Okay, good afternoon, everyone, and welcome to the 22nd Best Ideas Conference here at CL King. My name is Dave Silver. I'm the Director of Research and Equity Research Analyst here at CL King, and we're very pleased to have a chat with the management of Stoneridge. Representing the company, we have the CEO, Mr. Jim Zizelman, Matt Horvath is the Chief Financial Officer, and Kelly Harvey is the Director of Investor Relations. So just to comment on the format, I will turn the floor over to Jim and Matt for some opening remarks. I'll follow with a series of questions. If those in the audience would like to pose a question, please use the box on your webpage.
In the event that you wanna be anonymous or total anonymity, you can send the question to me on my email. That's dsilver@clking, so d-s-i-l-v-e-r @ c -l-k-i-n-g.com, and I will pose the question for you. Okay, with that, I'm gonna turn the floor over to Jim and Matt for their opening remarks.
Thanks, Dave. Appreciate the introduction. I am Jim Zizelman, CEO of Stoneridge, and what I'd like to do today to kick this off is to perhaps spend a few minutes on overviewing Stoneridge as a company. You know, we're obviously an established Tier 1 supplier in the automotive and commercial vehicle space. We deliver products that are primarily focused in the electrical or electronic categories of products. Oftentimes, our products also have a degree of intelligence associated with them as well, meaning there's some software or electronic control boards that are associated with those products. You know, our company is active in the commercial vehicle space.
It's also active in automotive, right, light duty, including light duty trucks, and of course, off-road, off-highway as well, and we'll talk about those as we go throughout the course of today, I'm sure. You know, we, as a company, remain very focused on industry megatrends. You know, this is important, you know, as things change pretty rapidly. You know, a lot of focus for us at the moment is on intelligence and safety, but also electrification. You know, even with the slowing of electrification, we still have a key focus in that space as electric vehicles in the light duty market continue to increase their penetration year over year, albeit at a slower rate. You know, when we think about electrification at Stoneridge, we think about it maybe a little differently than some or maybe most.
You know, what we do is think about how to develop products whereby the underlying technologies are agnostic to the type of driveline that may be existing in the vehicle. So if the base technology can serve a conventional internal combustion engine system or a hybrid or an electric, that's great because you can springboard your products from those base technologies. It makes us more flexible, it makes us faster to market, and easier to turn with changing megatrends or changing desires by our customers for sure. The company itself has a strong pipeline of new program launches and actually some recent ramp-ups as well. We're in the middle of ramping a few different products right now.
and those ramp-ups, along with our global diversification, really sets us up for, you know, excellent growth moving forward. So we do, you know, we will outpace our underlying end markets this year, and we expect to continue to do so, you know, as we move forward and grow the company to a larger extent. We operate in three primary segments inside of Stoneridge. Our first segment we call Control Devices, and the Control Devices segment comprises about 35 or 40% of our total sales this year. And it's primarily focused in the passenger vehicle application space, and you know, over the last few years, as you might guess in that space, we really had to transform this company, right?
We had to transform it to make sure that we were aligned with the changing marketplace, the changing trend in propulsion type, but as I said earlier, we couldn't move entirely and exclusively to electric, hence this approach to this agnostic technology that allows us to serve with products all the different markets. Our products in Control Devices include actuators, valves, control valves that are like a fluid flow control device. We also have sensors, think temperature sensors, switches, and high-precision connectors as well. Again, all of these products, whether it be at the product level itself or at the base technology level, would be applicable across all those different type of drivelines.
The Electronics segment now comprises more than 50% of our revenue, and this segment focuses nearly entirely on the commercial vehicle space, so quite different than Control Devices. And you know, the products that are included here are things like driver information systems, you know, think electronic instrumentation clusters, vision and driver assistance products, and probably many of you have read about or heard about our game-changing MirrorEye system, the camera mirror replacement system. That's considered a vision. It's a vision and safety device, really. We also have connectivity capabilities within the company, as well as controls. And I'm sure, again, throughout the course of today, we'll talk more in depth about many or all of those.
