continue to increase, but they may. We're just not sure if they're going to plateau at 25%, 30%, or 35%. So at the end of the day, ICE combustion production is going to be going down. We're just not sure where it's going to plateau. I think before people thought it was going to zero, we always thought it was going to plateau at some level. We just didn't know where it was going to be. We have plenty of capacity for combustion engines. We have plenty of capacity for our fuel injection components. So our strategy was always on the light vehicle side, continue to gain market share to keep our plants full, utilizations high, and that's what we'll continue to do.
If it plateaus at a lower number, does that mean our $1.6 billion-$1.7 billion of light vehicle OE maybe goes up $200 million? Could be. Or it stays at that level a little bit longer? That's great. But I don't think it really makes sense for anybody to say, "Hey, we're going to go out and spend another $100 million to increase capacity for light vehicle OE fuel injection systems." So our goal is always going to be working with customers to try to balance and fully utilize that and then take a lot of that positive cash flow and be disciplined in how we then allocate that capital to new opportunities and/or returning to shareholders.
Maybe you can give us a sense. I recognize we're just two weeks post-election, but even in the summer when we had sort of the uncertainty about how things could play out, have you seen any shift in your customers' bidding activity on ICE? Has that played out at all?
The thing that's interesting to us is that we've had robust new business wins and RFQs for the last three years. That's contrary to what everybody was thinking 12 months ago where everything's going EV. I think this is going to be another year of record new business wins for us as we continue to gain market share, win in new applications, expand into CV and industrial. For us, I think in many ways what we presented a year and a half ago and what our thoughts were a couple of years ago was really kind of coming true.
Let's talk about the trade side. Maybe you could just remind us in North America what your Mexico exposure is, to what extent you are bringing in components from outside of North America, and how you can pivot if needed?
Yeah, I mean, we generally produce in region. We source, we produce, and we supply in region, probably north of 80% on average between each of the regions. So that was always kind of our strategy from a long time ago just with supply disruptions, inventory costs, quality spills, and now you've got to air freight. So we were always trying to localize within region because that gives us greater flexibility. So that's kind of one side. From a Mexico standpoint, the bulk of our production is in Mexico and maquiladoras. With that, obviously, we're bringing raw material in through the U.S. into those plants, and then they get shipped back out. But we also supply a lot of our customers' engine plants in Mexico.
And so, at least my opinion is the USMCA. I think if something dramatic happens there, it's going to have a huge economic impact if they try to do something crazy because it's not just going to be us. And so I think that's going to be hopefully people are going to be a little bit more cautious and measured when they make a decision. But we're not buying maybe in our aftermarket buys more product from Asia. But from the make versus buy, we may buy on the outside to fill up the portfolio. But now if tariff comes into place, that may change our own make versus buy. And we've got plants in Mexico that can produce those parts to supply our North American aftermarket business. So I think with our size and agility, I think we're in a good position to adapt very quickly.
I think that's one of the things that we've learned over the last five years. Five years ago, if you have one of your key suppliers' plant burned down completely, it would have been a complete disaster, and you would have had everybody thinking the whole industry is going to be shut down, and literally, we had a plant fire a couple of years ago, and the team called up and says, "Yeah, the crisis response team is in place. We've got a plan. We've got supplier two that's kind of ramping up. We know what the inventory is," and it was almost kind of a non-event for having one of our key suppliers' plants just burn down to the ground, and that's, I think, just some of the speed and agility that I think we've learned over the last five years.
I think that's one of the advantages of our operating model within our business unit, within our company as well, as far as being locally driven for those local teams.
Maybe you could just remind us when USMCA was enacted back in 2019, 2020. Was there any impact on the business?
No.
Okay. I want to double click on a point you had mentioned on business wind bookings doing very well. Maybe you could just give us a sense of how this underpins the 2%-4% organic growth target you've given. I recognize there's always some uncertainty on the booking side, but maybe what's underpinned overall fairly solid revenue growth that you've had and the confidence going forward?
Yeah, I mean, from our view, over time, it's going to be that average 2%-4%. I think since we've spun, I think the light vehicle market has kind of declined. CV has gotten a lot softer. So for the last 18 months, the market's actually gone against us, but our aftermarket has kept us very solid. I think when the light vehicle starts turning around and we get some of our new product launches coming on board and CV starts coming back around, I think we'll get all three of our kind of areas or the markets that we serve really going in the right direction, and that'll kind of get us back to significant growth mode.
