Good morning, everyone. Good morning, everyone. Hi, I'm Jacob Sayer. I'm Vice President of Finance with Sensata Technologies and head of our Investor Relations group. I've been privileged to work for Sensata for the last 11+ years in various roles. And I want to welcome you today to the first investor event that we've done in the last 5.5 years, highlighting the power of our past and the promise of our future. Bless you. Sensata's purpose is to help our customers and partners safely deliver a cleaner, more efficient, electrified, and connected world. Throughout our history, we have helped customers solve their mission-critical, hard-to-do sensing and electrical protection engineering challenges.
Today's event will cover some of the most exciting areas of innovation that we are driving both in our core sensing and safe and efficient market areas and our fast-growing areas of electrification. We'll cover the market drivers behind that innovation, the large and fast-growing size of these addressable markets, and some of the exciting new product developments that Sensata is bringing to address these market opportunities. While we're live in New York today, this event is being webcast and recorded, so a replay will be available from our investor relations website after the conclusion of today's event. At the end of our prepared presentations this morning, we'll take questions from people in the room as well as those online.
So participants on the webcast should be sure to insert their questions into the page on the webcast page, and we'll address those as well during the Q&A session. So as we begin, I'd like to reference Sensata's safe harbor statement. During this event, we will be making forward-looking statements regarding the future events and financial performance of the company that involve certain risks and uncertainties. The company's actual results may differ materially from the presentations described today. Factors that might cause these differences include, but are not limited to, those that are discussed in our Forms 10-Q and 10-K, as well as subsequent filings with the SEC. Now, I'd like to introduce the exciting lineup of presenters that we have for today's sessions.
Jeff Cote, Sensata's CEO and President, will provide a brief introduction to the company, our history, and strategy of innovation as we pivot to electrification. George Verras, Sensata's EVP and CTO, Chief Technology Officer, will introduce the topic of innovation in our core, safe, and efficient businesses and lead a panel discussion, including Peter Frackelton, VP of Engineering, Alice Martins, VP and General Manager of our industrial business, and Mike Bennett, VP of Operations. Brian Wilkie, Sensata's SVP of Sensing Solutions, will present Sensata's electrification strategy, and he'll lead a panel conversation that includes Jen Slater, SVP of Performance Sensing, Automotive, Cory Bousquet, Senior Director of Engineering and E-Mobility, and Justin Colson, VP of Clean Energy Solutions. Paul Vasington, our Chief Financial Officer, will then present the financial implications of our expanding markets and product sets and provide a three-year financial framework.
We'll then turn back to Jeff for concluding remarks, and I'll moderate the Q&A with our senior leadership team. Up next, Sensata's CEO and President, Jeff Cote, but first, let me introduce Sensata.
For over 100 years, Sensata has been at the forefront of innovative, mission-critical solutions. Our engineering excellence helps our customers adapt to our evolving world. Our 21,000 employees solve complex engineering challenges for globally diverse industries, producing over 1.2 billion sensors and electrical protection devices annually. You may not know the name of our products, but you engage with them every day. They are the essential building blocks of a clean, energy efficient, electrified, and connected world. To drive a safer, cleaner, and more energy efficient environment, Sensata sensors enable more efficient industrial pumps, improve fuel efficiency in cars, and reduce the emissions of heavy off-road vehicles. As the demand for battery electric vehicles increases, Sensata products monitor and optimize everything from EV charging infrastructure to in-vehicle battery and thermal systems.
And as the world becomes more connected, Sensata innovates smart sensors that enable actionable insights for the management of equipment and vehicles. The world is accelerating. There's more change anticipated in the next 10 years than we experienced in the last 50. As the world propels toward this new electrified reality, Sensata is positioned to adapt and take advantage of emerging opportunities in this rapidly evolving world, while also sustaining it. For Sensata, innovation creates profitable opportunities that provide great financial returns. As our business grows, it remains fundamentally rooted in sustainability. By harnessing the passion and engineering excellence of our team, and by working closely with our partners and customers, we're innovating a future where the smartest choice is also the most sustainable. By powering possibilities the world over, Sensata is creating a cleaner, more efficient, electrified, and connected world. Sensata. Sensing is what we do.
... Very much, Jacob. I'm Jeff Cote. I'm Sensata's Chief Executive Officer. I've been with the company for 16 years, and I've held a variety of roles during that 16-year period. I was the Chief Financial Officer at the time of the divestiture in 2006 from Texas Instruments, became the Chief Operating Officer in 2012, and in 2019, I became President of the company. And in March of 2020, I was given the privilege to become the CEO of the company. I want to thank all of you for attending live and for the many of you that are attending via webcast as well. I appreciate the ongoing support. My team and I very much look forward to sharing with you details around the power of our past, but more importantly, the promise for our future as a company.
If you're here live, and you have not already taken the opportunity, I would highly recommend that you take that opportunity to enjoy our innovation showcase that we have outside. It gives you an opportunity to understand the power of our past and the promise of our future through the eyes of our very talented team here at Sensata. Sensata has a very long history, a 110-year history of innovation, of transformation, and success. The common theme during that 110-year history is that we have always, and we will always, help our customers with their mission-critical, hard-to-do engineering challenges. This has allowed us to build trust with our customers through various market cycles and through periods of significant change and disruption.
The past three years have presented many unique challenges for us as an organization, including the pandemic, significant supply chain challenges, logistics issues associated with that, inflation we have not seen in 40 years, foreign exchange fluctuations, tightening monetary policy, war, rising geopolitical... Should I go on? Many, many challenges externally. Through all of this disruption, we have focused on keeping our colleagues safe and serving our customers while making the very difficult and important decisions regarding ensuring our long-term success as a company. We have also seen massive change in the end markets that we serve, driven by seismic shifts in the trends associated with electrification and connectivity. Simply put, there will be more change in the next 10 years in the end markets we serve than there has been in the last 50.
These changes clearly represent risk to us as a company, but they also represent unprecedented opportunity for us as a company, and we choose the opportunity. Sensata has responded to these trends, much like we have over our 110-year history. We've engaged deeply with our customers to understand their challenges, and then we have invested aggressively and quickly in the capabilities that we need to ensure that we can continue to be their trusted partner. Given the pace of change, in some cases, we've needed to acquire those capabilities to ensure that we could intersect the windows of opportunity. We chose to cast that investment net quite wide to ensure that we had a large and fast-growing addressable market. Some of these investments did not work out as we anticipated.
Others will represent good growth opportunities for us, but others, without question, will be the foundation of our future as a company. In addition to investing in these new trends, we've continued to leverage the core business, which continues to have meaningful growth and also funds these opportunities for the future. In addition to the M&A-related activities, we've doubled down on organic research development, as well as sales and marketing. Our research and development costs are nearly 50% higher today than they were just five years ago. Given that we are a long-cycle business, these investments have had an impact of pressuring near-term margins. But again, these are the right decisions for the long-term health and prosperity of Sensata, and I'm confident these investments will pay significant dividends. As a result of these investments, our addressable market is large and expanding.
In our core business, the regulatory and consumer trends associated with safe and efficient is resulting in an addressable market growing from $13.3 billion-$16.1 billion over the next five years. This is a little lower, given the expected transition from internal combustion engines to electrified platforms during that period of time. In the area of electrification, our addressable market is growing from $6.3 billion-$18 billion during that five-year period, or a growth rate of 24%. Now, we are confident as a team that we can monetize these growing market opportunities. We've continued to leverage the power of our past by a proven and repeatable cycle of innovation, starting with identifying market change, engaging with our customers, investing in differentiated capabilities, investing in product innovation, c reating design modularity, developing manufacturing scale and efficiencies, which grows revenue, grows profit, grows cash flow, which all creates value.
Sensata has done this over and over again in our long history, and the innovation showcases that you'll see if you're here present will demonstrate this for our tire pressure and for our automotive pressure transducer product categories or product families. We are doing this again now for products and solutions needed to serve our customers in the areas of high voltage, power inversion, contactors, fuses, and current sensors. Global regulation, technology advancement, and consumer preferences are advancing electrification at a rapid pace. Most of our customers have made significant commitments regarding the transformation and the transition from internal combustion engines to electrified platforms. The opportunity does not stop with light vehicle, and our investment areas are not limited to light vehicle.
We think of the electrification trend very holistically, to include not only components and subsystems needed for electrified equipment, but for the infrastructure needed to enable all of this equipment. This focus and investment is paying off. We have seen a dramatic increase in our new business wins over the past several years, from an average of $450 million for the three years prior to 2020, to $465 million in 2020, $640 million in 2021, and over $1 billion last year in 2022. This record level was driven by significant sourcing activity during 2022, but our forecast for 2023 is in line with the average of the past three years.
We continue to win significant opportunities in our core business related to trends associated with safe and efficient, but the majority of these wins are in the area of electrification, and we are confident in our ability to be a driving force toward a cleaner, more electrified world, and we will continue to narrow our focus and investment in this area. Sensata has grown considerably since our initial public offering 14 years ago. Our business has grown from $1.1 billion to over $4 billion in revenue this year, or a growth rate of 9.6%, all in, including acquisitions. Additionally, our product portfolio has diversified meaningfully, from pressure sensing and low-voltage electrification making up nearly all of our business at the time of the IPO, to over a dozen product families, each materially contributing to the company today.
During the same period of time, our operating income has grown slower, given our efforts around diversification, also the most recent investment cycle we've been through, and the disruption that we've experienced. But our tax-efficient structure, our low cost of debt, and our opportunistic buyback program has resulted in earnings per share growing above both revenue and operating income growth rates at 11% per year. Based on the current won business , assuming very little market growth and no M&A activity, we expect to become a $5 billion-$5.3 billion business over the next three years, or a 7%-9% growth rate. With our pivot to organic growth and investment harvesting, we are expecting our operating income to grow faster than revenue, at 12%-15% between now and 2026.
This will result in our already differentiated industry-leading margins to increase from the current level to 21%-23% during that time frame. Going forward, our capital allocation strategy focused on maintaining our dividend, reducing our debt levels, and our opportunistic buyback program will allow earnings per share to grow fast as well at 14%-19% annually over that three-year time frame. Paul will cover this in a lot more detail in his section. In summary, we believe that Sensata represents a compelling investment opportunity. Our long history of innovation and deep customer relationships, our vital, innovative, profitable core business, and the unprecedented opportunity in electrification, supported by new business wins, all drive attractive financial performance over the next three years and well beyond. Sensata has a deep and experienced management team with a proven ability to execute.
Today, we have gathered our leaders to provide you some insight into the power of our past and the promise of our future. George Verras, our Chief Technology Officer, will lead a discussion around our history of innovation in our traditional areas of safe and efficient. Brian Wilkie, our Senior Vice President of Sensing Solutions, will lead a discussion around the exciting developments in the area of electrification. And Paul Vasington, our Chief Financial Officer, will share how this translates to our financial outlook.... I want to thank you all again for your participation and your attendance and support, and I'd now like to turn it over to George Verras.
All right. Good morning, everyone. Thank you for joining us today. I'm George Verras. I'm Sensata's Chief Technology Officer. I joined Sensata in 1994, and I spent many of those 29 years in engineering, working on various sensor applications. That includes designing and launching many sensors within our largest product families. I also spent three years in China, building and growing our sensors engineering team during a period of tremendous growth for the China region. I then went on to lead our heavy vehicle and off-road business, eventually taking over our broader sensing solution businesses. Today, I am focused on innovation and growth as Sensata's CTO.