We, you know, contained within, you know, those product lines, in addition to MirrorEye, which again, as I said, is an industry-changing technology that is really helping this company to grow, outpacing the market quite substantially, is our next generation tachograph. A tachograph is a compliance product, right, that many governments require some form or another of being able to track and trace, if you will, the goings of a commercial vehicle. You know, how many miles, how many hours, what borders is it crossing? And we are launching a new product called Smart 2 tachograph in Europe that does just that, and brings all the latest requirements as indicated by the EU mobility standard. And then thirdly, our last segment is Stoneridge Brazil.
Stoneridge Brazil has historically been an aftermarket business, you know, focused on aftermarket audio and alarms and things of that nature. We have slowly been transforming that business as well to one that serves our OE customers, our global OE customers, and, in this case, it's global OE customers, primarily focused on electronics and for the most part, commercial vehicles as well. So that business is also in transition for us, and we also have high expectations for growth there as well. So David, with that, maybe we can turn it over for some questions.
Yeah, great. So, first question is just gonna be, you know, maybe an update on your most recent quarterly results, and then I will jump into MirrorEye pretty directly from-
Sure. Sure. Of course, yeah.
So your second quarter results did include an organic revenue decline. There was positive but EBITDA margin trends and a higher adjusted EPS. And then you did update your full year revenue guidance. You did lower revenues by 4-5%, while indicating only slightly lower margins. Roughly three-quarters of the revenue decline in your new guidance was attributed to, firstly, lower OEM production volumes, and secondly, potential volatility in non-OEM and customer demand-driven products. So question, you know, what, if anything, in these trends has shifted or changed since your last conference call? Any notable incremental shift one way or the other?
Yeah, well, I mean, for sure, the macro environment continues to be a challenge, right? That, that's a fact. And, we, as a company, keep a very, very close eye on our, demand from our customers and, you know, production volumes in a general sense across the industry. You know, on the passenger car side, for sure, right, there is continued pressure in the light duty space, both in the United States, as well as in China. And, you know, some of that is perhaps a little bit of a shift away from EVs, and that's not to say that, you know, EVs aren't continuing to increase their penetration. They are. Right? They truly are, but they're increasing their penetration at a lower rate than what was expected.
So that continues to happen. And, you know, in the long run, to be honest with you, Dave, I'm not so concerned by the nature of our driveline agnostic approach to developing product. You know, the base technologies are there. So in the mid to long term, you know, if things shifted semi-permanently to some other direction, you know, we are well-equipped at the foundation, you know, to make that change with the industry. You know, obviously, you know, if anyone is searching for a car these days, you can see that it's a very different picture out there than it was a couple of years ago, and inventories are increasing, and, you know, probably incentives are going to be increasing. I think they have certainly increased somewhat already.
You know, automotive is a cycle. It's a cyclic business, right? And it too will recover. But I think, again, we're well-perched by the nature of how we deal with our technology that is serving our product development. You know, on the commercial vehicle side, you know, there's still a very substantive down cycle, both in Europe and in North America. You know, fleet owners are holding onto their trucks longer, right? Their rates they can charge are reduced, right? So, you know, there's a cycle there as well. But to be honest with you, our product offerings, you know, whether it be products like MirrorEye or the Smart 2, and these are in many cases, you know, content ad products.
You know, MirrorEye system is different than a conventional mirror system. These are content ad, and you know, we are booking more and more. We're launching more and more of these MirrorEye systems, and you know, by the nature of our own self-help, right, we will bring something to the party here that's much different from what we see out there, you know, from an industry perspective. So hopefully that helps.
Okay, so, next series of questions will be about the MirrorEye.
So, Jim, your company is committed to developing and commercializing a range of smart products, that is, those products that contain embedded electronics or logic. Among your most important smart products is your MirrorEye camera monitor system. Among your second quarter highlights were initial shipments of your first MirrorEye OEM systems to Volvo for the launch of their FH Aero model in Europe. Similarly, your MirrorEye program with Peterbilt launched on two models in North America in July. So can you just provide an overview of MirrorEye? What are the most important benefits it provides in terms of safety, energy efficiency, and other factors? Maybe just a glimpse of what your early order book looks like.