The way that we kind of look at it, as I kind of mentioned, I'd like my light vehicle OE business to stay basically flat for the decade by gaining market share. So they're roughly staying flat, $1.6 billion-$1.7 billion. As we continue to grow our CV business, we see some content gains with EPA 27 and Euro 7 applications. So we see them kind of recovering as well. They don't have the EV penetration risk. So they'll be growing maybe 2%-4%. And then our aftermarket is continuing to chug away, growing that 3%-6% per year. And that then creates that balance of the 2%-4%.
Within your business wins, maybe you could talk about the share that you've had, GDI. I think you've typically been one of the primary players there, the common rail on the commercial vehicle side. Where are you winning the most, and where are you seeing sort of elevated win activity?
I think on the GDI, as far as the market share, GDI is where a lot of the wins are right now. It's an area where customers were originally trying to get down to maybe one supplier because they thought combustion was going to go to zero. They were consolidating quickly, and now that it's not, they're saying, "Hey, maybe we need to have two suppliers, not on the same engine platform, but at least two suppliers in their portfolio." And so that's where we're seeing just a lot of opportunity of picking up additional business there on the GDI. I think Delphi was a little bit late getting into it, a late entrance. And so we were probably in the low double digits, 10%, 11% two, three years ago.
We've been gaining about 1%-2% as market share a year, and we see that continuing through the decade, and so that's really where we see a lot of our market share gain to offset the market decline.
By region, are you seeing significant opportunity in Europe to use GDI as a way to have an enhanced ICE engine to meet compliance?
I think what's interesting is we actually see the biggest growth of our GDI business in the Americas and in China. I think that's where part of the, I think some of the moat that we have over 80% of our light vehicle OE business in China is with the local OEMs, and so they're the ones that are actually we've launched the first 500 bar GDI system, so the most advanced technology is actually being launched in China to support their needs, and they're doing it for their plug-in hybrids and range-extending EVs, and they started those a number of years ago because they saw electrification, full battery electric starting to plateau, and the consumers were wanting something different.
That's where I think the plug-in hybrid, you've probably seen some of the announcements where some of these things have a range of 1,000 miles, and you don't need to worry about charging infrastructure. So there's some really interesting vehicles that they're developing, and the 500 Bar technology is one that's also helping reduce costs as well.
Maybe you could talk about where you are on the commercial vehicle side. How have you seen? We talked about light vehicle holding in well. There's some cycle dynamics happening with commercial vehicle, but to what extent have you seen your commercial vehicle customers modifying their plans, and how has that driven your backlog?
Yeah, I mean, I was at the IAA in Germany a couple of months ago, and it was amazing. Two years ago when they had it, everyone was talking about electrification, electric trucks, and there were very few electric trucks there, much more reduced, and a lot of talk about hydrogen combustion and other types of e-fuels or diesel and to reduce CO2. So I think they're really realizing that in their heavy haul, long haul, high load applications, battery electric is not going to work. And so they're working on alternative fuels to reduce the carbon content and the carbon emissions, but also looking at hydrogen and other technologies.
From our perspective, when we were awarded with one of our customers for fuel injection systems, they said, "Hey, we're looking for a partner for 2040 and beyond." They don't see electrification taking over a large part of, especially in the Class 7, Class 8, long haul trucking, which is where the bulk of our business is, with our two biggest customers, the PACCAR group and the Volvo Group, primarily in their 11, 13, 14 L engine applications.
Great. Maybe we could just double click on some of the opportunities into 2025. And I think you talked about it earlier. You're taking a number of cost actions. Maybe you can give us a sense on the cost side. How much more is there in terms of low-hanging fruit on cost action that you can take, especially in the backdrop of we're seeing Europe likely tracking negative year over year, North America tracking negative from the D3? And I know you're not very heavily exposed, but all of these points are tracking negative. How do you manage some of the potential customer volatility into 2025?
Yeah. And again, as I mentioned, our operating model is that we push it down to those local plants, and they've got to drive their incrementals and decrementals to our expectations. And so that's where, again, we try to make sure that we always have 10%-20% temporary workforce. They're flexing that kind of automatically. They know what the expectations are from a decremental standpoint of trying to keep that under 20% decremental as we try to see 20% incremental on the upside as well. And it's the same thing when we're driving our R&D folks to say, "Hey, guys, if our revenues are down, you got to keep it as close to that 3% R&D as possible." So our global strength and functions also are trying to reduce in order to match that softer demand.