I'm extremely excited to be moderating this panel with Peter Frackelton, our Vice President of Engineering and Sensata's Technical Fellow, Alice Martins, our Vice President of our sensor, or excuse me, our Industrial Solutions business, and Mike Bennett, our Vice President of Global Operations for our Sensing Solutions business. So I'd like to start off by talking about Sensata's history of innovation. Sensata prides itself as a world leader and early innovator in mission-critical, hard-to-do sensor solutions. Our success is enabled by our deep bench of engineering talent across the globe. We have engineers that specialize in core technologies and others that are product and application experts in their fields. In many cases, our engineers have formed close partnerships with our customers and actually act as an extension of their teams.
As Jeff highlighted, we started as a plating company, or as I like to call it, a material science company. We built on that material science pedigree by designing electrical protection devices from clad bi-metal discs. As you can see, the pivot to electrification is not new for Sensata. We have always been part of the electrification ecosystem during our 100+ year history. Eventually, we transformed into a pressure sensor company in the late 1980s. I had the privilege of designing and launching our first pressure temperature sensor. This sensor was used for automotive air conditioning systems. Today, the latest generation of that product is used on electric vehicle thermal management systems. This just highlights the longevity of our products. Pressure sensing served us very well for many years as we expanded our portfolio of technologies and applications.
We then entered a period of product and technology expansion with acquisition of magnetic sensing, high temperature sensing, tire pressure monitoring, and high voltage contactors . These capabilities are important because they are the fundamental building blocks for our future, safe, and efficient products, but they also serve as critically important building blocks for our e-mobility future. Our future success builds upon the deep expertise of customizing these base technologies and improving them meaningfully over time. We do this through standardization. This enables efficient redesigns to drive down costs through optimized manufacturability while preserving the ability to customize our products. We use scale in these product families to drive purchasing power, resulting in lower cost. This includes localizing supply chains to have region for region manufacturing. We also use our decades of manufacturing expertise to drive efficient, high-quality processes.
We leverage next-generation automation to lower, lower labor costs and to drive towards zero defects. Another strength of Sensata is our customer engagement. We have a history of identifying future regulatory impacts and trends in our markets. We then work with our customers to help them adapt to these changes while creating innovative solutions. So with that, I'd like to invite Pete to come up here and talk through some of these innovation examples. Good job.
Thanks, George. Hello, and good morning. I am Peter Frackelton. I'm the VP of Engineering for the Sensata CTO team, and a fellow at Sensata on the technical ladder. I still describe myself as an engineer, and I definitely have many engineer typical stereotypes, one of which is not being in love with being on stage. So bear with me, and if I start to wander off, if one of you can send me at least back to my seat, that would be appreciated. Might really happen. Since graduating with a degree in mechanical engineering, I've had the opportunity to work on the majority of Sensata's portfolio, and I've been able to learn from both experts, both those internal and external.
Mike and I, that Mike you'll talk with later, he and I worked very closely together early in our careers as the lead engineers for a square sense element project for ceramic capacitive pressure sensors. That patented product optimization enabled wafer-like processing and handling versus single-piece flow. It was a significant cost basis improvement and the single biggest change to that platform since it was launched in 1988. With both of our careers still thriving at Sensata, and after 20 years of successful production, I think we've proven that you can fit a few square pegs in a round hole. As George mentioned, a key element that we find can make or break the success of a new technology project is the timing and quality of engineer-to-engineer engagement with our customers. As engineers, our job is to design and launch solutions that make a difference.
That said, no matter how amazing our creations may be, their real values lie in how well they solve an actual customer problem. Two great examples from Sensata are from our Performance Sensing, our Tire Pressure Sensor business. Sensata was one of the first to launch tire pressure sensors in 1996. We grew that out of a tire valve company, and I believe many of you will recognize the brand name Schrader. The team spent countless hours with the customer's assembly teams, and let's just say they were not thrilled with this new technology due to the pain and cost it was driving on their side. The installation time for a standard snap-in valve was around three seconds, and this new heavy clamp-in sensors was taking them closer to 30.
That's an order of magnitude off of what they designed their process for, and so it's pretty easy to understand why they weren't so happy. Our team first designed an enhanced snap-in valve that allowed direct sensor attachment. We then determined the maximum mass that we could hang on that valve for various applications. After many patented innovations to reduce power consumption, which allowed us to use a smaller, or more importantly, a lighter battery, the first snap-in TPMS sensor was launched. While the install time came in just a little bit over three seconds, it is now the standard for the majority of light-duty applications. Another great tire pressure example is auto location. In this case, the customer is the factories, tire installers, or really any of us.
If you think back to 2002, and you're driving a Ford Explorer, and maybe it's raining, and your low tire pressure light comes on, you had to get out and check every wheel to see which tire or tires were low. A few years later, on some fancier vehicles, you could teach the vehicle where the tires were located by adding air to each tire. The horn would beep, telling you to go to the next wheel, and you had to do that in a particular order. While it was a little bit better, it wasn't that much better of an overall customer experience. Our engineers had an idea of how the system could sort all this out for you.
They used the accelerometers and the sensors for determining left versus right, and then they worked closely with the OEMs to position the radio receiver in the vehicle that would allow them to detect front versus rear. This patented approach is known as PAL, or Phased Auto Location. The next time you see the individual tire pressures displayed in your car, you can thank my colleague, John Greer, and the others who invented this. As powertrains shift from ICE to EV, accurate tire pressure sensing has become even more important due to the heavier weight of EVs and the impact of properly inflated tires on range. In addition to EVs, our robust and full portfolio of tire pressure sensors has led to great success in the heavy vehicle segment, where we have greater than 70% market share today.
These are just a few examples of the greater than 1,500 patented innovations Sensata has developed in the past two decades. This level of collaboration often results in long-term relationships with our customers. It is these relationships and our history of delivering reliable and novel solutions that has allowed us to quickly gain the trust of our customers for high-voltage components and subsystems. It also transforms us from a component supplier into a solutions partner, and we definitely prefer being the latter. I hope that helps you understand a small part of our product development culture. And with that, I'm gonna pass it over to Mike Bennett, who will talk with us about some of the manufacturing innovations at Sensata. Thanks.
Okay, thanks, Pete. Good morning. Hello, my name is Mike Bennett. I'm the Vice President of Operations for our Sensing Solutions business and have been with Sensata for 26 years, with roles in engineering, program management, new product development, integration, and operations. I'd like to share a short overview of Sensata's operational footprint to provide some context of our scale and flexibility to service our global customer base needs. We have 21,000 team members supporting our global operations. We have 20 operational facilities located in seven different countries across three continents, including the U.S. and Mexico and North America, Northern Ireland and Bulgaria in Europe, and China and Malaysia in Asia. Altogether, these facilities have over 2 million sq ft of manufacturing space for production, supporting over 1 billion units shipped annually.
Within operations, we have the responsibility across a myriad of cost structure elements that have a direct effect on our margin performance. This includes optimization of our material input costs, driving efficiencies within our factory across our direct and indirect labor base, our operational yield management, and lastly, maximizing the utilization of our fixed assets. Within logistics, we balance transit mode optionality for inbound and outbound freight, warehousing and distribution costs, and corresponding inventory, while also working to meet our service level performance. The post-COVID inflationary pressure is unprecedented and will require our operations to be innovative in defining and executing key strategies to ensure we are able to grow our margin sustainably. To enable this, we're focusing on a few key initiatives.
First, we are building resilient supply chains with a balanced approach in ensuring the continuity of supply, while aggressively focusing on innovative ways to drive material costs out via VAVE, also known as value analysis and value engineering, dual sourcing, and supply-based regionalization. Through collaboration and partnership across our project teams, sourcing, and our supply-based partners, we have identified and are executing on project-based material savings programs, delivering 2%-3% annual material productivity to help mitigate inflation. One of the biggest opportunities we see for deeper localization of our supply chain is within China. Localization, supporting manufacturing sites and end markets in China, enables a reduction in total material spend, and we see opportunities to expand upon this with additional scale.
Second, we continue to drive operational efficiencies with network analysis and optimization, lean initiatives, and accelerating automation deployments to mitigate both labor shortages and wage inflation pressures in our factories. To illustrate the commitment and impact of these automation initiatives, we have allocated $15 million in CapEx spend on automation this year, enabling a reduction of 900 direct labor headcount reductions in across our factories. For automation projects, we target a 12-18-month payback or return on invested capital for these types of investments, and over the last five years, we've increased our capital investments annually due to more cost-effective solutions being available, a growing list of automation provider partners delivering system solutions faster, and the advancement of the technical capabilities and skill sets within our operations teams, primarily engineering, technicians, and automation specialists.
This skill set is critical and needed in the factories to ensure that the higher complexity of the equipment solutions can be operated effectively and efficiently. We have brought an automation mindset, coupled with a design for manufacturability and design for assembly approach, into our high-volume contactor production lines within electrification. Collaboration across our development, mechanization, and operations teams in this initiative have enabled a platform-based modular automation solution that resulted in a 60% reduction in direct labor headcount from the original manual production lines. I'm excited to see the platform development approach in both design and operations in full motion in our electrification products, and you'll hear more about that later from Cory. I'm excited because it builds on the successful product roadmap deployments that have been so instrumental in the growth of our sensor portfolio.
Having the opportunity to work with Pete on that transformational ceramic capacitive pressure sensor development and seeing it through project execution, customer approval, and large-scale global deployment is something I'm very proud of, and for me, this is a power of the past proof point. I'll now pass to Alice to provide an update on our industrial business.
Hi. Good morning, everyone. I'm Alice Martins. I'm the Vice President and General Manager of the Industrial Solutions business at Sensata. I'm an engineer with 20 years of experience in various areas, such as engineering, operations, sales, strategy, and marketing. I was born and raised in Brazil. I moved to the U.S. to do my MBA at Cornell, and I joined Emerson right after that. I've been in Sensata for the last two years, and I run the Industrial Solutions business. The Industrial Solutions business is a $600 million business that serves around 5,000 customers globally, and we compete in various markets, such as material handling, diversified products, electrical protection, and air conditioner equipment. As you may know, our electrical protection business is driven by products, by proven products, which have been part of Sensata for 90 years. 90 years.
The electrical protection business, it's our KLIXON motor protectors and motor starters. It's also one of the most profitable lines at Sensata today, and where we have an undisputed market leadership in various segments, such as lighting, pumps, and compressors. I really love this business. We sell a little over 600 million units of electrical protection device every year. This is a mission-critical product that is used in your daily life, in our daily lives every day. If I think about the first three hours of my typical day, I am around at least 20 of our electrical protection devices every day. So I wake up, brush my teeth with electrical toothbrush, I brew a coffee, blow-dry my hair, use a blender, make a smoothie. I mean, made my point, right? That, like, it's in many of...
In every small motor in your daily life, that is an electrical protection device. So, this is a product that has been around for many years, for 90 years, and will be around for at least another 90 years. Another area that we are the industry leaders is in the residential and commercial heating and cooling equipment, and specifically in switches and sensors that manage the refrigerant loop of an air conditioner. We leverage the expertise from the automotive business, and we customize the products to our market requirements. This has enabled us to maintain our leadership position in this market. The next five years at my business looks very exciting. We are anticipating growing two to 3x faster than our market by winning in A2L leak detection in Americas and capturing the fast-growing market of heat pumps in Europe.
Across the business, our strategies really focus on the markets we play in and the markets that we are well-positioned to win at. We have very strong relationships with our top OEMs globally, and we deliver a cutting-edge technology and solution that ensures our leadership position in this industry transformation. Our competitive advantage, it's really our ability to leverage innovation from the automotive side of the business, ensuring scalability and reliability. We also differentiate ourselves with our global support and footprint. We provide local support, local service, and local technical engineering development for our, for all our customers globally. These factors collectively reinforce our position as a market leader, making the next five years an exciting period of growth in the industry leadership for our company. With that, I would like to pass to George so that he can talk about our ability to drive scale at Sensata.
Thank you.