And if we look out several years, what is your best estimate for the total addressable market or market opportunity as you see it? I'll stop there. I have a couple more-
Yeah, sure. Now, there's a lot in that question. There's a lot in the question. I'll try to cover all those things. So, you know, first off, maybe let's talk a little bit about MirrorEye. There may be some folks, you know, on the call here that don't have a full awareness. So it's a camera mirror system, right? It's a replacement for conventional mirrors, and most often, it's applied in a very aerodynamic wing that replaces that very flat and blunt side-view mirror that you see on over-the-road Class 8 trucks. And, you know, the product itself is really quite game-changing by the nature, first off, with the significant improvement in safety that it brings. It essentially eliminates, you know, the blind spots that you currently have on you know, Class 8 trucks.
And, you know, in addition to that, by the nature of the much smaller profile of a MirrorEye wing compared to a mirror, there's a substantial improvement in fuel economy for long-haul trucks. And, you know, many of our customers talk about a 2-3% improvement in fuel efficiency just from the mirror, just by replacing that mirror with a MirrorEye system. You know, this is very significant if you think about, you know, what some of these truck manufacturers have done in the powertrain to eke out a percent or two. You know, this is a pretty simple change without any change to the powertrain itself. It makes it very, very easy for them to see this.
You know, from a toxic emission perspective as well, you think about the CO2 that's saved, you know, in our estimation, we see about 5,000 pounds of CO2 reduction per truck per year, utilizing just this technology, by the nature of the efficiency that it brings. And, so it brings to the fleets and to owner-operators, you know, a much safer operating environment for their truck. It reduces the fatigue of their drivers, absolutely for sure. It lowers their costs, right, as the fuel economy, you know, comes, you know, from the application of the MirrorEye. And, you know, when you look at, you know, how we've brought this product to market, we really...
You know, in parallel with working with OEs and bringing them up to speed, we started working also with fleets, and we introduced the product to fleets very early. So we had opportunity to put this product in the hands of fleet owners, operators of vehicles, and get direct feedback from what they were seeing from the operation of the system. You know, so we got a lot of early commentary that way to help improve the product. But also importantly, you know, those customers, those fleet owners, who are, especially in North America, very connected to the OEs, right, also reported back to them what they saw and what they wanted.
So it was a way to introduce the product and sort of light a fire under the idea of it, before you know, perhaps launching any significant way with you know, some of the OEs. And currently, Dave, in North America, we have about 40 fleets assessing our product, you know, as we speak, and I often see them. As I'm driving, you know, around the Midwest, I often see a lot of these fleet owners with these products installed. You know, on the OEM side, we have four awarded programs for this MirrorEye system, and that's serving, I think it's eight brands in total with those amongst those four OEM customers. You know, many of these guys have multiple brand names. And you know, we have very significant market share.
You know, every MirrorEye program that was out for bid, in North America, Stoneridge won, right? Stoneridge won, and we consider ourselves to have 75% market share because the last guy really hasn't put anything out to bid yet. So we have done very well. Same in Europe. We have. We consider ourselves to have 33% market share, you know, with the remainder going to others or, you know, not yet decided to utilize the technology. You know, and when we started, you know, this program, you know, it just assumed a 15% take rate, roughly speaking, and, a lot of our analyses and projections for the future really work on either that initial assumption or, you know, what we're currently seeing, you know, from customers.
You know, right now, there's extremely strong market demand in Europe. We have, you know, major launches that have already taken place there, and we're averaging, say, 40 or 45% take rate there in Europe. United States is a slower ramp for various reasons, and that's still less than 10%, but we, you know, have the same expectation over time that the same kind of acceptance and penetration with the product will occur. In terms of, you know, what we have right now, booked business and, you know, the take rates that we're seeing, you know, the combination of those around the world, you know, this is about a $100 million business.
