Okay, I'm Ryan Brinkman, the U.S. Autos Analyst at J.P. Morgan. Thanks for joining us for our next presentation, which is with Gentherm. I'm very happy to have with us here Phil Eyler, President and Chief Executive Officer, as well as Matteo Anversa, Executive Vice President of Finance, Chief Financial Officer, and Treasurer. It's a lot of hats. I don't know, Phil, you wanna start with any opening remarks, and then move on to Q&A?
Sure, be happy to. So for those who don't know Gentherm, just to give a very brief overview, we are the global leader in thermal and pneumatic lumbar and massage solutions for the automotive market. Most people know our product by heated and cooled seats, interior steering wheel, surfaces, cup holders. Basically, anything in a car that is heated and cooled, that's not done so via the HVAC, central HVAC system.
That's where we come in on the thermal side, and then lumbar and massage using pneumatic air bladders. Both of those, we're the global market leader and, you know, lots of other areas of growth in the company, which we'll, we'll dive into. I wanna spend and really focus just on a couple things.
One is around the growth thesis for our company, and really, there are 4 pretty unique areas that are growth drivers for us, and one thing that you'll, you would see kind of cut across all 4 elements, is the transition to electric vehicles.
I think thinking about us, we really get a lot of tailwinds from the EV migration over time. The first area of growth for us is our core thermal and pneumatic and lumbar business. These are products and solutions where we lead the market today.
The, the actual penetration in the market or in vehicles that are produced today is still fairly low, and I think as most of you probably know, the driver of differentiation in the car of the future is moving more away from vehicle performance and power and acceleration to experiences for the consumer.
Certainly, our product, which really revolves around health, wellness, comfort, and energy efficiency, is seeing a lot of benefit. We're seeing a pretty rapid increase in adoption of the thermal products and the pneumatic and lumbar products in new vehicles, so more new nameplates offering the solutions.
We're seeing take rates rise in the vehicles where we already have our solutions, so more and more, a higher percentage of the cars that we have are offering the product, and also looking at an increasing level of content in each vehicle.
More, more seats are applying heating and cooling and massage and lumbar, plus new devices: neck conditioning, surface-level heating, steering wheel heating, all those are really picking up. A lot of that is being driven by the movement to electric vehicles. The next item I'm gonna talk about is ClimateSense . ClimateSense is really a system that we developed that is a microclimate.
It takes the idea of these heating and cooling devices around the body and really is augmenting or even replacing the HVAC system in the car of the future. Driven by our own algorithm and software that we've developed, that basically takes the science of heating and cooling the body, translates that to an algorithm that controls the heating and cooling real time in the vehicle.
The benefit is, of course, comfort, but secondly, pretty significant opportunities to reduce power consumption in the vehicle. A lot of people don't know this, but the 2nd-largest drain on an EV battery is the HVAC system in the car. If you think about it, it kinda makes sense.
The methodology to heat and cool passengers, that's the standard now, is pumping hot or cold air into a pretty large space, the cabin of the vehicle. Our system, ClimateSense, kind of flips that around and focuses on each individual passenger.
We're only focused on heating or cooling the one in the seat and isolating that power consumption for those individual passengers at the level that they wanna be heated and cooled. That helps to really reduce the amount of HVAC utilization. We've done tests that have proven anywhere from a 50% to a 70% improvement in power consumption, which equates to a 30-plus% improvement in range. That's ClimateSense. That's also driving more content of our core business, so it's got a nice cycle there.
The other, the other area we're really focused on is our new opportunities that are being unlocked with the combination of our thermal products and our lumbar massage around health and wellness. There'll be more to come on that, but, you know, think about creating software-based treatments, experiences, et cetera, that can combine these features together.
One area we're looking at is lower back pain relief, massaging and, and cooling and heating in a very specific way that's developed by our scientists. There's also refresh modes. You can kinda get the idea of some opportunities there. We also have a battery performance systems business, and that business is around heating or cooling the EV battery to help extend the life of the battery or improve performance.
