Good morning. I'm Kris Doyle, Vice President, Investor Relations and Treasurer. Welcome to our earnings call for the third quarter of 2020. Please note this call is being recorded, and all lines have been placed on listen-only mode to prevent background noise. Before we begin this morning's call, I'd like to remind you this presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of future results and conditions, but rather are subject to various factors, risks, and uncertainties that could cause our actual results to differ materially from those expressed in these statements. Please refer to the page entitled Forward-Looking Information for additional details. Presentation materials for today's call were posted on the Investors section of Visteon's website this morning. Please visit investors.visteon.com to download the material if you have not already done so.
Joining us today are Sachin Lawande, President and Chief Executive Officer, and Jerome Rouquet, Senior Vice President and Chief Financial Officer. We have scheduled the call for one hour, and we will open the lines for your questions after Sachin's and Jerome's remarks. Please limit your questions to one question and one follow-up. Again, thank you for joining us. Now I will turn the call over to Sachin.
Thank you, Kris. Good morning, everyone. Visteon's third quarter performance reflects the proactive actions we took to align our business operations with the sudden impact to the industry caused by the coronavirus crisis. Our employees have proven to be resilient and resourceful in delivering to our custom commitments while simultaneously reducing costs. Our sales grew 3% year-over-year on a constant currency basis to $747 million in the third quarter, despite vehicle production being down 3% globally. Adjusted EBITDA was $87 million or 11.6% of sales, which is a record for the third quarter. This represents a 310 basis point improvement over last year, mainly due to cost reduction actions and our disciplined execution across all areas of our business. As a result, adjusted free cash flow was $103 million for the third quarter and $37 million for the first nine months.
This is higher than prior year, and the Q3 cash flow offset the negative adjusted free cash flow in the first half of the year. While sourcing activities at automakers has not returned to pre-COVID-19 levels, our new business wins exceeded $1.5 billion in the third quarter. This performance underscores the strength of our product and technology portfolio, which is very well aligned with the key trends impacting the industry. We also launched 23 new products, a record for the company, bringing the total year-to-date number to 44. The company has been undergoing a transformation of its footprint and business processes over the past several quarters, including the move toward a platform-based approach of product development. We initiated the third and critical phase of this transformation in the quarter that will result in increased operational efficiency and reduced structural costs across our business.
With the improvement in business environment and in our cash position, I'm pleased to report that the company repaid the revolving credit facility it accessed at the end of Q1 and ended the quarter with a net cash position of $87 million. With that, we are now back to pre-COVID levels in terms of net cash. I'm also pleased to report that the Visteon board and I have agreed to extend my contract for a period of five years. From a technology perspective, these are exciting times for the industry, and I look forward to leading the company in its next phase of evolution. Turning to page three, vehicle production improved in the third quarter with global production recovering to within 3% of prior year level.
Retail demand was higher than expected, partly due to pent-up demand coming out of the Q2 lockdown, as well as government incentives in some European countries. In addition, the restocking of depleted vehicle inventories at retail dealerships provided an added boost to the industry. While the overall market was down 3%, Visteon's top customers were down more at 6% decline year-over-year. Visteon sales, however, were up 3% year-over-year on a constant currency basis due to strong demand for digital cockpit products as well as new product launches that more than offset the impact of volume and product roll-offs. Sales of digital clusters more than doubled from the prior year's level and now represent almost half of our total instrument cluster sales. Digital cluster sales were particularly strong in Europe with customers such as Daimler, Renault, and PSA.
In audio and infotainment, we continued the ramp-up of recently launched programs with Ford and VW, which partly offset the non-recurrence of last year's sales promotion at SGM in China and the ongoing phase-out of infotainment business with Mazda. Sales of digital displays also grew double-digit year-over-year due to launches of center information displays and multi-module displays with Mazda and SGM, respectively. Sales of displays to BMW also increased in the third quarter, driven by the increased attach rates in China. In summary, strong market demand for digital cockpit systems and the high number of new product launches continued Visteon's better-than-market performance in the third quarter. Turning to page four. I am very pleased to report that despite the restrictions caused by COVID-19, the company launched a record number of new products during the third quarter.