But, you know, given those same customers, booking no other, but really pushing that to the limit, right, the TAM for that is $500 million. So there's a significant opportunity here with MirrorEye. And that, by the way, is just with the MirrorEye product, right? There's, as you heard, perhaps in the last quarterly call, you know, there's a lot of opportunity to expand on that product, you know, in terms of its functionality, but also peripheral components in the electronic space that provide for us additional opportunity to sell. And that $500 million is exclusive of those. Dave, I'm not hearing you now.
I apologize. Thank you. Yeah, so during the second quarter, conference call, your Chief Technology Officer discussed several improvements on the original MirrorEye design that may soon be added. And I was just gonna ask if you could discuss, you know, the incremental growth potential that, you know, those upgrades could provide?
You know, over and above your current range. And maybe just a wonky, you know, technical question, but how do these upgrades, you know, get commercialized? I mean, do the legacy MirrorEye customers automatically get a retrofit, or is that, you know, a separate sale?
You know, does that maybe complicate the marketing or the rollout of?
the initial MirrorEye system?
Okay, so maybe I'll start with the idea of electrification in a commercial vehicle, you know, Class 8 vehicle, and, you know, how much penetration Stoneridge has in that space. When you think about the electronic instrumentation clusters, you know, we have great penetration there. You think about the body control controllers or the power door control controllers, you think about MirrorEye systems that provide the control electronics, but also the displays and so forth. We own a lot of the real estate, the electronic real estate in the vehicle today in these individual components and functions.
And, you know, that puts us in a good place for future growth, and we'll talk maybe in more detail about that in a minute, but I want that as sort of the kernel, the underlying foundation for how we can grow well beyond MirrorEye as well. But going back to your original question, you know, what have we done or what are we. You know, what's emerging, if you will, for the next changes, you know, the next updates and improvements coming on MirrorEye? So first things first, you know, you've probably heard, you know, from our calls us discuss a company named Grote.
Right, Grote is an electrical system supplier in the commercial vehicle space, and we have been working in a partnership with them to introduce the industry's first wired rear view trailer camera that would be an adjunct to our MirrorEye system. So of course, there's rear view cameras today, many of them are Bluetooth delivery to a separate module inside the vehicle, but our system is very unique. It utilizes some novel technology that allows us to, first off, wire it, power it up, but then deliver the signal from the camera over the top of existing wiring in the trailer and truck today.
So it superimposes that signal, if you will, and delivers it right up into the truck, and can place it right into the displays that we already have in the truck, with MirrorEye and CornerEye systems. So it's a unique product that's gotten some excellent reception at the, you know, various conferences and with various customers. And again, it's a key advance that we expect to, you know, bring to market here soon. Now, you know, in addition, and you probably heard Troy Cooprider, our CTO, speak about, you know, some of the AI enhancements, we're already applying some of those early AI enhancements to MirrorEye products that we're selling today. For example, there's a term, it's... And let me try to explain.
It's called reverse panning. You think about a tractor trailer backing up. If it's going straight back with no turns, the side view mirrors in today's world of conventional glass mirrors, it's okay, right? You can see everything you need to see. But as soon as you turn that truck, as soon as you articulate the cab from the trailer, the mirrors no longer show you what you want to see, right? On one side, you'll see the side of the trailer, on the other side, you're going to see, you know, something way off in the distance, well away from the side of the trailer. And so you don't see what you need.
In MirrorEye system, again, through the application of intelligence, you know, understanding, you know, turning angles of the steering wheel and understanding, you know, relative movement of trailer with regard to cab, the cameras actually pan. They actually, you know, take a different view, so that they are seeing along the edge of the truck. So you can always see where the side of that truck is going to be, or you can always see where that wheel or tire is going to be. And, you know, that, that's not an easy thing, given, you know, all the dynamics associated with that. So they call it reverse panning. You can reverse and still see those things. We have it in the forward space as well, but reverse is, you know, even more difficult....