We also have some unique cell-connecting devices that that are interesting in that space. We're really looking at opportunistic ways to grow that business on top of the others. Finally, most people don't know this: we have a medical business as well, where we're actually heating and cooling bodies... that are under, you know, going through operations or intensive care.
We have a whole host of products there. The business is pretty small, but, you know, we, we really like the vertical. On top of that, it brings a lot of synergies back to automotive. The science that we learn and become experts on at the hospital, we can translate, translate that right back to the solutions we're developing for the car. It's a great differentiator for us.
We can position ourselves in a different way with the car companies. Those are really our growth drivers. We laid out a growth plan between 2023 and 2026 that, that we believe will, will have us growing in the mid-teen compound growth rate over that time period, and you compare that to the automotive market in, in total, which is low single digits.
We're really excited about the growth thesis that we have there. I'll make one point on our differentiation model, and there are others, but in order to turn it back over to questions. We are really-- we have a very unique go-to-market strategy in the space in that we're the we're the market leader and the innovation leader in our technologies, but we're also independent.
What that means is, we have a very differentiated partnership model, so we can work with any OEM around the world, which we do, or we can work with any seat manufacturer around the world to truly integrate in a specific way that advantages those customers.
What we can do is we can scale our platforms across all of these customers. We get great scale leverage. We can really get, you know, pretty terrific returns on capital investments by scaling it across, you know, all these customers. We can talk more about that as we dive into the Q&A.
Yeah, absolutely. I look forward to asking you a lot of product and technology-specific questions. I think you do have a lot of unique and interesting technologies. I, I find them more interesting to talk about than, you know, shocks and struts and steering and suspension.
No, no offense to those suppliers, but we have been starting with some sort of broad industry overview questions because we have 32 CEOs and 30 CFOs here. It's, I think, gonna be interesting to sort of collate and collect and compare their responses to, you know, broad industry questions. The first one is about demand. You know, demand's been stronger this year, right? Especially in the U.S., stronger than most anyone expected.
Just curious if you could comment on, you know, how you would characterize the strength of the different end markets that you participate in around the world from a demand perspective, and what your outlook might be going forward?
Well, I think we're really... We're happy to see some stability in the market this year in the first half, which has been, you know, has really helped everyone in the space to level off a little bit from some of the extreme gyrations of the last couple of years.
You know, that said, I think if you look at the entire year and, and, you know, our, our markets primarily are North America, Europe, and then the Asian markets, for the most part, you know, China, Japan, Korea. You know, all those have seemed to stabilize somewhat.
There's some puts and takes in each region, but if you look at our you know, the S&P Global forecast for the remainder of the year, it says mid-single digits, kind of in line with exactly what we're hearing from our customers, too.
Again, there's some regional variation in it. We're feeling pretty, you know, good about the stability in the market, and thus we've been, you know, maintaining our guidance for the year that was built around some of those same assumptions. You know, we're certainly cautious, though, because there are, you know, still some risks in the economy, we believe.
You know, interest rates are, you know, a little bit of a challenge for consumers in this space, and there's still some geopolitical, you know, volatility out there that we have to watch, whether that's Ukraine or China or, you know, other areas.
We're cautiously optimistic for the rest of the year. Longer term, though, I think if you look at the last 4 or 5 years, vehicle production has still been fairly depressed from, you know, where it was back in the, you know, 2017, 2018, 2017, 2018 range. I believe that. Then, also, you look at the aging vehicles, I think it's, it's reaching, you know, a very high level of, you know, years of age on the vehicle.
I think there's a, you know, within the next year to 2 years, I think we're gonna see some expansion there as things start to stabilize economically.
Very interesting. Thank you. Maybe sort of a similar question, but on the supply side, you know, where are we in terms of the semiconductor chip shortage? I think you had some, you know, company-specific impacts, right, with the GM seating elements, maybe in some of your electronics business. You know, have, have you mostly cycled past that?