Great. Thank you, Alice, for the great insight into your industrial business. So we've talked about how innovation and early engagement are critical to our growth, but how do we achieve those growth aspirations? An important part of Sensata's, Sensata's success is our ability to drive scale in our product design and our operations through modularity. This has been historically important to our success and remains vital to us as we move into the future. We have demonstrated many times at Sensata that we can leverage technology platforms across multiple applications and across various end markets. This gives us the purchasing leverage to drive best-in-class cost for these competitive components. It also drives manufacturing scale needed for automation, resulting in lower cost and higher quality. An example of this is our automotive pressure transducer or APT product family. This product was launched in 1988.
We are well into our fourth decade of production with this technology. Today, we are shipping more than 150 million units per year from this technology platform across multiple applications. Some examples of these applications are shown on the slide. One of the largest applications that we serve is for automotive air conditioning systems. The great thing about this technology is that it continues to be relevant for EV applications, such as air conditioning and thermal management. We also use this technology in residential and commercial HVAC systems. For heavy vehicle tractors and trailers, the technology is used on safety-critical air brake systems. This technology is also used on our internal combustion engines to measure fuel and oil pressure. So you can see the wide variety of applications and industries served in these examples. I'll share another technology platform, our micro silicon strain gauge or MSG technology.
This technology is used on high-pressure gasoline and diesel fuel injection sensors for improved combustion efficiency. MSG is also the basis of our future aerospace fly-by-wire technology. The sensing technology is also at the core of our hydraulic brake pressure sensors. These small, high-quality sensors are a critical enabler of electronic stability control systems. The scale and cost of these sensors enabled the wide adoption of electronic stability control systems as a standard in automotive. We are very proud that Sensata sensors have helped save countless lives. We are also excited that this technology remains very relevant in the EV space for advanced safety-critical braking systems. We are also leveraging MSG for future force-sensing applications for electronic brake control. Again, you can see the depth and breadth of applications served by this technology.
With that, I'm going to pass it back over to Pete to talk about design modularity and how it drives the flexibility and scale I just mentioned.
Thanks, sir. All right, thanks. As George highlighted, we have many examples of modular platforms, and actually, all of Sensata's high-volume product families utilize modular building blocks for the key elements. This enables both shorter development cycle times, but also lowers risk because we're using well-known and proven blocks of technology. When I started in the late 1990s, and I learned that I'd be supporting the General Motors air conditioning capacitive pressure sensors, too many Cs, I was honestly thinking that the parts seem simple enough, even for me, as a mechanical engineer. The sensors only have about five main components, so I assumed it couldn't be all that difficult to master.
I quickly came to appreciate that while these parts seem relatively small and may not appear overly complex, there are hundreds, or in some cases, thousands of dimensions, lines of code, and pages of specs that define our highly engineered products. These subtle but critical details are often how we differentiate versus competition, both in terms of performance and in quality. The modularity of our ceramic capacitive pressure transducers has been a key element to that product's success. We ship about 150 million units each year, made up of approximately 1,300 unique part numbers. Each of those SKUs may differ in pressure range, electrical interface, or pressure fitting, as we can easily modify those types of parameters for our customers. Despite customization, we always make sure to maintain some component compatibility.
By locking down a few critical interfaces and details, we maintain compatibility with our 41 production lines, which run common production con-controls. This modular pressure sensor platform is the basis for the automotive heat pump pressure plus temperature sensor. When electric vehicles converge on heat pumps, which utilize two or more sensors versus one on a traditional AC system, we already have the design blocks and the scale to quickly respond to that. In the Power of the Past showcase booth, we can show you examples and hopefully help you better see how this pressure sensor example, and others, are very relevant to the EV components we're on now. Alice is now going to give us some examples from our industrial gas sensing.
Okay, so let me talk to you how we continue to innovate in the HVAC market today. Specifically, how successful we were at the innovating through the development of the A2L leak detection sensing technology. A couple of years ago, our top air conditioning OEM were facing a big challenge. They needed to change the refrigerants used in their systems to address global warming reduction goals and be compliant with changing U.S. regulations around A2L refrigerants. Starting as of January 2025, every new air conditioning manufactured in the U.S. will require an A2L gas sensing inside that air conditioner. This is a significant change in the air conditioner OEM manufacturing process. To facilitate this transition for our leading OEM equipment manufacturers, we applied our early engagement model with a multifaceted approach. Very early on, we initiated customer workshops with our customers.
We established a cutting-edge technology center, and we provided local support, ensuring seamless round-the-clock development in collaboration with our Engineering Teams. We also focused on the post-pandemic customer pain to mitigate supply chain risks by providing supply chain flexibility. So we introduced a dual sourcing strategy, where we manufacture in Mexico for the Americas customers, Americas market, and in China for the Asia customers. This specific move not only maximized our market share in the A2L gas sensing market, but also provided our clients with a dependable supply chain solution, eliminating the need to seek alternative sources while enhancing regulatory compliance. As similar regulations are expanding in Europe to cover the A3 gases, we will continue to develop solutions to meet those needs as well. I'm very proud to share that Sensata, we...
At Sensata, we are the first sensing manufacturers to gain UL approval for the A2L gas sensing technology. This is a very important milestone in the air conditioning segment. Reliability is crucial in the HVAC applications because a device failure in the field can cost the manufacturer hundreds of dollars to send a technician on the field to replace that A2L gas sensor. Therefore, product reliability is essential. Our new A2L sensor was specifically designed with this in mind, to ensure it performs consistently through the equipment lifespan. This will give manufacturers peace of mind and will eliminate the need for sensor replacement in the field. So with that, I'll pass to Mike to talk about the future of manufacturing at Sensata. Thank you.
Thanks, Alice. Okay, thank you, Alice. As we lean out our operations, we also need to inject more analytical and data modeling capabilities into our operational processes within SIOP or Sales, Inventory, and Operations Planning , and with machine learning and artificial intelligence processes. These will help enable a higher level of efficiency and effectiveness in the factories. Sensata has a long history with data analytic tools and solutions. In support of safety-critical applications, such as electronic stability control braking sensors, we developed and deployed an integrated data tracking and process control solution within our manufacturing processes and our equipment architecture. This required close partnership with our development, mechanization, operations, and quality teams. The control system enables real-time monitoring of key process and product characteristics during production.
It recognizes if there is an abnormality to any expected process results, and most importantly, it allows for dynamic optimization to the process to improve product capability and performance. We developed and have been using this control system for over 20 years, and it has been one of the innovation enablers within operations to meet and exceed our customers' quality expectations. Another area where we utilize machine learning is within our automated visual inspection systems. These visual inspection system deployments have resulted in improved inspection reliability, enabled a reduction in manual inspection labor content, they've reduced our operational cycle time, and most importantly, they've helped to deliver world-class quality to our customers.
To help illustrate the delivered quality impact enabled by these types of innovations, one of our largest product launches in the MSG product area started in production in 2015, and over the last nine years, we have shipped over 150 million units, and we've done that at a delivered quality level of 1 PPM. These are safety-critical sensors, and that's only one defective part for every million units that we've shipped, something I'm very proud of.
I'm excited about the next wave of data analytics and scenario modeling tools and the efficiencies it can bring to Sensata within our SIOP process for demand and supply forecasting, in our manufacturing lines for preventative maintenance, modeling to minimize unplanned downtime, and for our broader end-to-end network design, where we can evaluate and simulate scenarios based on customer service level performance expectations and associated financial impact, considering the locations of our manufacturing facilities, our supply-based partners, distribution centers, how we're gonna what options we have for transit mode, inventory optimization, and so much more. The focus and action in these areas help enable our industry-leading on-time delivery and quality to our customers, while also improving working capital management, which increases free cash flow. Now, unfortunately, we can't bring all of the global sites to you, so we wanted to bring them here today.
Please take a look at our global scale expertise and automation advancements in action. Enjoy.
The pace of change is accelerating, and companies are required to think cleaner and more efficiently. Our customers look for reliable partners who can deliver just as quickly and keep up with growing market demands. We have the flexibility to deliver unique customization needs. We have the knowledge to understand and adapt to differences between local markets around the globe. We have the expertise to continuously improve our lead times and shipping costs. We have the capacity to scale raw material and component sourcing from regional suppliers, with a focus on localizing supply chains to leverage our footprint and best serve our markets. The end result? Accurately predicting and quickly responding to market demand. We have this strength because we act as one Sensata, exchanging ideas, best practices, and innovative initiatives among a highly skilled team around the world.
We have manufacturing sites ranging from 300 to 6,000 employees across seven countries and three continents, bringing a unique mix of resources and expertise, and strategically growing to meet the demands of our customers in quickly evolving electrification applications that are shaping our future. Combining the talents of our Design, Business, and Engineering Teams enables us to deliver the highest quality products on time in a growing market. At any moment in time, our global teams are implementing next-generation automation to scale the business at lower cost, while continuing to develop engineering skill sets that put us on the cutting edge of transforming for a better tomorrow. By leveraging our team's global and diverse knowledge, skills, and innovative mindset, we are achieving continuous innovation that leads to better outcomes time after time. That is how we keep our processes lean and our manufacturing performance best-in-class.
Sensata Technologies, helping our customers safely deliver a cleaner, more efficient, electrified, and connected world.
All right. Thank you, Mike. Thank you, Alice. Thank you, Peter. As you can see from everything my colleagues have highlighted, Sensata's core, safe, and efficient business is very healthy, and it continues to grow. The scale of the products that we have built over decades allows us to generate very healthy cash flows that we reinvest into our e-mobility and electrification opportunities. As a long-tenured employee, I have seen firsthand Sensata's ability to reinvent itself many times. We are living this electrification transformation today, and I have full confidence in our team's ability to execute and win. Our innovation culture is at the core of this transformation.... Understanding our customers' needs and translating those needs into world-class differentiated products is the lifeblood of our company.
So I hope you've enjoyed learning about Sensata's history of innovation, and I hope you come away with an appreciation of the compelling value proposition that Sensata offers. Next up, our colleagues will focus on electrification. They will highlight how Sensata's power of the past is translating into our promise of an electrified future. So with that, we're gonna have a 10-minute break prior to the electrification section. So please refresh your coffee and your drinks, and we'll see you back here in 10. Thank you.
We're going to get started again. Hello, and welcome to the Innovation Electrification section of our program. I'm Brian Wilkie, Senior Vice President, leading Sensata's Sensing Solutions businesses. I have 25 years of experience at Sensata, developing and launching products in mission-critical applications, working in close partnership with our customers. I'd also like to introduce the other presenters of this section. Jennifer Slater, Senior Vice President of Sensing Automotive, Cory Bousquet, Senior Director of Engineering Electrification, and Justin Colson, Vice President of Clean Energy Solutions. As you just heard from George, we have a strong foundational capabilities of product development, have transformed multiple times as a business, and are now building on that experience to drive success in our next growth area of electrification. Welcome to electrification.
The need for electrification is evident, not just for vehicles, but in all parts of life. Regulation, cost innovation, policy, and investment continue to favor clean electrification, leading to more attractive economics than fossil fuels. Businesses and consumers are demanding more sustainable choices all the way back to the energy source. These demands have been met with more choices, better performance and safety, all driving increased demand. Looking forward, industry has pledged over $3 trillion to fund investments in renewable energy by 2030. At Sensata, we are investing more than $145 million in 2023 for developments in electrification. Now, electrification is transforming our end markets and our opportunities at an accelerated pace. To appreciate the magnitude of this change, think about where we are today. In 2023, 16% of new light vehicles are battery electric.