You know, in addition, we've started to look at the inclusion of object detection. So this is some of the early levels of automation, when you start to not just let the driver look and see, but let some automation, some artificial intelligence look at those images and decide whether or not that is an object that is gonna be a problem for you, and alert you accordingly. So, you know, some of those things are coming along for us, and you know, that's in the MirrorEye space. There's more of that, more significant improvements and advancements coming outside of MirrorEye, if you wanted to hear about those as well.
Yeah, can I just maybe half step back, and then-
and then we'll go forward-
with your suggestion? But, you know, the MirrorEye product, of course, provides pretty substantial safety benefits above and beyond, you know-
current systems, and then there's a fuel savings or an economic benefit.
You know, I'm just curious, but, you know, what was the value proposition to, let's say, Volvo or Peterbilt? In other words, were they interested in the safety benefits first and foremost, and, you know, the fuel savings was kind of a sweetener or... You know, just where the rubber meets the road, to use a bad pun. But, you know, what is, you know, what is the value proposition that gets people to sign on the dotted line
in your experience?
Yeah, and David, it's an interesting question because the answer changed over time. I will say, initially, when MirrorEye was first brought to OEs and fleets, and we talked about it, it was very much a fuel economy play. Very much, and you know, the overwhelming focus was there. But as companies started testing this, as fleets started using this, right, the clarity around safety and the minimization of collisions, and the minimization of you know, even fatal collisions was made clearer, right? So it went from, I won't call it purely a fuel economy play, but you know, a very heavily weighted toward fuel economy value proposition, to one that now really has a lot of focus in the safety space as well. And that includes, by the way, even driver fatigue, right?
When you think about how drivers have to back up trucks and, you know, their requirement to get out of trucks and check. You know, with something like MirrorEye, right, the number of times a driver has to get in and out is significantly reduced. And, you know, some of those other advanced things I was talking about, you know, also allow for other information brought to the driver that reduce, you know, his effort to try to get that in some other way. So driver fatigue, safety, were added very substantially to the value proposition, in addition to that original thought on fuel economy. And Matt, you were here on the electronic side, you know, before I, you know, took this role as CTO. Did you wanna add anything to that?
No, I mean, the biggest difference that we see between Europe and North America really is that safety element, right? Where you've added features and functionality that address a much larger concern in North America, which has been safety. So the advent of that has really differentiated us in the space, and that includes some of the features that you talked about, and is really one of the kinda tips of the spear as we think about what's next for this platform, and how do we continue to build around what today is a very good product into a good platform, and really a good overall system capability to enhance the safety of the overall vehicle.
Yeah. Okay. Thanks, Matt.
Yeah, and, the time always flies by. We have a little more time here, and I'm gonna go over a few minutes, if you don't mind, 'cause I think there's a few more topics
Jim, did you want to expand on kind of the incremental features and whatnot that-
Well, I mean-
The other things, Dave, I was gonna add, you know, in addition to these, I'll call them MirrorEye enhancements, you know, there's more of those coming, of course. You know, going from object detection to pedestrian detection, you know, these kinds of things are, you know, further capability that comes with the overlay of AI. But there's other things as well. You know, when you talk about a rear view camera on a trailer, right, think about the addition of other sensors, air pressure sensors for refrigerator cabs, or maybe not refrigerator cabs, temperature sensors inside the trailer. You have door-open sensors, door-locked sensors. You know, there's a radar, right, that could really propel you into the active safety space from just the passive safety space or the lower levels of active safety.
So all these things are all in the technology pipeline and all being worked currently at Stoneridge to be delivered, you know, as augmentations to our current product. And as Matt said, you know, more of a platform, right, that serves, you know, much more than just side view mirror functionality. And then if you, if you-
Okay, great
take that, if I could just maybe add one last comment there. If you take that all the way to the end, and I'll sort of connect this back to my comments before about heading to real estate, you know, you may have heard us speak in the last earnings call about Cockpit of the Future. You know, Cockpit of the Future is really the integration of many of these independent control and functionalities inside the cab, so infotainment and instrumentation, and MirrorEye, and CornerEye, rear view camera, you know, door and body control, all of these things, you know, being integrated in one or two major domain controllers, we are already in all those places.