What about your customers, you know, the automakers? You, you seeing, you know, improvements there and maybe some of the other supply chain bottlenecks, too? It wasn't just chips, right? Port delays, et cetera. What are you seeing out there?
Ryan, I think the, the situation is definitely, you know, better than last year. No comparison. Things are much, much more stable. We are seeing sometimes some issues with some of the OEMs, for some reasons, ran out of semiconductor and then shut us down. It happened to us with a couple of the OEMs in Asia in the second quarter.
Overall, it's pretty limited. On the freight, you've seen in the results, I mean, there is no question that last year we were shipping semiconductors on jumbo jets. This is no longer the case. Our premium freight cost significantly reduced year-over-year, which is also one of the reasons why we are starting to see some nice margin expansion as we compare to last year.
things are... You know, we are cautiously optimistic.... based on where we are right now.
Very good to hear. Thank you. Next, I wanted to ask on the, like, overall backdrop for, you know, operating margin for suppliers generally. You know, EBITDA margin for the 12 companies or the 12 suppliers we cover averaged, you know, 11% last year, it might hit 12% this year, but it was kind of like 13%-14% pre-pandemic.
You know, just when you think about all of the macro and industry factors that roll up into the backdrop for supplier margin, you know, the aforementioned level and stability of customer production, also, you know, the commodity and non-commodity inflation and the recoveries for that inflation, the needed spending on R&D, sometimes ahead of revenue, to support industry change.
You know, where do you think we are on the path back to normalized margin, or is there maybe a new normal, you know, with higher input costs structurally? Maybe investors should be looking at ROIC as a performance metric, or what do you think about that?
You asked a lot, so let me try to unpack it. I will, you know, focus fundamentally on Gentherm. I don't want to talk for the others. For us, in terms of how we are dealing with inflation, I think starting last year, we took a pretty holistic approach. We started, first of all, collecting all the information.
We maybe waited a little longer than some of the others to go back to the OEMs to have the full picture of the situation. Once we've done that, we have been able to recover the cost of the spot buys or the premium freights that we incurred last year, and now more sustainable in that when we talk about the more, you know, inflation, the material, fundamentally, the materials side.
We have been pretty successful in achieving a good amount of customer recoveries. If we look at where we are year to date, we basically achieved almost 70% of the target that we have for the total year, which is between $20 million-$25 million of recovery from customers.
This comes fundamentally in the form of a increased price or reduced annual price downs that are part of the contracts. In addition to that, you have to think about this as important for Gentherm as we are now integrating the Alfmeier acquisition. All the awards that we are getting now have the higher, you know, cost embedded in, so the higher prices. This is important as we look at Alfmeier because this is...
Alfmeier has been running in the past a at a lower margin level than the legacy, you know, Gentherm. Now all these awards that we have on massage and lumbar are coming at the Gentherm type of gross margin, so that's a a nice lift as it pertains to the to the future on the EBITDA margin rate.
Beyond that, I think we laid out a pretty a clear path on how we will go back to the 2018 EBITDA margin rates by 2026, right? Volume is a big component. We, as Phil said, we are expecting to grow in the mid-teens CAGR, 2023 to 2026, and we're outpacing quite substantially the production volume thanks to all the awards that we, we have been securing in the past few months.
We're expecting margin expansion coming from manufacturing productivity, from value engineering, so taking cost out of the bill of material, leveraging automation and lean best practices across our manufacturing network.
Another 100-200 basis points coming from sourcing excellence and really working with our suppliers to continue to reduce costs. That's kind of our path that we laid out in the strategy discussion that we had back in February.
Great, thanks. could you comment on, you know, the pace of those new awards? It seems to have picked up pretty notably as of late. You had $670 million in the 2Q, bringing the year-to-date total to $1.2 billion. That's already two-thirds of the record $1.8 billion you did last year, you know, in just the first half of the year, right?