And so we really push that out and set clear expectations for both the fixed costs, the global functions that are supporting the plants, and what the plants are supposed to be doing as well. I think in general, from my view, if I have to do a major restructuring, that means we weren't adapting quick enough, and we weren't watching the road ahead of us. And so we're constantly looking at, "Hey, I'd rather be seeing 10, 20, 30 people adjustments to volume than some massive layoff given our size." I mean, obviously, we're a lot smaller. We've only got a little over 13,000 employees. So us laying off 1,000 employees would be a big mess on our part. And again, we see growth in South America and India and doing something across the board reduction would actually hurt some of those growing locations.
So we kind of do it in pockets where it's needed.
The share gain that you've talked about, when we think about the 2025 growth opportunity, do we see some of the benefit of those share gains hitting your growth?
I think we'll start seeing them towards the latter half of 2025. We're starting to ramp up and launch some of those end of this year, beginning part of next year. I think we'll start to see some of that ramp as well as the light vehicle and CV market starting to pick up. I think our view is that we'll probably have another two to three quarters of softness before we start to see some nice pickup.
Great. Let's pivot to capital allocation and free cash flow because I think that's also been a very sensitive part of the narrative. Maybe you can give us just some broad strokes around your free cash flow profile. You talked a lot about EBITDA. That's going to be a big piece of it. But maybe you can talk about CapEx and some of the other drivers that have enabled sort of a relatively stable.
Yeah. I mean, obviously, we focus a lot on working capital and kind of keeping inventory levels down. I think in general, our depreciation, amortization, and CapEx tend to be about the same. So we're not using cash by putting it more into the business. It's being offset with a D&A. I think we've done some nice things from a working capital as we exited some of the contract manufacturing with our former parent, really managing the right level of inventory in their aftermarket. We had some small moves that were going on between plants to kind of optimize it. Also, we're working through some of that inventory as we exited our former parent's locations. So I think that's kind of given us some nice numbers. And again, economic value is half the bonus, and cash flow is the other half.
So obviously, there's a lot of incentive for folks to continue to drive the cash flow within the organization. So I think we're at so far year to date, like about $180 million of free cash flow. And I think we're still on pace for probably the high end of our range on that as well. So I think people are realizing I think they are acting like entrepreneurs and owners of the business and trying to manage it as efficiently as possible and then obviously using it wisely.
The CapEx profile, 4% of revenue, how do you think about this in the backdrop of sort of an extended ICE tail? Is this still an achievable figure?
Yeah. I mean, I think both on the 4% CapEx and the 3% R&D, our view is that's kind of where we need to stay within. Even as we transition more to CV or more to hydrogen or more to electronics into aerospace and other industries, we've got to maintain that discipline. And so I think we've seen a lot of efficiencies in our capital as we moved it between regions to wherever the demand is. And I think that's one of the benefits that we see is that our human capital and our manufacturing capital is pretty flexible. So I had engineers working on light vehicle diesel that then went to GDI, that then went to commercial vehicle, and now are working on ethanol and hydrogen. So I don't need to fire a bunch of people and hire new people.
I've got the same talent that I can move to wherever the need is. The same thing is around our manufacturing capital and our plants. We've got a good distribution around the world, and we've taken GDI lines and converted them to GDI for diesel for the KOEL application that we just launched for off-highway applications. We converted some of our light vehicle diesel manufacturing equipment and converted that to do a low-volume line for aerospace at our plant in France. And so demand and GDI in Europe was kind of softer. We moved lines to China and South America and North America to meet the demand. And so we don't have massive stamping or foundries or billion-dollar plants. We've got equipment that is the size of a small bedroom.
We can pick up, put it on a truck, and get it shipped over, up and running within a few months to kind of balance our demand globally.
Paul, folks, I don't know if folks have any questions, otherwise we'll continue. Okay. Why don't we talk about the shareholder return? So like I said, you bought back 11% of your shares outstanding. As the stock appreciates, this has obviously been a tougher environment for suppliers. How do you think about the balance of share buybacks versus the consideration of a dividend or other uses of that capital?