We've perched ourself well, you know, to be there and ready for this, you know, next movement, you know, toward you know, toward further electronic control inside the cab, and one that's more effective, both from a from a functionality perspective, but also from a cost perspective as well. Okay.
So could you, maybe just expand a little bit on the IP that's inherent in this system? And, you know, what is your strategy to protect it? Do you know what I mean? What's to protect somebody from, I don't know, purchasing a couple of systems and reverse engineering it? Is this something where patents are the best way to protect it, or do you try to keep, you know
key elements proprietary, you know, because you don't think they can easily figure it out?
You know, how do you protect your IP with this key product?
Primarily, it's around effective patent action around the product, right? So we tend to do product patents, then surround them with system patents, so we really have a good overarching protection for this system. And we are very active in generating intellectual property for this whole platform of products that really was, you know, started by the MirrorEye system. Actually, as far as that goes, you know, there's a lot of intellectual property around all of Stoneridge, outside of electronics as well, that really drives proper protection.
Now, for things like manufacturing, right, there's some kind of manufacturing process that's critical and important, of course, that's gonna be a trade secret, and we would not patent that because you really can't police that very well if someone puts that in their manufacturing plant. For software that is, you know, locked down, right, and encrypted, you also don't tend to patent that either because you're giving away your algorithmic approach to control. So that too is more of a trade secret that we would keep internal.
Okay.
And so it's layered?
There's the-
both elements. Just one more about the last call and your Chief Technology Officer's-
... comments. But during the call, he also discussed, kind of with a twinkle in his eye, if I could say that, he talked about additional technological capabilities utilizing advanced software and AI in particular. Could you maybe just elaborate on, you know, what's next for Stoneridge in that regard?
Yeah. So Dave, I cover a little bit of that in my expansion, there, but let me just give you maybe a few more. You know, think about a system, a camera-based system that has some artificial intelligence overlaid that can actually judge what's happening on the road. So if there's a near collision, or a collision, or a, you know, a cutoff or a sideswipe, these camera mirror systems have enough intelligence or it's, you know, now emerging, where they can identify that, and it will be a triggering event, you know, in our control system.
So, you know, such an event would be identified through AI, and then it triggers a recording so that someone can go back and look at that, or it can be automatically shipped through a connectivity module, you know, to somewhere that there can be some evaluation of what happened, so that kind of thing is certainly in play. You know, other things, you know, maybe a little bit more mechanical and simple, like, when you hitch up a trailer to a tractor, how do you confirm it's actually hitched, right? You know, having the right sensing and the AI associated with that, so that you don't, you know, put yourself in harm's way with regard to, you know, operating a tractor without a fully committed and hitched trailer.
You know, some of these other ones that I mentioned, you know, like pedestrian detection, for example, and then the fusion of these broader perception sensors, you know, radar being one of them. You know, people often talk about LiDAR as well as the third sensor in the suite of perception sensors for good, I'll say, active safety, and even a degree of automation. You know, that too could be integrated into the system, and it is something that we're working on as well inside of our R&D activity.
You know, this is very interesting. I'm gonna ask a question that I just thought of as you were discussing some of these things, but you know, pilots get trained these days on simulators, right? They learn a lot of the elements of the dashboard and the controls and everything-
... you know, not by flying the plane, but, you know, in a simulated, environment. You know, is there any thought or is there any application for a lot of the, you know, driver safety techniques or awareness techniques? Is there any kind of, I don't know, application where, this could be used as an element of training, you know, CDL drivers or anything like that? I mean, or is that just completely, off the wall?
Well, you're talking about utilizing technologies like MirrorEye to help train the driver? Is that what you're saying? Yeah. Well, you know, certainly a driver that gets into a truck that utilizes the, you know, the MirrorEye technology, there's a learning curve associated with that, right? It's a, there's an image of what's behind you versus a glass mirror. And then, of course, you know, all of the features that come along with that, you know, if you use them properly, just like your phone, 'cause most of us don't use 10% of what capabilities on the phone.