That will grow to 44% in 2030. Investments in renewable energy, as I stated earlier, will grow significantly as well. And we have made significant investments in our own innovation and strategic acquisitions that position us to serve the electrification ecosystem, from renewable energy conversion and storage, to charging infrastructure, to e-mobility and industrial applications. We recognize this need to adapt to this accelerating electrification trend and made the necessary acquisitions to increase our speed to market, starting with our 2018 acquisition of Gigavac. We have continued to innovate the contactor portfolio, and today, our high voltage contactors are a critical component of our electrification portfolio, and we have continued to build upon that organically and through acquisitions, including current sensing and battery management. Our combined capabilities and electrification portfolio expands our addressable markets to $18 billion in 2028.
Our serviceable addressable market grows at 24% annual growth rate from $6.3 billion in 2023. Through our innovation in high voltage contactors and acquired capabilities, we also provide systems like High Voltage Distribution Units , adding $8 billion to our addressable market in e-mobility in 2028, which is part of the $18 billion I just mentioned earlier. Our electrification portfolio now includes advanced components, subsystems, and power conversion systems, which enable our partners and customers to address sectors responsible for 66% of greenhouse gas emissions. All of this results in significant net revenue growth for Sensata and electrification. Total electrification net revenue grows north of 40% annual growth rate from $700 million in 2023 to $2 billion in 2026, with significant opportunity to grow beyond that in the outer years.
Our strategy is early engagement with customers, being an extension of their Engineering Team. This partnership is a differentiator and critical to our success and wins to date. Leveraging our talent and decades of experience in scaling advanced components and systems drives state-of-the-art innovation. Cory Bousquet will talk in more depth about this, and this rich history is directly applicable to electrification. In closing, we are the driving force toward an electrified world and a sustainable future. I'd now like to welcome up Jennifer Slater to talk about e-mobility.
Thank you, Brian. Good morning, everybody. Thank you for coming today. My name is Jennifer Slater, and I'm the Senior Vice President of our Performance Sensing, Automotive, and Aftermarket business. I joined Sensata last year, last September, with 27 years in the automotive industry in various roles. Most notably, I worked at Johnson Controls in the lithium-ion business starting in 2008. So I've spent quite a bit of time with the transformation to the electrification into electrification. There's no doubt the automotive market is rapidly changing with the transformation into electrification. Combined share projections for the battery and plug-in hybrid electric vehicle market are forecasted to reach close to 35% by 2026, and 45% share by 2028. We are hyper-focused on helping our customers advance their electrification initiatives.
This is not only the right thing to do for our planet, but it's the right thing to do to grow our company. We are excited about the opportunities to support our customers on this journey with our electrification product portfolio. Through our innovation and acquired capabilities, we are able to provide mission-critical components, as well as systems like battery disconnect units for our customers, adding almost $8 billion to our e-mobility addressable market by 2028. That compares to this year. The combination of rapid EV adoption and increased content on electrified vehicles will drive over $1.2 billion in automotive electrification revenue by 2026, up approximately $380 million this year. Sensata has built a long history of strong customer relationships across the e-mobility market. We supply almost every major OE and tier across the globe.
We have also developed relationships with the emerging automakers, including Tesla, BYD, and Rivian. Our global customers rely on Sensata, as we have a vast footprint, which allows us to supply the same product for our global platforms within the region of manufacturing. This allows these customers to have supply continuity and avoid risks associated with potential supply chain disruptions. Moreover, we have strong knowledge of their quality and delivery requirements, which provides confidence we will be able to understand their future needs in electrification. For our established customers, we are a partner they can trust to maintain supply for their current products while we transition into an electrified future with them. For emerging customers in the market, while these things are also important, they are looking for suppliers who can work at their same speed.
Our platform approach, that Cory will discuss more, is an enabler to meet their condensed project timelines. These long-standing customer relationships also allow us to work side by side with them on their technical roadmaps early on in the design phase. Our model of early engagement and development is a strategic differentiator to help our customers solve their toughest problems. Many of our customers think of Sensata as an extension of their Engineering Team. The peer-to-peer relationships that our Product and Engineering Teams develop during this engagement is a key reason our customers continue to partner with us for their electrification needs. This strong partnership also helps meet their increasing challenge in timing, because, as we already talked about, the pace of change in the industry is moving faster than ever.
We created a strong portfolio of technology that we are able to leverage from our safe and efficient portfolio into powertrain-agnostic applications, like tire pressure monitoring and cabin comfort sensors, along with new innovations and electrification portfolio, like our contactors and battery disconnect systems. Based on our business win to date of this content, battery electric vehicles will have, on average, 2x higher content per vehicle across our addressable market by 2026. Furthermore, for a specific vehicle platform that is transitioning from an internal combustion engine to an electric vehicle, we have the potential to supply as much as 6 x revenue, driven by the increase of content from our product portfolio offering on that same vehicle platform. While we have a depth of customer relationships, we are also targeting customers and platforms that are winning in the market.
I'd like to share an example of this, where our strong customer relationships and robust product portfolio enable our content growth. Sensata was recently engaged with a leading global OEM to design a key high-voltage system within the electrified powertrain of a major platform. We were challenged to help the customer meet performance and cost targets within specific size and weight parameters. The confidence we had built with this customer allowed us to engage early and apply our unique combination of product knowledge and design expertise to deliver differentiated value to the customer. This program will give us the opportunity to grow annual revenue by $150 million from this platform when it launches, starting late in 2025. We entered the electrification market to serve applications that required higher power and needed more complex systems.
This was an opportunity for us to leverage our technical capability to solve hard problems with our customers and primarily serve the North America market needs. This is where we have made strong progress with our new business wins. We have now been able to leverage our expertise we gained in this space to target next-generation vehicle architectures with our European and Chinese customers. We saw our electrified design win activity pick up substantially in Europe, starting in 2021, and this year in Asia, signaling strong future revenue growth globally. We feel confident in our revenue growth due to the long sourcing cycles that OE customers maintain, which are typically three to five years ahead of start of production. This translates to us having 85% of our revenue booked in 2026 and 70% of our e-mobility revenue booked in 2028.
This will really only vary based on launch ramp-ups and market penetration of the customer platform. All of these dynamics are relevant as well in the heavy vehicle and off-road market. We feel confident with the growth opportunity in this channel as well, but we see the market opportunity starting to evolve later than automotive, with scale developing really in the 2026 time frame. Applications in this market will exist at a component level similar to passenger cars, but in addition, these vehicles operate at a megawatt power level, requiring more robust solutions with higher overall value. This is reaching up to 10 x higher revenue than on a traditional diesel platform. We already have some key system wins with the major global heavy vehicle manufacturers that will go into production starting in 2026. Thank you very much for your time.
I'd like to hand it over to Cory to talk about our platform approach.
Thank you, Jennifer. My name is Cory Bousquet. As a Senior Director of Engineering in Sensata's CTO office, I lead technology platform development for contactors, fuses, and High Voltage Distribution Units . A critical implication of the growth that Jennifer highlighted is that across our end markets, customers are compressing development timelines. Developments that used to take three to four years to reach market are now occurring in as little as 18 months. This is driven by a few dynamics. Customers are looking to capitalize on market demand, but they're also looking to upgrade or replace early generation systems to improve performance and profitability. Rapidly evolving battery, inverter, and motor technology means that they must deploy the latest innovations to gain or maintain competitive advantage.
This environment demands suppliers that can keep pace with the rate of change, and this challenge is compounded by the diversity of end application functional requirements that we seek to serve. Leveraging the learnings from our ceramic capacitive and Tire Pressure Sensor development history, a modular design approach in electrification can help us serve all of these applications despite their disparate requirements. Modular methodology creates a more flexible product architecture, but the benefits extend beyond customization. Modular designs shrink the potential time to market to deliver this customization. The corresponding R&D investment is also reduced. Through the systematizing of the product architecture, the installed capital has more flexibility and provides a cost point that can produce a superior margin profile. For example, we can quickly configure coil drive, high-voltage connections, and mounting configurations to suit a specific customer request.
Once we have a modular set of building blocks for our contactors, we can begin to look at serving High Voltage Distribution Units through a different lens. We can customize the contactor, eliminating fasteners, reducing electrical resistance, and removing weight and complexity from the system while increasing power density. Optimizing for these attributes enables us to directly impact the performance metrics our customers care about most, charging rate and vehicle range. A typical automotive battery disconnect unit used in an auto application today may have a power density of greater than 30 kW/L , but with these methods, we can achieve as much as an eightfold increase in power density. This specific innovation directly led to the largest new business win in our history. Modularity also can extend beyond hardware. High Voltage Distribution Unit software benefits from a similar approach.
For example, a typical heavy vehicle off-road charge box may enable 14 discrete functions and monitor for eight vehicle-level fault conditions. This functionality must meet strict software development and functional safety requirements. Here, too, implementation of modular coding strategies can reduce development time and investment. Once we move from a component to a systems world and layer in software, we can also begin to deliver value to our customers beyond discrete component functions to include advanced diagnostics, such as contactor health modeling. These innovations not only enable the growth of our auto and HVOR businesses, but they also serve the demands of our industrial end markets, as Justin will demonstrate.
Thank you, Cory. So my name is Justin Colson, and I am the Vice President of our Clean Energy Solutions business. I look over a number of assets in our clean energy business and have supported Sensata's electrification strategy over the past nine years in various roles. I'm a reformed engineer, so I have an education in applied physics from Cornell and hold two advanced degrees in Aerospace and Business from MIT. What really excites me today is to talk about what we're doing in clean energy. Across clean energy, so beyond on-road transportation, all major developed regions are electrifying in a bid for technology leadership and to avoid carbon emissions. In order to make this happen, the source of renewable energy, infrastructure to distribute it, and the industrial applications that use energy all need to transfer and transition to clean electricity.
On the front end, energy sources are shifting to renewables, with the cost of solar, wind, and hydrogen all making the journey down the cost curve. Significant investments that Brian talked about drive the viability of renewable energy with innovations and incentives today, and we are helping our customers innovate and drive further up the value cost curve. We are directly enabling fast charging through high voltage components, where we are a market leader today. We're driving the speed of innovation and value with lower voltage electrified platforms, both on and off-road, and we're enabling electrification in factories with material handling equipment, where our customers are challenged to achieve flexibility across a diverse electrified fleet.
Within markets where we have a leading technology position, our addressable market's growing by more than 20% annually, from $2.5 billion today to $6.3 billion in the next five years. Our business outpaces this market growth, which is largely driven by an outsized investment in hydrogen, battery energy storage, and our leading battery management solutions, and high-value, high-voltage contactors for charging, renewables, and green energy production. As a single example I'll highlight, we continue to lead the market today in high-voltage components for fast charging infrastructure. This leadership is built on innovation in charging stations, a market that's grown by more than 10% annually in all major regions globally, where we are providing a leading technology and have content opportunity in excess of $1,000-$2,000 value per fast charging station.
Similar positions on heavy vehicles are also achieved, and with recent investments in power conversion, the opportunities are even larger. These content opportunities drive the majority of Sensata's new business wins and have driven the majority of the wins to be in electrification over the past three years, and renewable revenue today is $300 million just for the clean energy solutions business alone. These new business wins will continue to drive growth in excess of 30% annually over the next three years. There's also a major opportunity with our power conversion portfolio as we move up the stack to the source of clean energy. The traditional fossil fuel sources of energy are being disrupted rapidly today as we move towards green hydrogen, solar, and wind.
This is driven by massive private and public sector incentives, which have made the levelized cost of electricity for some renewables to be on par with some traditional fuels.
It's only moving faster in that direction over time.
... We're enabling this change with our recent innovations and R&D investments in DC-coupled power conversion, where upcoming product launches drive a 1/3 performance improvement over our prior generation of products, enabling better value at lower cost to convert power for our solar, wind, and hydrogen customers. We are and will continue to respond to innovations in this market to help our customers deliver to their needs and drive overall system value. In DC fast charging, we're enabling our customers to make a step change in performance. These stations need to do that in order to charge the growing fleet of vehicles. We enable innovation by providing higher levels of safety through our high voltage solutions and isolation monitoring devices.
