Great. Good morning, everyone. My name is Edison Yu. I lead the U.S. Autos equity research. Here. We have the pleasure of welcoming Visteon Jerome Roquet, CFO, to the conference. Just to provide a little bit of context, Visteon is a global leading Tier 1 supplier of vehicle cockpit solutions, ranging f rom instrument clusters to displays to main controllers. For those of you who are not as familiar, Visteon generated nearly $3.9 billion in sales last year and secured over $6 billion in new business. In particular, making a lot of traction with the Japanese OEMs. Perhaps most impressively, the company delivered record profit and free cash flow last year, despite a very, very challenging backdrop in China, $474.3 billion j ust free cash flow. Of course, now we have one of the people making all this, one of the cooks behind all this, Jerome.
To begin, I'd like to start. Off on the vehicle cockpit. It seems it's getting a lot more attention, a lot more focus than ever before. China arguably has been at the forefront of this trend, but naturally this is expanding in the U.S. and Europe. How do you think about the different layers of the of value capture you have this year?
Yeah, no, thanks, Edison. Thank you very much for having me here. Maybe before I even dive into the topic, let me maybe give a quick intro on Visteon and who we are and what we're doing and then I'll answer maybe more directly your question. Maybe just in general, Visteon is a pure cockpit electronic player. We offer a very large range of products from digital clusters to infotainment, including as well cockpit domain controllers, displays. We've gone as well into electrification with our BMS system. Our core capabilities are around software as well as around displays and t hat is what allows us to offer a full suite of products. Our sales, as you said, are about $4 billion. We are very global. We're pretty well balanced as well by region. I would say a third in every large region.
We are employing about 10,000 people, out of which about 4,000 are engineers. That shows the focus that we have as a company, as a technology company. Very good profit. In 2024, we were at 12.3% EBITDA margin out of less than $4 billion in sales. We generated last year about $300 million in free cash flow. Just a quick backdrop on this sale. Maybe to answer your question, given that we are in the cockpit, and given that the cockpit is becoming a key differentiator when you sell a car, Visteon is very well positioned. We've seen significant trends not just in China, but just generally and m ore and more technology is going into the car.
That means more digital clusters, more connectivity with your phone, better infotainment systems, better rendering as well of the information with larger curved displays and better quality as well for the rendering of the misinformation. We have seen these trends going into the industry and it is true that China has probably gone pretty aggressively on the technology side. We do see this as well. We have seen that and benefited from this pretty much everywhere in the world. I would say that is where our skill set applies very well. You see more and more complexity in the cockpit from a technology standpoint. It is not only the software domains that need to be mastered, but as well the integration of other areas within the cockpit that have got to be very well mastered.
Because of our large range of products, we're able to grow and we've been growing quite significantly in the last few years. I think maybe as you were mentioning China, I'll point to a win that we had last year with Geely and we were able to get onto their Zeekr brand and got what we call a high performance compute system with Geely. It shows. It demonstrates that especially in China we can be very technology competitive as well as cost competitive. Given that we were competing with many competitors.
Can you share with us some observations or learnings in respect to consumers developing different kind of taste behavior, especially in the cockpit entertainment? I imagine a lot has maybe changed in the last couple years. How has it influenced your product?
Yes, no, absolutely. It's been a very fast moving world I would say. As I said, the cockpit is the key differentiator when you buy a car. There's not that much differentiation on everything else. The powertrain is less differentiated. It is really the cockpit that makes the differentiated. Consumers have been asking for more and more technology in the car. They want to have their phone going in. They want to be able to interact in the same way they interact at home with their phone or computer. That is where AI as well will have probably a strong place to play in the near future. If you look back a few years ago, whenever cars were sold, you had generally one trim that was a digital cluster. Very often now you have three, four trims that are digital clusters.
In the course of just three, four years, we've seen a tremendous content increase generally in the car on the digital cluster side. We've seen the same as well with Infotainment. It's very rare now in the western world to sell a car without CarPlay, without a phone connection. What we've seen as well on the display side are larger, more sophisticated displays, which again plays very well into what we're doing given the sizable investments done on both softwares, but as well as o n displays
Competitively, I'm curious, what do you think the products offerings that they're most strong in, which areas do you think are most competitive?