What's behind the uptick? Does it relate more to, to Alfmeier, to, to the traditional climate control business or the combination of Alfmeier and the traditional climate business, or, or, or maybe to battery performance solutions, or, you know, what's, what's driving that uptick?
Yeah, it, it's a little bit of all those, but, you know, if you look at the thermal business, for the reasons I pointed out earlier, you know, higher adoption on new vehicles, higher content on electric vehicles especially, some of those big drivers are helping us to grow the value of wins. Then there's some conquest wins that have happened on the thermal business, too.
Thermal's doing really well. What's been a very positive development for us is around the pneumatic lumbar massage, the Alfmeier product. We had a thesis when we acquired Alfmeier last year, that, you know, Alfmeier is a small private company in Germany with mostly German customers, that we would take their best-in-class technology to our network of customers, and especially North America customers and Asian customers.
That's proven to be successful, faster than we even expected. We've won 6 conquest awards, since the acquisition closed. We've expanded with existing customers that Alfmeier had. You know, the, the pneumatic and lumbar product, if you look at that pathway to 20, 26, we expect that'll grow at, at the same level or faster than the thermal business, based on the award, cadence that we've had.
Interesting. Thanks. You mentioned in the opening remarks you mentioned ClimateSense. You know, I think you've got your first launch coming up here in the fourth quarter, with the Cadillac Celestiq. Low volume, right? Nevertheless, represents a milestone for the company, given it'll be the first production vehicle to feature ClimateSense.
You know, what can you tell us about this upcoming launch with the Celestiq? You know, how does the content per vehicle you might generate with a ClimateSense vehicle compare to, you know, your more typical suite of climate control, you know, seat offerings, et cetera?
... Yeah, the, we're super excited and very focused on that first launch with the Celestiq. You know, we've, we've pointed out that ClimateSense, in general, in general, is 2-4 times the content of our typical CCS system or, you know, Climate Control Seat system.
This one's gonna be the Celestiq is very contented, so it's on the high end. We're really excited about it. It's, you know, It's gonna be a very prominent feature of the Celestiq when it launches. We're in those final throes of, you know, finalizing the, the installations and the performance, and, you know, it's going quite well so far. Of course, we have a second win with GM that is soon, is soon to follow.
Yeah. GM has an event this evening for the unveiling of the Cadillac IQ, the battery electric version of the Escalade. I've been hopeful, suspicious that maybe it's, it's that vehicle, and, and, and, and we'll hear more, 'cause I remember when GM debuted the, the, the Celestiq, that they mentioned Gentherm-
Mm-hmm.
in the press release, and, you know, it was one of the only, branded suppliers right along with the, the tires or whatnot, right? So I, I think, if it is that vehicle, we'll probably find out, 'cause GM will probably talk about it.
Well, I think I can tell you right now...
Oh, please.
-that, ClimateSense technology will be on that Escalade.
Oh, fantastic. Yeah. Yeah, I think you front run it by only a couple hours so you'll probably be okay. I don't think Mary Barra will hold it against you. That's gonna be fantastic. Yeah, and I'm, I'm really excited to learn tonight whether that replaces the Escalade entirely, you know, they're just moving entirely battery electric, sort of like, you know, the Macan is about to move to battery electric and, you know.
I t's sort of like I, I was talking with Paul Jacobson earlier. This could be a sink or swim moment. You know, they can't afford to just have that vehicle trickle out. Yeah, that'll be really interesting.
And, you know, maybe a follow-up there is, 'cause in your intro remarks, you talked about, kind of two reasons to, to use ClimateSense. You know, one reason is, comfort. You know, it's, it's enjoyable, it's, it feels good. And then the other reason is, like, economy or, you know, it helps the, the range of the vehicle, et cetera.
I mean, the Celestiq is a $340,000 vehicle, so I don't think that, you know, they're, they're trying to, you know... If you put in a Rolls-Royce, it's gonna be for comfort and luxury, right? What do you think is, is the bigger driver there?