Safety is critical, given the level of power being transmitted and handled by the end consumer who's actually charging their vehicle, and we're also delivering higher power through a broad array and range of DC switching and current breaking products, and the opportunity to move faster by collaborating with our OEMs on integrated products, similar to what Cory referenced earlier. In battery management for lithium-ion battery packs to enable an energy storage, we are shaping our customers' ability to innovate and be flexible. Our customers must deliver a diverse fleet of vehicles across material handling solutions to meet the needs of a modern factory and warehouse. Additionally, there's a high flexibility and variability in battery packs for lower voltage EVs, for electric buses, for electric trucks, and our OEMs are challenged to rapidly innovate and design and release a large number of different assets in their fleet.
Our software, algorithms, and design flexibility enables customers to span their fleet with a single Sensata product. By providing a higher level of flexibility and battery management for our customers and partners, the market can rapidly innovate and launch new electrified platforms rapidly, while also innovating and learning from their fielded fleet of vehicles. This iteration creates a world where our partners continually drive more value and better performance over time. When we combine all of these capabilities across Sensata, our clean energy solutions business drives faster design cycles for our partners, a global R&D and manufacturing footprint to go directly to where our customers are innovating, and we deliver accretive margins to Sensata today. With that, I'd like to turn it back over to Brian Wilkie to with some closing remarks.
So thank you, Jennifer, Cory, and Justin, for that exciting update on electrification. So since a picture is worth a thousand words, and a video is even better, I'd like to conclude the innovation in electrification section with an exciting video that highlights the importance of electrification in our world today, and demonstrates how Sensata is a leader in delivering that, the technology that makes it all possible. Electrification's purpose at Sensata is to create an electrified world that's cleaner and better for us all. We've got a long history of serving mission-critical applications with our customers, and now want to continue that trend in the electrification space.
It's really gonna change our daily lives.
The desired effect of this effort is really to get our customers towards carbon neutrality faster.
Our customers' businesses will change more in the next 10 years than they have in the last 50, and our tradition is to help our customers solve their most difficult challenges, and we'll be there for them as they go through that transformation in their business.
And so I can't think of a better proof point than winning with our customers, helping our customers innovate, and our customers choosing us to be a partner of theirs on that journey.
We've started out developments where we were looking at a 0.5 MW charging capability, and customers are getting to the point where they're looking, "How do I do 1 MW? How do I do 2 MW? How do I get to 3 MW?" Technology doesn't exist for that today, but it's pretty exciting to be able to see what that product roadmap is and our needs will be, and work towards those.
These are technically hard solutions, and our customers are looking for engineering expertise that our competition cannot bring.
This isn't a binary handoff. This is literally a handshake and an ongoing development to make sure that what is developed is exactly what the customer needs.
We're usually number one or number two in our market space, and we've done that across multiple different platforms.
That's what our customers are looking for. We've proven that to them, and it makes us a valued partner going forward.
We all have a lot of passion for where the future is going.
We help every end industry we have served from the very beginning, when you're producing energy, all the way through to the end application, deliver a solution faster and better for a cleaner environment. Who wouldn't be passionate about changing the world the way that we are?
It's also exciting the fact that we're able to, at the same time, help the planet provide a cleaner, more efficient world.
At Sensata, we will make this new electrified world...
More efficient.
More connected.
Cleaner.
And safer.
Good morning. My name is Paul Vasington, and I've had the privilege to be the CFO of Sensata for the last 10 years. Today, I'm excited to talk to you about the financial benefits that we're going to derive from the power of our past, but also unlocking the promise of our future. Let's first start with the power and leveraging the power of our past and how Sensata wins today. We are a leader in sensing, with a history of secular market outgrowth, and we have a long history of innovating and developing customized solutions for our customers' mission-critical applications. We make smart investments in fast-growing trends, such as electrification, which we have been winning significant business over the last few years, and will be a foundation for our growth in the future....
We have global scale and operating efficiency that improves the customer's experience and also lowers our cost position. All this leads to higher earnings, higher cash flow, leading operating margins, and our ability to fund investments in our future for future growth. So I just wanna talk a little bit about electrification and the significant investment we have made over the recent years and what that has resulted in. We started our journey in electrification meaningfully with the acquisition of Gigavac, an industrial contactor and fuse business serving the North American market with one very, very important automotive customer, Tesla. Since then, what have we done? We've expanded that capability, and that has delivered early success in automotive and in North America, with the largest new business award for the company, with a North American OEM for High Voltage Distribution Units .
And we've also taken that capability, and we've expanded that into Europe to intersect heavy vehicle and off-road market opportunities that are growing, and as Jen said, will come a little bit later than automotive, but will ramp significantly in the years to come. And more recently, through our joint venture with our Churod partner, we are making success in expanding our contactor and fuse business in Asia, and as we're winning new business, we're seeing a greater proportion of that happening in that marketplace. So really great success. Our organic and inorganic investments are paying off, and we believe we are winning with the winners. So give an update on 2023. So we are confirming our guidance for Q3 as illustrated on the page. We're also providing guidance for Q4.
So we're expecting about $1 billion of revenue in Q4 at the midpoint, $194 million of operating income at the midpoint, operating margin of about 19.4%, which is better than what we'll deliver in Q1, about 30 basis points better, and EPS at the midpoint, about $0.94. In addition, we've announced actions proactively to improve our cost structure, and so we are putting a restructuring plan in place this quarter that will deliver $40 million-$50 million of annual cost savings in 2024, with about $4 million-$5 million of savings in Q4 of this year as we start to roll that program out. We are also continuing to confirm our commitment to drive our net leverage down to 1.5x-2.5x by the end of 2025.
Excuse me. We're also committed to repaying our 2024 notes with cash on hand today, and we've also had our board authorize a refresh to our share repurchase program to $500 million. Okay, so going back to the future, and what does that mean? So the new business awards that we have been winning have been scaling dramatically over the last few years, with a record of $1.05 billion in 2022, and still very, very high levels between $600 million and $800 million in 2023, which is largely being driven by the sourcing activities of our customers. And again, the investments we have been making as we've been transforming from our old or legacy business, should say, internal combustion engines, to an electrified world.
So the investments are paying off, and you can see from the chart, the amount of business that we're winning in electrification is growing significantly. And it's also starting to grow more so in Europe and Asia as we continue to roll out solutions for our customers. So what does that all mean in terms of revenue? Well, that, those new business wins, which I just highlighted, are the fuel for our future growth. And about 90% of the revenue forecast here has been closed and awarded to us. So we expect, well, in this year, $4.06 billion of revenue, moving to between $5 billion and $5.3 billion of revenue in 2026. That's about a 7%-9% growth over that period of time.
Now, our safe and efficient business, as George talked to extensively, is gonna be about flat to maybe slightly down over this period of time. Our electrification business is gonna grow from $700 million-$2 billion over this period of time, or 42% growth over that time period. And that's underpinned by some better markets between 1.5%-2.5% market growth and 5%-7% outgrowth, driven by all the business that we're winning, that we expect to launch over the next few years. So the safe and efficient business, as I said, flat to slightly down. Our internal combustion engine business is expected to decline by about 6% based on the latest IHS forecast, as battery electric vehicles start to scale quickly and are adopted in the marketplace.
Now, that decline is gonna be offset by growth in our industrial business, our heavy vehicle business, and our Aerospace business, which today are somewhat depressed, particularly our industrial business, and we expect those markets will naturally recover. And they also have significant outgrowth opportunity for which they're executing on. Alice talked about the great progress we're making on gas detection. That's a significant content grower for that business over the next few years. And probably more importantly, is that these businesses are very profitable, and they will mix us up in terms of margin as they grow, while our automotive internal combustion engine business declines. Well, as I said earlier, we're making tremendous progress in electrification. It is scaling quickly, and it has become Sensata's largest growth opportunity.
Now, if you look at the pieces of that growth, all of our major end markets are gonna grow faster than their underlying markets. Our automotive business is going to grow 47% over this time frame, and the content on a battery electric vehicle will double what we enjoy today on internal combustion engine platforms. On our heavy vehicle business, as it starts to scale in the electrification space, as Jen talked about, the opportunity is 10 x what we realize today on a diesel platform. So tremendous growth, early days, but it's scaling very, very quickly. And our industrial business, which Justin talked about, is expected to grow 33% over this time period, as it capitalizes on the investment in electrical infrastructure, that's going to happen across the world, as well as the investments that are being made in renewable energy.
So really exciting growth, above market, and our biggest opportunity, and again, the investments that we're making through this transformation are starting to pay off and are very exciting. So Sensata has been a company with leading operating margins since its initial launch as a public company back in 2010, and we are committed to maintaining a differentiated business with leading margins in, in the markets in that we compete. Now, the margins have declined. Jeff talked about it. We've had to battle through the pandemic, the supply chain disruptions, the inflation issues, the transformation investments that we've had to make to sustain a long-term sustainable future, and that's depressed our margins. But as you can see, over the next few years, we see an upward path in the margin profile.
We broke this out to say: What does 2023-2024 look like? And then, what does 2024-2026 look like? As you can see on the page, increased leverage, higher volumes, will drive a significant increase in our margins in 2024, and that's based on our ability to leverage our fixed cost structure and allow those volumes to come through at very high contribution rates. We're also gonna get a 1% benefit from the restructuring action we just announced. So that, with operating leverage, creates a significant tailwind for us in terms of margin profiles for 2024. But we also wanted to call out the mixed headwinds that we're gonna experience in the scaling of our automotive EV business.
So those products are going to launch and scale in the early timeframe here at margins lower than we would normally enjoy at Sensata. And so we wanted to make sure you were aware of what that looks like in the context of our growth and our margin from higher volumes over this coming year. When you go forward into 2026, the drivers remain the same. The volume will convert at very high levels as we leverage that fixed cost structure, as George had talked about, our ability to scale efficiently, and then we're gonna continue to drive productivity, which is our ability to manage our cost efficiently, to drive out waste, increase efficiency, and to manage any inflationary pressures that we may experience on the labor side as we go forward. And then again, the mixed headwinds.
Those headwinds are going to occur for the next few years as we scale these businesses, we drive better designs, better manufacturing processes, and over time, these margins will look more like what Sensata is enjoying today, but it'll take some time. So there will be a meaningful headwind over this three-year period, all contemplated in a margin profile that takes us from 19.3% to 20%-21% through 2024, and then 21%-23% through 2026. A really strong improvement, and we feel it's really well understood in what we need to go do to execute on this. Now, I just wanna highlight what productivity means for Sensata, and is an incredibly important profit driver for the business.
And this slide reflects all that you've heard today from the leaders, the technology, the business leaders, and it really starts with the leverage that we get from volume, the ability to scale on our low-cost, fixed infrastructure. It's managing the mix that's gonna occur over the next years as we're launching our new automotive EV business. It's the manufacturing excellence that we come to expect and do extremely well. It's the standardization that George talked about. It's the scale, it's the automation... and it's also to optimize the network to serve our customers efficiently globally. It's our sourcing and design excellence that drives cost out of the product.
It's making sure we have localization of supply chain at the best cost for high-quality components, and it's our global scale that gives us the ability to be able to execute on that, so that we can negotiate and work with suppliers in a way in which we get the best outcome of both cost and quality. Now, cash flow underpins the economic value of our business, and we, as a company, have enjoyed a conversion of earnings to cash flow of about 75% historically, and we believe we can do better. And so we're targeting a range closer to 80% conversion of our adjusted net income to our free cash flow, and we're gonna do that by driving improved working capital while maintaining low capital intensity, which, based on our designs for our new products, will remain the same.