Given that we've always positioned ourselves as a pure cockpit electronic, I would say that we are most of our products, if not all of them, are very strong. What is maybe as impressive is the fact that we have a very large breadth of products from, again, digital clusters to infotainment systems to cockpit domain controllers, the basic one, but as well the high compute ones, the high performance compute one as I was mentioning, all the way as well to electrification. We have been benefiting as well from the electrification growth that we've seen over the last few years, even though the levels are probably lower than we had anticipated. I would say a strong product line overall. What is important for us is to keep on innovating. That is one of the characteristics as well of Visteon.
We've been extremely focused on innovation, not innovating too early, not too late as well at the same time. Trying to be at the right time with the trends and in some cases as well setting the trend. We were the first ones who developed and sold a CDC system, cockpit domain controller system, back in 2018 to Mercedes. That innovation has been at the core front of everything we do. To have a strong product portfolio and to be able to sell it, you need as well to be cost competitive. We do have a pretty strong, pretty well, best in class, I would say, cost structure and we prize ourselves with as well very good product cost.
These tech companies, whether it's the big one from here or even Huawei in China, they're trying to get much more involved in the cockpit. Sometimes maybe as on the chip, sometimes on the interface. How do you manage that relationship? It seems a little bit of collaboration, but also to become.
Yes, yes, it is. We've, from, let's say from many years ago, we've partnered very well with Qualcomm and given again the complexity of the cockpit these days you need a lot of high compute power in the car and we've got, I would say, almost a preferential relationship with Qualcomm which has been developed over the years. We use their Snapdragon chip in our CDC system. At the same time, I would say that we are agnostic to what chip we're using in the car. So we've been using Samsung as well in the past.
If you think about the next generation of cockpit is this way, you're thinking. That almost all cars, at least maybe a bove a certain price will have digital cluster. Will they have, you know, big screen? Is this kind of where the industry is heading? If you do think that, how much extra content do you think they can?
Yes, I think you can. I would think indeed that most of the cars will have digital clusters for sure. I think as well some displays because of the volumes that we're able to produce, some of the standardizations that we've been working on. I do think as well that a lot of cars will have displays and you can tone up or down the level of displays you're putting in the car. You can have on a mass market car a pretty simple display. Whereas what we've seen recently as well is the OEMs differentiating the car with what people see first when they come into the car and that's the display. We have pretty interesting shapes that are sometimes very difficult to produce.
That's been a great way as well for us to compete and be able to offer this technology, which is not easy to produce. I think there's sometimes a misunderstanding about displays. A lot of people think these are commodities, and they are probably commodities for your phone. They are pretty simple, they do not have to last 10 years, they do not have to be exposed to extreme conditions, and the curvature, the curvature of the display on the phone is non-existent. All this technology, all these investments that we've done on displays have been absolutely fantastic and help us differentiate and offer not only in mass market displays, but as well in more premium brands, really differentiated displays.
G iving rough numbers around, t he content in something very basic versus where you think we might be headed.
Yes. If you step back a few years ago, most of the cars had hybrid clusters. Essentially, a cluster that had an analog gauge as well as a little bit of digitalization with a small screen, these clusters were worth about $75. A digital cluster today is worth $150-$200. That is just for the cluster. Displays can range literally from $100-$150 to over $1,000 when you go to, for example, pillar to pillar display. The range is very large. What we have seen, and a CDC, which is, if you think about a CDC, it is essentially the combination of a cluster as well as an infotainment system. These products are between $350 and can go again all the way to over $1,000, especially if you are putting AI in there.
I would say the content in the car has been absolutely increasing over the years and our success has been the fact that we've been able to win new business with new customers and therefore increase our market shares as well as we benefited from that content increase.
What's been a response to the—I think you've got the pillar, the pillar, the really almost like the fold, the big ones. It seems just from the reviews we've seen, is Golf 8[guess] I don't know if that is accurate.
Yes, I think there are personal preferences. I think the luxury cars are trying to make a statement, and in fact we see that when we go and bid for these kind of businesses, you have a lot of focus on the competition because it's a statement for sure. As well, some of these are quite complex to produce. It shows as well your capability, your leading edge technology in this case, if you're able to win this game of business and execute and produce according to the plan, which is not always easy.