Is it, you know, the, the luxury aspect of ClimateSense, or is it the economical, you know, range, you know, type aspect or, or combination, or how should we think about that?
You know, I think there's gonna be a continuum over time as ClimateSense is rolled out in the market. You know, it's probably gonna lean early on, more on the comfort side, with the side benefit of, you know, of range extension.
You know, I think there's gonna be, you know, a little bit less content as, as it starts. I'm talking about industry-wide, and then more content over time, and in that case, it's gonna have a much more dramatic impact on, on range. You know, ClimateSense, the benefit we're seeing as we present this to our customers is, we're getting more content of our core product too. Because you can kind of start to stack up all of our devices, and we've helped OEMs do this.
You can create an equation for range extension based on seat heat, add in CCS, you get a little bit more. Add in the steering wheel, you get a little bit more. Add in the ClimateSense software algorithm, you get a little bit more. Add in more seats, you get a little bit more. Add in neck conditioning, you get a little bit more. You can kind of see this build.
Y ou know, as you can imagine, a full ClimateSense system is a lot of added cost for, for the OEM. You know, as they're transitioning their HVAC strategy to scale down HVAC over time, that's gonna allow more and more content. I, I would view it as kind of a continuum over time.
Very interesting. You know, beyond these two awards that you're now able to talk about, how do you imagine the progression of future awards might occur? You know, I- I'm curious if maybe it could start to accelerate o- once, you know, there are some vehicles out there i- in the marketplace.
Now, once the Escalade has it, you know, the Navigator needs it, you know? Do, do, do you expect the launch of these vehicles to, like, raise awareness and, and, and, I don't know, consumer poll or, you know, automaker, you know, competitor desire to, to engage e- still more conversations with you?
I do. You know, we, we still have several development projects going on, we added a few new EV manufacturers just this year in terms of doing development projects. You know, each OEM is going through their own learning phase and absorption phase of the technology and trying to determine how it fits in.
You know, the way I would kind of picture the landscape is, we'll, we'll get a few system-level ClimateSense, full system-level wins over time. Probably what you're gonna see a lot more of in the next couple of years is the phase-in approach. We've, we've purposely designed ClimateSense to be modular, so that every device that we produce can be controlled by the ClimateSense algorithm independently.
It can be either embedded, the software can be embedded in the controller for the device, or it can be up integrated into a larger domain controller in the car. It's very flexible architecturally. You know, so I think we're gonna see a lot of different benefits that come out of this over time.
Going right to the full ClimateSense has probably taken a little longer than we expected, which is why we're kind of opening up discussions with, you know, EV manufacturers and others that, you know, maybe it's a little easier to change the full architecture in the car around the HVAC system.
I think it was about exactly a year ago that you closed on Alfmeier, August 1st, maybe 2022. You had high, you had high expectations for it. You know, it kind of came out of the gate with a lot of, you know, quick proof points, right?
With that sort of combined award that almost, you know, must have been worked on, you know, ahead of time, too. I don't know if that was ever disclosed to be Tesla, or I'm remembering we, we suspected it was. I'm not sure if you've identified that customer, but, you know, you talked about the customer introductions going really well. Did you-- did you have a win with Stellantis recently?
I mean, just talk about the, the traction that, that, you know, improved kinda go-to-market strategy is, is providing for you.
Sure. Well, You know, I, I would say, I'll start with what's happening in the market, with the pneumatic lumbar massage. We see a really nice, take rate increase in vehicles for the pneumatic lumbar massage. That there's a big benefit that's happening as we integrated Alfmeier at the same time. Number one, is consumer demand for pneumatic lumbar massage is taking off, or any kind of lumbar massage in the car is, is really taking off. OEMs also want to differentiate their vehicles with it.