Yeah. I mean, we've communicated we want our dividend to be about maybe 20%-25% of our free cash flow. And that's kind of roughly where we're sitting. Obviously, as we buy back more shares, that kind of comes down. That creates an opportunity there. But again, then the rest of it is, are we doing share repurchases? Where does our debt look like as well as then kind of acquisitions? And again, what we've communicated to folks, if we're trading at four or five times and we're looking to acquire an asset that's similar in nature to ours, how do we justify paying a higher multiple than our own stock price? And so that's why we've got a long pipeline of opportunities that we're looking at.
But until the multiple I have to pay for them is lower than what mine is, it seems to make more sense to buy back my stock. We're getting there. I think people's price expectations of the assets are coming down. And as our multiple kind of increases, the chances of an M&A makes more sense. But the math has to work.
On that pipeline, how do we understand the opportunities by region, by product, by end market?
I think obviously more of the focus is going to be on CV, industrial, and aftermarket opportunities. Even 100% aftermarket assets would be interesting to continue to bolster that. We've set an objective that we want CV, industrial, and aftermarket to be more than 70% of our revenues by the end of the decade. So that's kind of where our focus is. From a product line standpoint on the OE side, we want something that's going to be synergistic with our manufacturing and our supply chain and our engineering capabilities. Us getting into tires or infotainment, there's no synergy. We're not going to be looking to go in areas like that. If it's something that has precision machining, fluid management, electronic controls, rotating electrics, those are product lines that we want to get into. That's kind of one criteria.
The second criterion is going to be we want the thing to fail two to four times in its lifetime. We want it to have a nice aftermarket. That's why instrument clusters that don't fail throughout the lifetime are not as interesting. I want something that we're going to be replacing two to four times over its lifetime, and that's then going to support a strong aftermarket and give us an extremely long tail from as we continue to gain market share. That's then going to make our aftermarket even stronger because we have a stronger presence.
There's a wide range of ICE powertrain sort of component and subproduct areas. Okay. Fine. You're not going to go out and do an infotainment acquisition. But within the broader powertrain product set, is there any place where you say, "Okay. Transmission, for instance, there's no synergy." Is there any delineating point within the powertrain product?
Again, we want to have a significant exposure and opportunity to grow in the CV and industrial side of things. If it's 100% light vehicle focus, not going to be as interesting unless they're giving it to me for free and I can make cash flow on it right away. But I really don't see why we want to grow in the light vehicle ICE. It's a flat market or declining market. If an asset that we look at has 10%-20% light vehicle OE, okay. But I want to be something that I can really grow in the CV and industrial type sectors. Precision machining, again, fluid management, nitriding, grinding, because we're holding tolerances in our injection system that are plus or minus half a micron. To give folks kind of an idea, half a micron is about the size of the coronavirus.
That's the type of tolerances that we're holding in our fuel injection systems. The other example they gave me was the amount of pressure that's in our commercial vehicle fuel injector. It's like holding an entire school bus on your finger. The amount of pressure on your finger, that's how much pressure, 45,000 PSI of pressure that's going through these injectors. These are very, very precise devices, and that's where we think we can differentiate from a lot of our customers. And it also gives us a great moat from competitors because these are not cheap, easy machines. And we actually do have a lot of IP or trade secrets just on the manufacturing process.
Let's wrap with the, oh, go ahead.
One quick follow-up on the tariffs in Mexico.
One quick follow-up on tariffs in Mexico. Let's just say there is a 20% tariff on everything coming in from Mexico to the U.S., just to pick a number. With your OE customers, that's all up for negotiation. There's nothing contractually in there. Under that scenario, given your competitive position, I would assume you're looking to pass most of that on to your OEMs, or is that too optimistic a framework and the pain gets shared?
No. I mean, generally, I think as we communicate, even with excessive labor inflation, energy costs the last couple of years, we say we passed through about 70-80%. That's why our margins, if you look at our history, our margins may be down 100 basis points or maybe we peaked in 2022, so I think we've absorbed some of that. I think some of that inflation is going away, but we've done a very good job on these are things that we don't control. Even the last time around, we pushed that through as well. There are some components that we sell to finished goods, but it's Ex Works, our locations, so our customers are responsible for the tariff coming into the country.
Okay. We'll leave it there. Thank you so much.
All right. Thank you much.
All right. We have a break for a few minutes, and then Ford is going to be at 10:05 A.M.
Nice. Land me between GM and Ford.