You mentioned AI. I have to ask a little about that. Given the relevance of gaining in the cockpit, where does AI fit into all this?
AI is, I would say, everywhere going into your phone. It will as well come into the car. I think a lot of people have talked about AI in the car, but it's more essentially a replication of what you have on your phone. What we've showcased at CES was AI in the car that integrates the real live data that you have in the car and essentially combines this with the cloud so it allows you to interact with your car but using the data that is in the car. The way we're thinking about it is not only obviously a reactive, where you're asking a question to your car and the car answers, but it's as well a very predictive type relationship with the driver or the passenger. Again, using real live data that is in the car. That's the big differentiator.
We have showcased our platform, which is called Cognito AI, and we have since seen, in fact, we have had a lot of inbound from customers. I think they are still trying to see how they want to use this. China is probably a little bit more advanced in this area and again pushing the envelope on the technology side. We have had very good inbounds from some of our customers already on this topic. I would say more to come on the AI side .
Strategically, w e noticed you've been insourcing components recently. How much do you think in this next-gen infotainment cockpit world you need to control that, cultivate a moat?
Yeah, that's a great question. We started this in fact, I would say three years ago when we had our analyst day back, I think in 2023, we already were talking about insourcing a lot of the display manufacturing. We think about it as a competitive advantage from a, definitely from a cost standpoint, obviously, but as well from a technology standpoint. If you're manufacturing yourself the certain products, some of the components that you're assembling, you are at the leading edge of technology. You're more likely to stay relevant. That's kind of the philosophy. Displays has been a great success story. We are insourcing now a large portion of our displays and invested in our major plants to have that capability. There are other streams as well of insourcing that have already been almost completed.
We do, for example, magnesium injection molding, which is pretty technical as well. We tend to go for the more technology savvy areas that tend to be expensive when you buy them from the outside t hat can give us as well competitive edge.
Does it make sense to have any foot in the door for voice recognition?
When you say voice recognition in the car?
Yeah.
Yes, yes, absolutely. That can be. I think there'll be many, many forms of AI and many use cases. Yes, absolutely.
I guess in relation to that, you on the insourcing side, I think a couple years ago, in the last couple years there's been rumblings about the OEMs kind of wanting to take more control over the cockpit because of the reasons that you mentioned, the importance of it. Is the insourcing kind of helping to defend the position at all to make?
That kind of independent from what they're trying to do. But it's true that if we are cost competitive, if we are technology focused, will be very competitive with our customers and in some case, in fact, in many cases prove that it's. There's no point for them to insource. I think the challenge the OEs have got these days, they've got so many things to worry about. If you think about the, a nd I'm not even talking about the powertrain, but just even in the cockpit. The amount of domains you have to master being cybersecurity, connectivity, functional safety. These domains are pretty complicated and they get more and more technical every day. So it's hard for OEs to be able to master all these and therefore we do have a pretty big role to play i n my mind.
We are also, and t hat's a good indicator that they are realizing that it's hard to master everything. We have expanded in a more intentional way into engineering services in the last year, and we've acquired a small company that is doing that largely because we've realized a lot of OEs are using a lot of engineering services firm to be able to get advice. These are more like consulting type activities, supporting, recommending, advising on certain matters. It just showcases the fact that it's complicated. We're not pretending to know everything, but over time, if you think about the number of platforms that we've been launching over the last 10 years, we're launching about 100 platforms per year, I would say 1,000 platforms. It gives us a very broad range of experience. It's a little bit like Tesla that has been about what they're doing for many years.
It's very similar for us. For the OEs to come in and recruit 2,000 people, we've seen that in a few cases it's not that easy to become expert on a certain topic. Even with recruiting 2,000 people.
I hear you on that. You've got a lot of traction s peaking of the new launches, new ones, you've got a lot of traction with a very tough crowd, Japanese OEMs in particular, Toyota. You see opportunities to replicate this with further.