That, that also applies to the, the higher-end massage, which is actually a very low take rate in the market right now. More and more vehicles are using that as a differentiator, to massage the whole back, the rear, the side bolsters, the whole thing.
We've got a pretty extensive, scalable model there. The other thing that's happening on the lumbar side, in particular, many of you have probably experienced this, a lot of the current production lumbar systems are mechanical or electromechanical, which means there's a pretty hefty device that's embedded in the seat that has to expand and contract using motors and, you know, mechanical features.
Those are heavy, those take up a lot of space. There's a transition to replace those, which are the most prevalent in the market, with pneumatic systems. Because our pneumatic systems are, you know, basically thin bladders, if you will, almost pillows, that are embedded behind the seat. They're very flat, and they expand based on pressurized air. That's also happening.
The last for us, and, you know, uniquely is, you know, we have, obviously, we've, we've built our reputation as a very trusted supplier of thermal systems over years, and now that we have this technology, it's, you know, it's a very fast go-to-market.
Generally, the OEMs have the same purchasing groups that handle both the lumbar massage and the heating and cooling, so we've just latched into those relationships and, and found opportunities to, to win on these new vehicles and also, you know, some important conquest wins.
I remember at this conference, relaying to the investors just how comfortable the neck conditioning is on a, on a cold day. Now I can come to them and say, after we visited you last December, for the first time, I felt when you combine the heat and the cool with the massage, it's like a, a whole another level.
Yeah.
Right?
Yeah.
It's, it's... I don't know, it's like a, a personal masseuse or something. It's almost like a medical aspect to it, too.
Yeah
right?
Yeah.
Yeah, it's, I, I, I'm definitely a believer in the synergies of that. Maybe moving to the battery performance solutions, you know, could you provide, maybe an overview, starting, cell connecting aside for a second, the battery temperature management-
Yeah
... business within that? You know, your website, I saw, makes mention of thermoelectric warming and cooling, but then also air cooling and liquid evaporative cooling. Is there a rough breakdown that you're able to provide? Like, how much of your business is in the area of thermoelectric versus air versus liquid?
Then, you know, maybe there's a sense that thermoelectric would grow the most quickly, but I, I saw that you won a battery cooling award with Hyundai in air cooling in the most recent quarter, too. Is that kind of a growth business also? Then on the thermoelectric side. Sorry for the three-part question.
You know, I, I think traditionally, this is thought to be more applicable to, like, 48 volt or mild hybrid. Just curious if, you know, with the advancement of technology, if, if, if that could, maybe grow to encompass, at least smaller size, you know, battery electric vehicles, what was previously only done with, liquid, et cetera.
Yeah, I'll, I'll, I'll kind of give you the whole overview of our product line.
Yeah.
I'll, I'll start with the thermoelectric-based heating and cooling, and that is targeted at 48 volt mild hybrids. It's been very successful for us so far. We certainly, you know, back in 2018, the expectation was by 2025, that I think 35% of the market was gonna be mild hybrid.
That never really materialized. There's gonna be limited growth on that. It'll really be targeted around the, the mild hybrid, although we're, we're still seeing traction in mild hybrid. It's, that's, that's our largest revenue generator as of now in the BPS space.
Mm-hmm.
As we've got a very innovative proprietary product there that we really like, but it is limited to, to 48 volt. Then we have air cooling. Air cooling is, it's, it's fundamentally for hybrid vehicles. That's where it really becomes the most effective.
The power generation for a full high-voltage EV is probably not enough, typically. It can be used for spot cooling and things like that, but we see that with 48 volt as well in certain applications. The Hyundai award you just mentioned, will actually cover 80% of all hybrid vehicles for Hyundai.
Wow!
with that award. We're excited about that. I think air cooling is very important and will continue to grow. We're, we're very happy with our position, and it actually dovetails nicely with our interior heating and cooling business because it uses these, I call it intelligent blowing, you know, blower devices. You know, we, we produce, 20 million+ ... blowers a year out of our business. We're very, very competent in that, and it, it's fitting very nicely.