And inventory improvement will be the biggest driver of this cash flow improvement. Our inventory levels have been elevated over the last few years, well above where we've performed in the past, and it's well understood. The pandemic disrupted supply chains. We were committed to serving our customers and providing continuity of supply, and we elevated our inventory, given the uncertainty about being able to get components. As supply chains begin to stabilize, we're gonna be able to manage this inventory down over the next few years, and that will drive significant improvement in our cash conversion. And that will also lead to improving free cash flow yields, free cash flow as a percentage of revenue, showing the quality of our earnings as we go forward.
As I said earlier, we're committed to driving our net leverage down, and we expect to get under 2x by the time we end 2026. We also expect to reduce gross leverage, and so putting the cash to work that we have today and our free cash flows to reduce gross leverage as we're reducing net leverage. But we're still gonna deploy capital. We're gonna maintain a competitive dividend. We're gonna opportunistically buy shares. We're gonna use our cash to pay down our debt, and I think, as we said before, we have all the assets, capabilities, and technologies necessary to deliver on our strategy. And so M&A, or any meaningful M&A, is likely out of the case over the next few years. What does all this mean in terms of earnings per share?
Well, it means earnings per share is gonna grow at a rapid rate. So 14%-19% EPS growth, which is benefiting from the growth in revenue and earnings growing faster than revenue and taking the advantage and the benefit of the higher volumes and the margin improvement, as well as the interest savings from our deleveraging. Now, our taxes are going to be going up. Our tax rate is going to rise, as we anticipated, as tax rates around the world are continuing to see upward pressure. But that will still deliver a 14%-19% EPS growth, 2x of what we're gonna deliver in terms of revenue growth. So great performance, and again, very well understood, and an outcome that we have confidence in. And this will also drive improved return on invested capital.
So as our earnings grow and our cash flows grow, as we continue to use that cash flow to delever, our return on invested capital will rise from the lows that we're seeing today, which reflect a lot of the transformational investment that we've made, to get to close to 10% by the end of this year and on our way to the low teens% in 2026. I'd like to wrap it up before I bring Jeff back on to talk about what are the financial conclusions . So we are an industry leader with a differentiated business serving our customers globally.
We're gonna deliver on the opportunity and potential that we've created ourselves over the last couple of years, and we're gonna deliver on those promises of growth, better earnings growth and better revenue growth, and improving return on invested capital. We're gonna continue to invest in our future. We need to, so that we continue to have sustained long-term growth for the next few decades to come. Our revenue will grow at a significant pace, and our earnings will grow faster than our revenue to drive our margins higher, and we'll deploy capital to strengthen the company and to drive improving returns. So I thank everyone for coming and listening, and now I'd like to turn it over to Jeff for closing comments.
Yep, that's right. All right. Thank you, Paul. And I wanna thank you all again for participating and joining us today live and also via webcast. We appreciate your time and continued support for sure. We have reached the end of our prepared comments, but before we go to Q&A, I wanted to leave you with really four things that I would like for you to remember associated with this session today. Sensata has a very long history of innovation and building trust with our customers. We have a vital, profitable core business that will allow us to continue to be a partner of choice to those customers and serve them as they transform their business. We have an unprecedented opportunity.
I hope that is very evident from the the dialogue today around the area of electrification, and we have invested in the capabilities that we need, that our customers are turning to us to help them with. And that is evidenced in the significant new business wins that we've achieved. Together, these three factors will continue to drive revenue growth and improve profitability over the next three years and beyond. So again, thank you very much for your time, and if you'll bear with us for a few moments as we set up the stage for Q&A for my colleagues to join, we'll take any questions that you might have in the audience and also online. Thank you. Great. Thank you all for bearing with us as we get ourselves situated on the stage for Q&A this afternoon.
We obviously have a great group of people here in the room, and we have a few people online. As we have microphones moving around, if I could ask that as we pass the mic to you, that you introduce yourself and your firm first, and we'll alternate back and forth.
... Here in the second row.
Okay. Yeah, thank you. Good morning, it's Matt Sheerin with Stifel. Thanks for all the, the great information so far. I wanted to ask about China, which is roughly 20% of your revenue. There's been concerns that local OEMs are turning more and more to local suppliers, so I wanted to get your take on your competitive position there in terms of market share, both on the auto business and the industrial and HVAC markets?
Jen, do you mind starting with that, and then probably Jeff can pick up?
Yeah, sure. So traditionally, we have had a larger penetration with the global OEs in China, but we are making progress with the domestic OEs as they are starting to, you know, gain share with their domestic products that are catching up to speed with where the global players were.
Yeah, and the only, the only thing I'd add is we, we've talked at different investor events or earnings calls and so forth about the fact that I think this whole team went to China in May for the first time in three years, and we were very keen to understand what their environment was going to be like. And I think we've reported back that, you know, we were... As a multinational company, we were still very well received by all of our constituents there, our employees, the government, and our customers. Our customers are keenly focused, not only in China, but across the globe, on localized supply chain. And so we've talked about that a lot, and it's more about making sure that they have localized supply chain for sustainability of supply.
So we saw no evidence of anti-American view or anything like that. We feel as though we're in a very strong competitive position there. Thanks for the question, Matt.
Why don't we take one from the web real quick, from -- and this is, Paul, probably for you, from Kent Siefers , who's with Impax AM: What's the path to margin expansion, and have you finished with large acquisitions?
So the path is what I described in the prepared remarks, leveraging the power of the past, our ability to drive productivity, leveraging our low-cost fixed cost base, scaling the business, driving automation, and realizing the operating leverage that comes from that, as well as the cost productivity actions we'll take and the proactive management around our cost structure, evidenced by the repositioning plan that we're putting in place in this quarter, to drive, you know, $40 million-$50 million of savings next year. We are going to have mixed headwinds. We know that the businesses that we're scaling today in automotive on the electrification side are not at company margin.
But as you heard from George and the team, we are going to continue to refine those designs, refine those manufacturing processes to drive standardization, automation, scale, leverage, and greater profitability over time.
Perhaps I'll address the question on large acquisitions. So I think we've talked a lot today, we've talked a lot with our investors over the last three years about the need for us to acquire capabilities to allow us to intersect this change that's occurring, and also to invest heavily in making sure that we have the capabilities to be able to intersect the opportunities in terms of what's happening in our customers' businesses. We've said that we feel very comfortable with the capabilities that we have now. That is demonstrated by the significant new business wins that we have. So I think we're at this point, we feel we're well positioned, no need for any meaningful acquisition.
We've also said that we will keep you posted, because this world will continue to change as electrification penetrates all of the end markets that we serve. But we will keep you posted in terms of what we have, but there's no evidence today that there's any meaningful, significant acquisition we need to continue to serve our customers.
Go here in the third row, please.
Thanks. Steve Fox, Fox Advisors. I guess, two questions on the margin. One is, the targets for next year sounds kind of familiar to last year's targets. So can you talk about why you think that you get on a steady state improvement for margins starting next year? And secondly, on the margins, you've mentioned sort of the margin drag from ramping the EV programs. Can you explain sort of how the drag turns into a positive over time, you know, on different programs, and what's your experience been with ramping EV programs this year in terms of margins? Thanks.
Maybe, Paul, you can start with that.
Good question.
Jen, if you want to talk about EVs.
So we had a range of 20%-21% for 2024, right? The repositioning delivers 1%. If that was the only thing that happened, we'd already be in the middle of that range. Now, we're gonna have to manage our costs carefully, and, but we do expect our businesses to grow as we launch new product. We're gonna have growth next year based on what we're launching. Not sure exactly what the markets are gonna deliver, but we expect to grow revenue next year and grow earnings faster to deliver margin expansion. But we've locked in at least 1% margin improvement with the repositioning actions we've announced, today.
Yeah, I think I'd add on your point about launches and EV ramps. In the automotive market in North America, we did see some delay in launch, and that's typical with any new product launch that you see. The customers go through that phase of delay and getting up to run at rate and things like that. So there has been some delay, but we're expecting that to start ramping up again.
Yeah. The only other thing I would add on the margins, it's really the story that Cory talked about around the modularity that we're gonna drive in our future designs as well. So, you know, I would invite everyone to go visit our showcases to show what we're... You know, to see what we're doing around the modularity for these new contactors and new products.
Great. Let's go here in the first row.
Thank you. Chris Snyder, UBS. I wanted to ask on the new business wins. You know, been up a lot over the last few years, but this year is down. You know, is that in response to just the macro or the EV launches, or is there some, you know, negative consequence from, you know, the company stopping M&A and, you know, not stopping mega trend investment, but no longer growing it? And then with that you know, is there a level, you know, as we hear it, and we kind of monitor, and you guys report it, is there a level that's needed to drive the 5%-7% outgrowth, you know, as part of your, your long-term plan? Thank you.
Jeff, you want to pick up that?
Yeah. Want me to get it?
Yeah, please.
Yeah. So, I spoke about the fact that 2022 had a significant amount of sourcing activity with our customers, and so that will ebb and flow a little bit based upon when our customers plan to launch new platforms. 2022 was very robust in terms of the opportunities that we saw. So that's what drove the $1 billion or better of NBO wins, in addition to the largest NBO we've ever had as a company, which really propelled that above the $1 billion mark. We're very comfortable with what we've won so far, what's in the pipeline to be won that will be at that three-year average. That's more than adequate to get us to the range that we've talked about over the next three years and beyond, so we feel very comfortable with that.
To your point regarding investment, listen, this, this team spends a lot of their time trying to balance short and long term. And in the last three years, we've invested more for that long term, knowing that it was going to have a cost in the near-term margin profile of the business. We feel as though the flywheel has started in terms of that opportunity. We've built the capabilities we need to be able to serve our customers going forward, and we'll be able to now leverage the benefit of that in terms of the next several, really, decades of growth in terms of electrification. This is not just a three-year flash in the pan. We know what's going to happen over the long term in terms of this trend associated with electrification that we're preparing for.
Let's go back to the folks online for another question. This comes from David Greenberg, and it's probably a combination, Jen and Paul, for you: You said much about your addressable markets. What figures can you give us with regard to market share, especially in automotive electrification?
Yes.
And there was a follow-up around the CapEx required to support that.
So in automotive, we target to be number one or two in the markets that we play in. There's typically, you know, top five players in those markets, but we really target to be in the top one or two for, you know, our product portfolio.
On the CapEx question, and George can help out here. First thing you have to understand is our CapEx expansion is driven by the business we've been awarded. We don't put CapEx in place and hope that the orders come. These are tied very much to what we've won. And based on what we're expecting, given where we are today, we will maintain that low capital intensity. The new businesses, the capital, and the lines required to produce that product is going to be very similar from a capital intensity perspective as the business we have today. So we're going to run at that 4%-5% CapEx to revenue, you know, for the many years to come.
Yeah, I would just add that the modularity that Pete showed in some of our product families, we're doing that same thing in our electrification space, so that will help us, you know, limit the amount of CapEx that we need for these different products. Having that modularity drives the scale that allows us flexibility, so that's going to continue to be part of our plan. So again, the power of the past, showing what we can do in the future around electrification.
One other point I want to make, because I think it gets lost sometimes, is a significant portion of our electrification business is leveraging existing technology and existing manufacturing processes. And when we go from an APT sensor to a pressure and temperature sensor, the amount of incremental capital required to achieve that volume is not significant. And that's just one example, where we're leveraging, again, the power of the past to bring forward new solutions with existing designs and capabilities to serve our customers.
We go here to Wamsi, there in the fourth row.
Thank you. Wamsi Mohan, Bank of America. Thanks for the presentation today. I was wondering maybe if, Paul, you could talk about the non-electrification piece of the business. You alluded to that being roughly flattish over your forecast period, with, with some puts and takes of, of growth in some of the industrial and HVOR side, offset by declines in, in ICE. And kind of curious, like, you know, if you could put some numbers around, around those in terms of magnitude, both from the headwind from ICE and the growth opportunity, and also what the margin impact of that could be. Thank you.