Toyota has been a fantastic success story for us. If you even step back in 2019, Toyota was not a customer. Today, a few years later, we have already won more than $2 billion of new business with this customer. We have already won more than 10 platforms out of our top 20 platforms. It is a great success in a very short amount of time. By 2028, we think this customer, with what we have won today, will be close to 10% and will be in our top three to top five customers. It has been a very rapid success story. What has happened with Toyota, we were able to obviously showcase cost, technology, and quality as well, but also speed. They wanted some quick refresh of their cockpits and we were able to do that.
They tested us along the way and slowly but surely given us quite a lot of business. What we've been focusing recently is trying to tap into other customers that are indoor indexed for U.S. indoor index. There are four customers that we are targeting: Toyota, Maruti Suzuki, Hyundai, Kia, and Honda. These four customers represent 5% of our sales today, so pretty small, but they represent about 25% of the market. We've done a fantastic job with Toyota with what we call landed Hyundai, Kia, as well as Maruti Suzuki with a first win with Maruti Suzuki last year. The objective is now to expand and we generally do that pretty well. We are very customer focused as an organization and we hope to be able to increase our market share with these customers.
We are also going into adjacent markets like CVs and two wheelers which are as well seeing the increase in content on the digital side. A lot of the bikes now have digital clusters, the large class A trucks as well, obviously with full infotainment system. There is a lot of migration of what we have seen in the car as well into other areas of like CVs or two wheelers. We do have a lot of opportunity to grow not only with our product lines but as well with very specific customers or as well very specific segments.
One area that's been tough, China. And I think you've acknowledged this, you know, several quarters but I get the impression that maybe the worst could be over. Would you agree with that?
Yes. And that's what we've guided to when we announced our guidance at the beginning of the year. We do think that 2025 will be the low point for revenue for China. China represents a little bit less than 10% of our sales overall. Now these days 40% of our customers are local domestic OEs and 60% are international OEs. What we see going forward is a resuming of the growth in 2026, but as well in 2027 as we won already some businesses with Geely with local OEs but as well with some of the international OEs. We're only focusing on, mostly focusing on Germans and Japanese who we think will keep some level of share in China. With this we think that the share between the local and the international OEs for us will be about 50-50 in 2027.
I think maybe if I can add again, the Zeekr win that we got recently shows that we can be very competitive. We are focusing in China on the more technology-critical items as opposed to trying to fight in mass market where you have outrageous price wars.
Want to move a little bit more to the financial side. Obviously the execution recently has been excellent both on margin and free cash flow. What's the next priority for you?
It will remain margin and cash flow. Yes, we've done quite a good job in the last five years. If you look at where we were in 2019 and where we are today, we doubled EBITDA and added more than 500 basis points of EBITDA. Our free cash flow has been, in terms of generation, we've been at close to 40% on average over the last five years, 40% of EBITDA in terms of free cash flow generation. It has been a great story. We still have got, in my mind, a lot of opportunity to continue expanding. Obviously, growth will keep on helping and we've done a good job at growing without adding the level of fixed cost that is needed to run the business. Scaling has been a great way to improve the margins.
We do have further vertical integration initiatives that we're working on. As a mortal supplier, we're always working on manufacturing productivity. What we do as well, given that we have 4,000 engineers, we are also working on engineering productivity, which I think is a little new in the industry. I don't hear a lot of people talking about engineering productivity and that productivity can be people just being more efficient, having better tools, using AI, for example. If you are able to be 5%-10% more productive out of 4,000 people, that's quite a large number. That is an area we are working on, I would say. We still have got as well some inroads to make on material cost and we're working on that, getting deeper in the supply chain, trying to understand better what true cost should be.
Finally, some of the businesses that we're pursuing as well can be quite accretive from a margin standpoint. CV toolers, engineering services or high performance compute system as well, a little bit.
On the near term perhaps it seems the macro, fingers crossed, it's a bit stable now policy wise. Are you seeing better visibility in production schedules in particular in North America and how are the other regions looking?