You use that in the seats, too, right?
We use them in the seat. That's what I meant.
Oh.
Interior, yeah. Then on top of that, we, we have resistive heating and cooling that uses a proprietary, thin flex foil circuit that we've basically invented at Gentherm, and we're using this machining to etch in a circuit that'll allow, you know, the heating circuit to work effectively and warm the battery cells. With that, we've won a handful of nice businesses.
It's really a problem-solving device. Whenever there's, you know, extreme cold spots that the OEM has trouble warming, we've got business with, also with, with Jeep on that, actually, and through Samsung, we've got some business there, and LG. That product, you're gonna ask about the cell connecting.
Mm-hmm.
Was we kind of had a spin-off of that thin foil product into cell connecting devices. This is, it's probably the fastest growing opportunity we have in all of our battery performance solutions. It's basically taking that same concept of etching a circuit and using it as the communications connector, you know, between the cell devices and then linking that back to the Battery Management System. It really is a circuit that's created there. The idea is that, that would that can replace the current state-of-the-art, which is chemically etched devices.
Is the cell connecting technology, is that complementary to a Battery Management System, or yeah?
Yes, it's complementary to a Battery Management System.
Okay.
That's right.
Very interesting. I've got a few more questions, are there any in the audience?
Quick question. Thank you for your time. What's the TAM of the medical segment?
It's about $2.5 billion, so it's a sizable space, and that's, that's our addressable market in the space. Of course, we're below $50 million for this year. You know, our, our aspiration there is to turn that into roughly 10% of our business over time. You know, it's a great little business.
You know, it's been a struggle in the last, the last several quarters because the U.S. market is our largest market, and, you know, hospitals have been under tremendous stress, at- financially. What's happened there is 60% of our business is capital equipment, so there's been a huge, you know, constraint of capital spending at the hospitals, and it's, it's created a little bit of pressure for us.
The other thing that's happening is a lot of labor turnover and flux in the hospitals. We typically, you know, selling through nurses is a big process for us, and those have been very difficult. Our U.S. approach to the market had been direct, with our own direct sales force. We're actually pivoting now to work on large partnerships.
You know, we, we've realized in this, in this last couple years that that will be a better approach for us to, you know, more quickly reach that, that space. We have a great portfolio of products. In fact, we have the largest breadth of modalities in the industry. We have air-based body warming devices. We have liquid-based, so it's kind of a liquid circuit that can heat or cool the body.
It's especially used for cooling the body under, when a body's under intensive care or trauma. We also have a blood heating and cooling device. Then finally, we have resistive, a resistive device that uses. It's actually the same technology we use for heating and cooling the seats, to heat and cool the body. We're really excited about the product, and the expertise that it, that it brings us, back to automotive.
You know, what we learned, when you're in, in the hospital and you're, you know, improving outcomes in procedures, you, you have to understand the science of thermal physiology. We take that scientific knowledge and the same people, bring that back to the automotive product. Huge differentiator for us with our customers in automotive.
Yeah, go ahead, sir.
Thought about the LRP, the top line. What were the assumptions made around content?
Pretty modest. We use mostly the scalable increase in content that's built up in there. It's pretty modest in terms of full system wins between now and 2026.
Yeah, I love that go-to-market. I can imagine being in, in the sales pitch with the automaker. We understand thermal physiology, you know, we're in the, the hospital operating room, and what, what does this, you know, seat heating company, you know, understand about it? You know, we know it so much better.
You know, on the medical business, you mentioned the, the difficulties, in the industry. Seems like, you know, you, you've been, you know, pursuing some coping mechanisms, though. There was the Dacheng Medical acquisition. You mentioned, a lot of what you do is, like, capital related. My understanding was there, that might have been got you in a little bit more like reusable, a little bit more, maybe it's a little less, economically sensitive. Maybe talk about that.