Yes. I mean, Ryan can talk more, probably, if you want more color about why we think that those markets are going to—those businesses are going to grow. But, it's, you know, it's about $300 million, right? Is the revenue decline I think we're expecting out of internal combustion engine platforms over the next three years. It's being replaced with about $300 million of revenue growth at higher margins. You know, the margin differential's, you know, 5%-10%, depending on the business. So we do mix up, you know, over that period of time.
Yeah, I think just to, just to add to that, on the, on the heavy vehicle and off-road side, you know, specifically, certainly the move to electrification is happening, you know, rapidly from a design and development standpoint, but it's on a much slower scale or time span than is the, the conversion in, in automotives. So we expect the diesel engine applications to be alive and well 10 years, you know, out into the, to the future. Certainly, during that time frame, electrification will, will ramp, but it, it won't happen at the same transition rate that, that automotive is happening.
Great. I'm going to go down the same row there, in the... Thank you.
Mark Delaney with Goldman Sachs. Thanks so much for having us and for doing the presentation today. I have a question on electrification EBIT margins, specifically. Maybe you can help us understand where they are in 2023. Is it, you know, mid-teens, higher or lower? And where does that go in 2026? And, you know, as you get more leverage in electrification, I'm trying to understand how much of a positive impact they may have, because the bridge, I think, from 2024 to 2026 shows mix as an incremental headwind.
Yep.
Is electrification sort of improving, or as you get to some of these new program launches, does the electrification EBIT margin, you know, stay at lower levels, even out through 2026?
Want to start with that, Paul, and maybe Jeff and Jen can chime in?
Sure, yeah.
... So the profitability within our electrification portfolio, as it stands today, is quite mixed. The products that are derived from existing technologies is higher, right? It's more in line with what we would expect in our traditional business. The new products, which are subscale, not an optimal design, not modularized, not standardized, are less profitable and are dilutive to our current margin profile. But over the three-year period, they will become accretive to our margins. I laid out the margin headwind so that you could do the comp, you know, the comparison of what we would expect increased leverage would be, but then to be reduced by the in-mix impact of launching and growing those automotive EV products. So it will get better. We didn't give out the number.
It will improve, but it will take some years before they get to the level of Sensata. But nevertheless, it does improve our margin profile over the next three years, and that's what gives us confidence that we can be in that range of 21%-23% in the next few years.
The only thing I'd add is that it's important to look at gross margin and EBIT margin when you're looking at that. So we have a lot of confidence based upon the gross margins in some of those new categories. And clearly, given what we've demonstrated in terms of our ability to scale these product categories, are very confident in continuing to create that scale and modularity, which will drive the margin profile, which we enjoy in our core business and we'll get to in the rest of the business as well.
Yeah, and I think I would add that on the automotive side, our customers really are learning through this transition, too. So as they're getting more mature with their vehicle architectures, it's allowing more opportunity for the platform approaches that we've talked about that also drive scale.
I'm gonna go back here to the fifth row.
Hey, thanks. Joe Giordano from TD Cowen. First, just have a quick clarification on some numbers. The $1.2 billion of electrification, did you previously say $1 billion? Has that, like, been revised higher? And then the $380 for this year, is that coming from $250 last year? Just wanna make sure I have those numbers correct.
Then, do you wanna deal with that, or Paul?
Yeah, I mean, it's higher because we're seeing greater adoption of EVs, driving our content. Our content per vehicle goal is the same, which is that, you know, based on third-party forecasters, there's gonna be more BEVs on the road than we anticipated when we came up with a billion.
Cool, okay.
For the year-on-year, you're right. You're absolutely right. The number last year for automotive was $250, and the number this year is gonna be $380, or that's what we expect at the moment.
Okay. And then, so, you know, we've had, like, a teach-in previously on, like, insights and stuff like that. We didn't really hear that now. So some of the stuff that you've bought that are viable businesses, but maybe not as core today, like, what's the, what's the strategy for how those, the place there? And then, Paul, maybe if you could just talk to us about when you... You know, previously, 2017, we had the last full-blown one of these things. When you came up with your margin projections there, you know, a lot happened in COVID and stuff like that, but if we look, like, a year before, 2019, probably we were not looking like we were gonna hit those margin targets.
So, like, how did you kind of take the learnings from that and build them into how you're forecasting forward from here?
Maybe Jeff and George, you can take the insights question, and then Paul, the last investor event margins.
Yeah. So on the insights question, again, I think we talked today about the fact that these trends associated with IoT or connectivity or insights, and electrification are gonna change the markets we serve in very dramatic ways over the next couple decades. We also talked about the fact that three years ago, we cast the net very wide in terms of what we were looking for, to make sure that we had addressable markets to deliver the growth potential that we wanted as a business. I also hope that you see from today's presentation that electrification is our future, right? So we've become more confident in that, and it's more clear that that is the future. That requires us, naturally, to continue to focus on that and narrow our investment. That does not mean that the insights opportunity won't be meaningful to us.
It's just not going to be a platform like electrification will be for us as a business. So that requires us, as a management team, to narrow the focus of investment to be a good growth platform, but not the future of the company. We'll clearly have significant opportunity in the insights area. We believe in that market in terms of being able to enable that ecosystem, and so we'll continue to invest in it, but at a lower level than we historically have, given our need to make sure we focus on the area of electrification. George, I don't know if you'd say anything.
Yeah, no, I don't think I have anything else to add to that. I mean, I think, as Jeff said, you know, the insights business is still important to us, but, you know, as a management team, it's all about making tough choices. And it's clear that, you know, in our effort to be focused, electrification is the place that we need to focus, and it's our biggest opportunities. But we will obviously continue to nurture and grow our insights business.
Paul, do you wanna deal with the margin question from the last investor event?
Yeah, I'm glad, Joe, you brought me back to 2017. I was kinda trying to think forward, but it's, it's a great question, and it's a fair question.
You know best.
Well, I guess a couple of things. So when we exited, you know, when we were in 2017, we were seeing incremental growth in the business over the last couple of years, and our content was expanding. And in 2018, we had very good growth, and our margins were nearly 20, you know, 23%. So we were exiting at a much higher level of margin profile. And then, you're right, 2019 was a weak year, 2020 was the pandemic. The transition from ICE to electrification really started to accelerate in... Started in the 2019, 2020, 2021 year. We were late. We went out and started acquiring assets to build up our electrification business. We invested organically, significantly, started talking about the mega trends.
We went from $15 million mega trend spend to nearly $65 million now. So a lot changed that, that has put us in the place we are today. And the market, you know, we were expecting 1.5% growth in 2017 over the next three years. I think the markets were down 1.5%-2%. That was significant volume, that we had the capacity to deliver, that didn't convert and didn't convert in higher margins. So that's—we've learned a lot from that, but we've also changed a lot. And so where we are today is digesting the investments we made, and it's showing up in the business that we're winning. We're gonna optimize those businesses, we're gonna optimize those platforms, and we're gonna drive better profitability and better growth, given what we've been awarded and what we're entitled to.
It's our job to go execute on that. I can't control the markets. We think the markets are going to get better. Our industrial business is at an all-time low. Our heavy vehicle in China is weak. Our Aerospace business is still not back to where it was when we entered the pandemic. So there's a lot of positive drivers. Alice talked about gas detection as a new outgrowth opportunity in electrification and industrial. So there's a lot of positives, creating a lot of momentum that I think gives us confidence to be able to give you a revenue growth outlook and a margin profile range that we think is very doable.
So let's go back online for the next question. This comes from Karl Kroeker from Woodline Partners. I think, Jen, this is gonna be for you. "What is assumed for pricing, particularly with an automotive, in your margin model? And do you assume a more normal price decline in 2024 despite continued inflation pressure?
Yeah. So it's a real relevant question working in automotive these days. You know, typically, if you look at historically for Sensata, we've done a really nice job at balancing our pricing activities with our customers and what they would expect to normal pricing from LTAs with our cost, so that we don't have margin erosion. We are continuing to look at recovering for our inflation, while we balance continuing to drive productivity and cost, because we know the expectation over time is that it will be a more balanced situation from a pricing and a cost down standpoint.
Claire?
Luke Junk with Baird. Thanks for the presentation today and for taking the questions. Two questions from me. First one, probably for Jennifer. If you could just speak to the specific content on the truck platform that you discussed in your presentation that does have that 6x incremental content opportunity. And I'm just wondering how applicable that might be across other vehicles as you bid business going forward. And then maybe if you could put that in the context of what you've already booked at that 2x average content level, and how that would compare to the pipeline of new business opportunities going forward in terms of what that incremental, incremental might look like.
And then my second question would be for Paul, and just if you could discuss the trajectory of R&D on a go-forward basis, and how that fits into the margin targets relative to the growth in R&D that we have already seen in recent years? Thank you.
Yeah. I talked a bit about our portfolio on electrification being components and systems. You know, where we have content in a, in a vehicle that, it's not a very far stretch for us to go to a system, our customers are asking for us to be that system provider, and that 6x revenue really relates to our system capability with our customers. And that was a really long first question, so I don't know if I missed anything from a content standpoint.
Yeah, I guess it would be a question. You know, we've got this one specific platform-
Yeah
that has this big lift in content. Should we read into that in terms of the pipeline of business that you're looking at being awarded right now, also having a potential lift in content from that system sale versus component sale?
Yeah.
Is 2x the right number or something higher than 2x the right number?
Yeah. Right, right now it's 2x because it is a mix of systems versus components, and different platforms, and that's really how you get to that average addressable 2x content lift.
And then, Paul, with regard to R&D, what are our expectations going forward?
Yeah, I think if-- Look, I mean, there's a nice exhibit that if you go check out, you can get a sense of what we're talking around the High Voltage Distribution Unit , for that, for that kind of a platform. So just operating expenses in general. You know, we're gonna continue to attract the best talent, and we're gonna pay competitively to make sure we get that talent. So there's always gonna be this pressure of, you know, rising labor inflation to make sure that we're competitive from a talent perspective. The increase in research and development is going to be opportunistically driven. I mean, today we're spending a significant amount to innovate, and to launch, the new products and to continue to improve the design. So we have quite a bit of resource being and effort being deployed to that.
If incremental opportunities present themselves, you know, we would certainly want to look at that and say: Is it- is the payback worth the investment? We've assumed that there would be some increased investment going in, into the model, but, you know, it's not a massive amount, and it's being covered by the productivity gains we expect to get.
We go here to the third row. Thank you. You're next.
Hi, Samik from JPMorgan. For the first question, just going back to the big sourcing year you had in 2022, when I sort of think of that and revenue materializing probably in sort of three, four, five years from that time frame... Just curious, when we look at the targets out to 2026, does it even capture sort of an inflection in that revenue materializing because of the sourcing, big sourcing year you had last year? Or is that beyond the target horizon that you're now providing, that there's a more inflection of that? For the second question, I mean, when we look at the addressable market numbers that you provided today, safe and efficient, growing high single digit, double-digit growth, obviously, for EV electrification, when we do an aggregate math, your overall revenue growth is below that, addressable market growth.
I mean, there are different puts and takes, but maybe you can outline what is really driving that underperformance to the addressable market you're outlining?
Yeah. So for your first question that you talked about, you know, Jeff mentioned that the sourcing windows of our customers are lumpy, so they source in platforms. And what I had talked about in the presentation is they're usually sourcing anywhere from three to five years out. Sometimes it could be two, if it's a newer customer in the market, but that's what creates that revenue gap from when we have awarded business to we start seeing it in production. And I also talked about the fact that 85% of our business revenue projection in 2026 is already booked. So you're thinking about it right, as far as the sourcing cycle and the time gap to when the revenue comes through.