It's been remarkably stable. In fact, we were a little surprised to see so much stability in our orders from customers. Our visibility is always the same. We have very good visibility for the next quarter and then we are using planning from customers for the longer run for Q3 to Q4, and these can be obviously subject to changes quite rapidly. We are cautiously optimistic that the volume will hold the SARS level. It's pretty strong in the U.S. these days. Inventories are low, which is a good sign. I think in Europe we've been benefiting recently in fact from the EV growth of the non-Tesla producers and we are on quite a few platform over there. That's been a pretty nice upside for us. China has been holding reasonably well for us as well. Overall we see a lot of stability in the volume so far.
On the tariffs, I had to at least one question, unfortunately, on the tariffs. I know the plan is obviously passed on. Has the timing, has the magnitude kind of been in line with the expectations that you laid out?
Yes, nothing has changed since we last reported. In fact, during our earnings call in Q1. For us the key is USMCA compliance. We have out of all the products that we ship from Mexico to the U.S., 97% of our products are USMCA compliant t oday we barely pay any tariffs and for the few percentages where we do pay tariffs, we are working with our customers to try to see what are the alternatives. It has been a good position to be in and if things can stay like that, that would be a big win.
Just one thing on the comment you made about China, do you think that on the JV, the foreign JV, do you think they've been obviously still in decline, but they've declined for a while, but sequentially is that sort of, do you think they're sort of bottoming out in terms of their performance?
I think there's still room for them to go even further down. We are more optimistic about the Germans and the Japanese. I think the other ones have been struggling quite significantly.
And then just on. The free cash flow, as we mentioned earlier, it's very strong and there's some M&A for insourcing going on. What is your framework on the capital, the return to shareholders and buybacks?
Yeah, so we've been generating quite a lot of cash, I would say we have obviously a very strong balance sheet. We have a net cash position, been generating quite substantial amount of cash flow. Our priority remains to invest in t he business. It translates obviously through engineering spend or CapEx. I am putting a lot of effort as well on the vertical integration. If we need a little bit more CapEx to vertically integrate some activities, we will do so. It is always a key priority. We have been as well doing quite a lot of share repurchases. You may know that we have an authorization of $300 million out there. We have used about 60% so far. Most recently we have been refocusing our effort on N& A. We have done a first acquisition, what we call a bolt-on small acquisition in Q3 of last year, about $50 million of purchase price.
We are pretty active in looking at other types of acquisitions that would resemble this one where we are essentially trying to acquire a very technology focused company that offers engineering services not only because they are accretive day one with very good margin generally, but as well they allow us to strengthen our engineering core teams and platform that we have developed. N& A will remain for the next future at the forefront and then we'll return cash to shareholders with the excess. Generally I would say we're trying to have a pretty balanced approach from a capital allocation.
Last question. If anyone wants to raise their hand, we can also bring someone else in. If you think about, we talked a little bit about the competitive dynamics. Do you think there's consolidation that needs to happen in some of the suppliers? Depending, I guess, depending on which of them.
In China or just generally?
Just generally whether [crosstalk]
in China, for sure, yes. I think outside of China we have got a lot of our peers that are looking for strategic alternatives. I will not give the names. I think everybody knows there was a bankruptcy announced yesterday before. There is a lot of turmoil. I would say so, yes. I do think that there is going to be some level of consolidation or at least there will be fewer suppliers on a go forward basis, at least out of the Western world. There are definitely a lot of Chinese suppliers that are emerging in China and some of them have ventured as well outside of China. The deck will be reshuffled. We are again putting priorities on technology and cost so that we can compete with the newcomers.
There's one question we've heard a lot about the geopolitical tensions creating some more of a desire for companies, especially in China, to buy from China and to source from China. Just curious, especially given their leading technological advantages in a lot of these things. What makes your products more competitive and allows you to be competitive with some of those Chinese players?
In China, I think it's the. As I said, we've been at the forefront of technology for a long time. We have as well great partnerships with Qualcomm on the chipset side and then cost as well. I think these are two critical elements. There's maybe a third one which is a little bit less tangible. It's the fact that we are able to work pretty fast. We are pretty nimble as a $4 billion company. We are not part of a larger big company, and therefore we work pretty well with the Chinese. We can meet some of the very fast demand that they have. That has been a big differentiator as well a s much as it's quite intangible.
With that, thank you, Jerome.
Thank you. Thank you very much.