And so, you know, really making sure that fleets as well as OEs are properly trained by us to ensure that that's fully understood is critical. You know, maybe one tidbit of information that's interesting, we were given some information just last week, you know, talking about the difference between drivers learning to back a truck into a narrow dock passage with conventional mirrors versus doing that with a MirrorEye system. And, you know, the training time is reduced by minimum factor of 10, right? The image you get and the ability for that to pan and see every turn that you make really enhances what the driver can see and act on versus a conventional mirror.
So that is, that has been, you know, time and time again, told to us by the fleet guys that, you know, this is a very important, positive aspect of this technology, that they see. So it's, again, is that a training course per se? Yes, of course, you have to be trained on it. I think they'll be able to attract a lot more drivers that won't have the fear of, really coming up to speed as a commercial vehicle, driver, right? I think it makes the process of becoming competent, much easier.
You know, I'm sorry, we are kind of at the end of the time, and I feel like we've barely kind of scratched the surface. But if you could just, in a couple minutes or less, Jim, if you wouldn't mind, but you mentioned the Smart 2 tachograph-
... and the importance or the potential of that product for, I guess, initially the European market. But-
... maybe just talk about, you know, I guess, the digital nature of it and how that's an enhancement over-
... you know, the, its predecessors-
... and, maybe, again, the take rate or the interest level-
... you know, in Europe, the target demographic for that.
Yeah. Yeah, so this is a government-regulated product. Maybe that's not properly stated. It's a product that has its birth because of government regulation. Government is requiring, you know, the tracking of vehicles, how many miles, you know, how many hours, when do they cross borders, you know, these kinds of things. And, you know, this particular product, the Smart 2 product, it contains, you know, a global navigation satellite system, right? And that allows, you know, for tracking, you know, of this vehicle. It does so in a way with enough resolution where this next version of it does that more effectively, right, with greater accuracy as trucks cross borders. The newest version has Bluetooth communication capability.
The newest version has a greater amount of recording storage, so for data that's generated, you know, by the movement of the truck and, you know, all of that is there's a greater, you know, capacitor, you know, a box into which to place all of this data. And then, you know, there's something also in these new systems called the DSRC. So, it's a communication protocol for short range, so it's called Dedicated Short Range Communication. And when trucks pass by a certain gauge point, the truck will, through this DSRC system, communicate that data right off the truck. It doesn't need to go to the internet, doesn't need to go through cell signal, it's communicated through this DSRC system.
So this system is enhanced on this product, and more data can be transmitted through that DSRC system, you know, as trucks pass through these checkpoints. Now, that stated, you know, every truck in a certain category requires this product. It's not an issue of take rate. Every truck at 3.5 tons that crosses international borders in Europe is required to have this Smart 2 as of August or end of the year, I think, of 2023. The oldest tachographs that existed, you know, in the marketplace, the oldest ones, all had to be retrofitted by the end of this year, and then by, I'll say, the middle of next year, all of the most recent version of tachograph systems have to be retrofitted.
So the one just prior to Smart 2, called Smart 1, those have to be retrofitted by the middle of next year. So you have this, you know, OE situation, where all products, all vehicles must be produced with it, then you have the aftermarket, where all of this retrofit has to happen. And then there's one more bump on the OE side as well, Dave, and that's on a new classification of trucks. So everything between 2.5 and 3.5 tons also will require a tachograph as those trucks are produced after the middle of 2026. So you have, you know, an OE transfer, you have a big aftermarket opportunity, and then another OE bump that comes when that next class of trucks gets brought into the fray here.
Very good.
We're into extra innings here, but I really, like I say, I feel like we just scratched the surface here. I'd like to thank Jim, Matt, and Kelly for firstly participating in our conference, but more so sharing their insights and perspectives on their company and their newest leading-edge products. I'd also like to thank the audience for their participation. With that, I will call an end to the session. Have a great rest of the day and a great rest of the conference. Thank you, all.
Thanks, Dave, and appreciate you having us join today. Thank you.