On the question associated with the addressable market growth and company growth, I presume you're speaking to the safe and efficient expectation of a 4% growth, and we're basically flat. Obviously, you've got to pull that apart, right? And understand that there's a chunk of that core safe and efficient business that is going to convert to electrified, and we're diverting more investment to those new platforms in the future. And so we're making trade-off decisions regarding how much of the market we want to go after versus where we see the longer-term opportunity with the customers that we serve. And we'll continue to address that, but as it stands today, over the next three years, we're expecting the safe and efficient business to be essentially flat year over year.
There's the deterioration due to ICE, EV conversion and growth in the other areas. And then, obviously, the electrification business will grow quite rapidly.
Can we come here to the front row?
Hey, thanks. Shreyas Patil from Wolfe Research. I just wanted to ask about the productivity expectations that you have for this year and then through 2026. I mean, clearly, the last several years, you haven't been able to achieve that level of productivity, and that's been in an environment where the OEMs are not pressuring you on price downs. Going forward, that probably will start to happen, and, you know, there's still quite a lot of stress in the tier two supply chain, plus there's still a lot of wage inflation. So how should we kind of gain confidence that you'll be able to drive that level of productivity this time around, in especially if this kind of environment continues?
I mean-
Thank you.
So I guess I would go back to some of the slides that we've shown on our prior earnings releases. We have driven significant productivity in our core business, and the headwinds have come from the investment in electrification and currency. You know, we can talk currency if you want, but the core business has delivered incremental productivity, incremental margins. Now, we're taking into account that our electrification business, largely the auto business at this point, is gonna have a margin headwind, and we've laid it out for you. But the rest of the business is gonna deliver leverage and productivity like it has for the last, you know, two decades. So the building blocks, the capabilities, the tools, the people are there to drive that, and we're seeing it. We're experiencing it.
It's just that the electrification, you know, the investment in electrification has also moderated that and why our margins are down. But going forward, with a growing business, a scaling business, the standardization of designs, all the things George and team have talked about, that will deliver the improving margin profile for the total company as we go forward. So I feel good about it. I feel very good about what the core can deliver, and it's just about how we manage that scaling of the new business that is where I think the greatest challenge and opportunity exists for us.
Yeah, the only, the only other thing I would add to that question is, just as we are making targeted choices for where we're gonna invest in electrification and lessening the investment in our safe and efficient business, our customers are doing the same thing, and they wanna lock in their surety of supply long term. So that does give us the ability to maintain pricing in, in many of those areas. So from that standpoint, our focus is to, you know, continue to improve the, the margins, as Paul said, on the electrification side of the business. As we launch those products, we continue to hold, obviously, on our, our core businesses.
Do you have a follow-up, Shreyas?
Yeah, just wanted to quickly confirm. So in that mixed bucket, where which had the headwind, was that also including the benefit that you're talking about on the non-EV side, where, you know, the $300 million of incremental revenue coming on?
No. No, that's all in the, that's all in the, you know... We could have netted that into the increased leverage. We said, "Okay, our volumes are growing, our, our entitlement is the increased leverage." But the growth that we're gonna see in automotive EV is gonna weigh that down, temper that down. So, so there's all. So there, you could net them if you wanted to, but I thought it would be helpful to at least identify that, so you... Because we get the questions, "Is this business gonna be, you know, a headwind to margin?" Yes.
Right.
The rest of the business is a tailwind, and more of a tailwind than the margin we're gonna experience as we scale. Over time, it'll become and come less and less of a headwind.
... A follow-up here.
Thank you. It's Chris Snyder again from UBS. So you guys had the slide, and it said, you know, battery EV content per vehicle, 2x ICE in 2026. But I think it said that it was only for your guys' total addressable market. And sometimes I think that investors have a hard time, you know, really understanding, well, what is, what is the addressable market? Because there is adjustments in that. So I guess, like, you know, very simply, if we just thought about 2026, and we said, you know, global Sensata EV revenue divided by global EV production and, you know, use that as the relationship, is that still a 2x, or is it lower? Any way to think through that?
Yeah.
Because, you know, I just don't know how to go from global production to your total addressable market. Thanks.
I think it's that simple. I'm sorry. That simple.
So any one of the three, you're welcome to jump in. Jeff, you were nodding quite a lot there as well.
No, I
Well, I mean, that's how you... I mean, you take the revenue divided by the global EV production, and that's how we get to the 2x.
Oh, okay. There's not, like, a total adjustable market. We're not on this customer, and then we're cutting it out.
Today, you know, we, we've acknowledged that we don't serve the entire market. But by 2026, we'll be serving the North American market very significantly and expanding into Europe and Asia. So we'll have a better representation of the market three years from now, based on the business that we've been winning. Which is why I wanted to highlight that the NBOs are more and more electrification, and the mix of those electrification wins are more and more in Europe and in Asia. So we'll be better represented at that point in time than we are today.
I appreciate that. If I could follow up with one on some of the electrification, you know, margin, commentary and questions. I guess, you know, I think it's understandable why electrification margins are a lot lower at subscale. You're investing a lot, makes all the sense in the world. Did you guys, though, say that electrification gross margin is better than company average? 'Cause then I think that could kinda help, you know.
Not better than company margin, but it's better than operating margin. So as Jeff said, I mean, there's a tremendous amount of research, development, engineering effort going into designing and launching those products. So it's the gross margins are higher than our operating income margin, but they're dilutive to our operating income margin when you take into account all the investment that's needed to be able to win and launch. Like, when you win, trying to go after all this business and serving all these OEMs, you have a lot of technical resources that are working a variety of different solutions for customers, and that's very expensive, and it's fragmented, and it's not like running a, you know, a mature APT business.
But, like, is electrification gross margin better than non-electrification gross margin for the company?
No, it's not. Just given the fact that there is a portion of it, as I said, the technologies that our EV business is using as a derivative are in line. It's just that the new businesses that we're scaling, contactors, fuses, high voltage distributions, are lower, so it weighs it down.
Gross margin has some of that scale. Like, it's-
Okay.
Okay. Yeah.
Right.
Thank you.
Yeah.
So that, that's not a gross margin. Today's gross margin is not the long-term gross margin of those businesses-
Yeah.
as they scale, and the modularity and everything that we've talked about takes hold.
Right.
Given where we are in the news cycle at the moment, the one that just came in online is probably worth touching on, Jennifer. This is from Ma Lang at Muzinich. "Can you speak to the auto union strike and the long-term impact at the UAW, and would a wage increase there impact Sensata?
Yeah. So it is a really relevant question right now. You know, we have less than 10% of our revenue with the Big Three in North America. So as far as Q3 goes, based on the plants that were impacted, we don't see a significant impact. But depending on where this strike goes, what other plants are impacted, that could potentially impact us. It's just nobody can predict where it's gonna go right now. As far as the wage increase impacting us, like I said, you know, we have customer penetration with almost every global customer. And the good thing about that is, when there's winners or losers in the market, we're less impacted, because if we have less sales with the domestic customers in North America, we still have penetration on other customers.
You know, again, it's hard to predict what's gonna happen in the future, but really trying to make sure that we've got good penetration with all our customers is important to prevent any impact that would have.
I'd only add one thing, and I forgot to mention in the prepared remarks, but for Q4, our automotive business, we have an expectation, aligns to IHS's projections for Q4, which has some lower quantities of production, whether it's because of the strike or whether they built inventory in preparation for the strike. So we're aligning to IHS.
And-
Yeah.
That was about, what, 15 or 20-
About $15 million impact.
Where the expected production rates were, you know, prior to the strike.
Right.
One question here. Mark?
Thanks for taking the follow-up question. It's Mark Delaney. Could you just talk a little bit more in detail around how you sustain or even expand your margins in the safe and efficient? I think the implied revenue from 2023 to 2026 declines a bit, you in your forecast period. And so to, to ... you get to your EBIT margin target of 21%-23%. I think safe and efficient margins, you know, kind of hold in the low 20s over that time horizon. You talked a bit around your shared factories and some efficiencies there, but, you know, to the extent you lose a little revenue, how do you sustain the margins and the safe and efficient part of this?
George, you mind dealing with that?
Yeah, I'll take that one. Great question. So some of what we talked about in my section of the presentation is what we're gonna do to continue to maintain or increase margins in those products. So we're investing in more automation. We talked about the fact that, you know, as labor costs around the world continue to rise and as automation has become much more affordable, it makes automating processes much more capital efficient. So Mike talked about, you know, we have automation projects that can drive returns of within 12 to 16, 18 months. So that will continue to be a big push for our safe and efficient products, and will be a push on, quite frankly, all of our product lines, including the electrification product lines.
We're gonna continue to work the value analysis and value engineering to drive material costs out, and we still see lots of opportunities there. As supply chains have normalized and as we've gone to our supply base, we see that, you know, quite frankly, there was some pause of that activity as we were more focused on surety of supply and bringing in inventory, as Paul had mentioned. Now we're back on track to drive an inflection in the material cost curve. So that... You know, those are two very tangible examples of what we're gonna do to drive the overall margin of our products up.
Let me go back to the fifth row here for a follow-up with Matt.
Hey, it's Joe from TD Cowen again. Just quick, you gave some numbers on EV charging and what the opportunity is per station, and just, do you have any, can you give us some color on who you're aligned with? And there's obviously a lot going on with Tesla standards, and are there any particular manufacturers or market shares we should think about there when we kind of calculate a total kind of adjustable market for you guys and what your share looks like? Thank you.
Yeah, sure. That's a good question, so I'll take that one. So if you think about the, you know, the leaders in the EV charging space, there's roughly eight to 10 key players, and we're engaged with six to seven of those players, so a leading position in that market. I think Justin mentioned on a typical charger, there can be anywhere from $1,000-$2,000 worth of content on that, made up of contactors and other components. We have seen a little bit of delay in those with the new Tesla requirements there, of everybody trying to commonize on that standard.
So we've seen some folks you know, reduce their orders in the last quarter or so, looking to make sure that they implement the software improvements as well as the connections to be able to get those out into the market. So it's... We're still providing those, you know, those products and have close connection with those customers, but there's a bit of a delay there. If that helps.
Let me do one last one here in the front.
Hi, Philippe Kurzweil , Hallstatt Advisors . One thing I didn't think got a lot of discussion, capital deployment. You guys announced a big buyback. Do your EPS targets contemplate you needing to utilize the whole target? How should we think about the cadence of when you may deploy that capital?
Paul, that's probably for you.
Yeah, I would. So when we think about capital deployment, our priority is to delever, right? Take it from where it is today, around three, down to 1.5-2.5 over the next few years. So that is sort of the kind of gates our activities. We wanted to refresh the authorization to give us the, you know, the ability to do more if we felt it was appropriate. But it's all gonna be guided based on, today, based on the leverage targets that we have. And we want—we have to support the dividend, we want to support the dividend, we want it to be competitive. We'll use the authorization. So it's not a commitment to spend $500 million over some period of time.
It is the availability to use it wisely, and then it's to reduce our debt, which will drive interest savings, which will drive EPS growth, and to, you know, not only, you know, delever, but on a growth level, delever.
Great. Thank you all very much for coming today. Appreciate the in-person attendance as well as those that came and listened in online. Thank you very much. There will be lunch out in the hallway. I'd encourage you to stop in with the showcase folks out in the hallway and in the side rooms. I think in about 10 minutes or so, we'll run another version of the High Voltage Distribution Unit teach-in, which is in the library at the far end of the hallway. For those of you who weren't able to participate in that in the session this morning before the prepared comments, that's a good deep dive into the system-level architecture and why we're moving into BDUs and into inverters and converters. Thank you all very much for attending today.