Then also, this relationship with SourceMark that you announced in the most recent quarter. I mean, how, how should we be viewing that? Is that going to help you more, like, drive sales growth, you know, better than, you know, a, a vertically integrated sales force could have done? Or is it more about, like, lowering your, your fixed cost base to allow you to be more profitable in industry downturns, or is it both, or how do you think about that?
It's both. I'll talk specifically about the, the idea of large partnerships, and our first big announcement was with SourceMark, and I'm really excited about that. Great cultural fit with SourceMark, and they're a, a certified minority supplier to the hospital networks, with relationships with virtually all the large GPOs, which we didn't have all those.
They really are gonna open up the opportunities to, to take our product to market. That's first and foremost. Then as, as we grow the business, you know, we will need very little addition of sales force as we do that, because they're gonna pick up the load on that end.... We were talking to other, other partners, and, you know, they're all a little bit different types of relationships.
More to come on, you know, as we're able to close some of those deals, we'll talk more about those. Dacheng has been great. You know, the Dacheng is actually, their primary product is high-volume air blankets, so those are disposable, actually, in the hospital. You use them once, throw them away. That gives us really nice scale on the air, air side, plus a route into China.
China is much more in the early stage of adoption of patient temperature management. We're really excited about having, you know, a really strong foothold in the China market. You know, every quarter, we're winning a lot of new hospital accounts. We just had 20 in the last quarter, new hospital accounts there. We're pretty excited about that, you know, what that can do for us as well.
I was gonna ask about if there's any kind of update on the greenhouse gas emissions credits that might be available to automakers as a result of using some of your systems, which could result in, you know, less draw on the HVAC system. In doing so, maybe I could dovetail a question in, too, about General Motors, because it was GM that, you know, conducted that study with you, and it's, it's GM that is you're featuring the first two ClimateSense launches on. Maybe speak to the relationship with that automaker as well.
Well, yeah, GM's, GM's our largest customer and very strategic customer, too. You know, they're wonderful to partner with. They have great technology vision. Obviously, ClimateSense is our first go-to-market with them.
And, you know, we, we have a great number of vehicles that we're, we're partnering with them on, and, you know, it's, it's a very holistic strategy that we have with GM when it comes to not just comfort performance, but it's scaling across vehicle lines to take advantage of, you know, economies of scale there. And, and of course, it's range extension, and it's, and it's also a support for their, their fuel economy as well. All those are kind of part of the whole package of our relationship.
We are seeing a lot more interest in EV range extension now, though, that there's such a prevalence of hybrids and EVs coming out. I'm speaking more generally, not just GM. That's where we probably talk, it's probably 10 to 1, our discussions on, you know, range extension versus, you know, fuel consumption improvement.
I was interviewing the CEO, CFO of Adient earlier today, and they were speaking very highly of their relationship with Gentherm, and, you know, just talking about how they can accomplish, from a go-to-market strategy, anything that Lear can do, if not better, by partnering with Gentherm as opposed to trying to vertically integrate that.
They were also talking about, you know, the difference between their own profitability and, and that of Lear's, and saying, you know, one difference was, you know, Lear's got this linchpin, you know, program and they didn't mention it, but it's the T1, you know, the GM pickup trucks and SUVs, and, you know, that's, that's Lear's, largest program by far, and I'm sure what they'd like to, you know, vertically integrate, but the thing is that GM loves you, right?
Do you see your relationship with GM as, you know, validated from a ClimateSense perspective, from a GHG study perspective, as, you know, an indication that you're gonna remain a Tier 2 supplier to them on their most important programs?
I can't speak for them, you know, I can say that the relationship is strong. We're very focused. We take nothing for granted with any customer, and we know we have to deliver incredible comfort performance. We have to deliver a cost competitive package, and then we have to perform over time, and that means delivery, quality, et cetera. I'll just leave it at that.
Okay. fantastic. Please join me in thanking Phil and Matteo for all the great insight they shared.