We launched 23 new products in Q3, including products on flagship vehicles such as the new Ford F-150 and the Mercedes-Benz S-Class. The combined projected lifetime revenue of these 23 launches is more than $2.5 billion, which is the highest we have achieved for a single quarter and will help us continue our market outperformance in the coming quarters. These new product launches were also well distributed across the different regions, with seven in China, five in North America, four in Europe, and the remaining in other parts of Asia. Two-thirds of the launches were for instrument clusters, of which half were all digital. In North America, we launched a 12-inch digital cluster plus audio and telematics on the all-new Ford F-150, which is the best-selling pickup in the region.
We also launched a 12-inch digital cluster for the Cadillac CT5 as a mid-cycle upgrade, which replaces an analog digital cluster from a competitor. In Europe, we launched a feature-rich 12-inch digital cluster with the new Mercedes-Benz S-Class. This cluster offers 4K graphics, over-the-air software updates, and integration with augmented reality HUD. We also launched a 10-inch digital cluster for the all-new third generation Peugeot 308 vehicle. It's a good example of how digital clusters are migrating to mass-market vehicles to support new functionality, especially integration with infotainment and ADAS. In China, we launched an eight-inch hybrid cluster on the new Buick Envision compact crossover and an eight-inch all-digital cluster for multiple models with VW. In Japan, we launched a 10-inch center information display as a mid-cycle upgrade for the Mazda CX-5 compact SUV.
The two-wheeler segment has historically used analog or LED gauges for reasons of cost, but is now looking to introduce digital solutions as well. In the third quarter, we launched an innovative digital cockpit system for Royal Enfield motorcycles with support for turn-by-turn navigation, phone integration, and software updates. The 23 new products launched in the third quarter bring our year-to-date total to 44 and continue our cadence of a high number of new launches. They show that the company can execute and launch complex systems even in this challenging environment, while keeping costs in check. Turning to page five. After the second quarter shutdown, sourcing activity at OEMs outside of China restarted in the third quarter but did not quite reach pre-COVID-19 levels. Nonetheless, I am pleased to report that our new business bookings improved to $1.5 billion in the third quarter, bringing the year-to-date total to $3.2 billion.
Cockpit electronics represented about $1 billion of the total. Of that, clusters led with about 50% of the share, audio infotainment at 20%, displays at 15%, and the rest coming from other products, which is consistent with our recent performance. Unlike the first two quarters, where most of the bookings came from Asia, China in particular, third quarter bookings were more evenly spread across all regions. Some key wins included a 12-inch cluster for a North American OEM's new pickup that will launch in 2023 and a 12-inch cluster for Japanese OEM as a mid-cycle upgrade for a sports car that launches towards the end of 2021. We also won a 12-inch cluster with a North American OEM for the vehicles in Europe and North America as a mid-cycle upgrade, which will also launch in about 18 months.
Besides digital clusters, other key wins included a large 12-inch center information display for an OEM in Japan, which will replace the current smaller display as a mid-cycle update, and an infotainment system in South America that's based on our new Android-based infotainment platform. In addition to cockpit electronics, we also booked a significant amount of additional business for our wireless battery management system with GM as the OEM and its partner added vehicle models to the EV platform. We had won the initial business with GM early last year, and the first launch will be mid-2021. I will discuss our wireless battery management system in more detail on the next page.
The pipeline for the fourth quarter is similar to the third quarter, but with a stronger mix of infotainment and displays. As the industry continues to recover, we expect sourcing activity to also increase and return to more normal level. Our product and technology portfolio has never been stronger, with the progress we have made in infotainment and now in BMS solution. Turning to page six. Electric vehicles need enormous amount of power to operate, and batteries for EVs are made from hundreds or even thousands of battery cells to deliver the required power. These battery cells need to be constantly monitored for their state of health and to maintain them within allowed operating ranges. This monitoring and management of the cells is done by a system of electronic devices and software that is collectively referred to as the battery management system, or BMS.
Today's battery management systems use wired connections between the different electronics components of the BMS. A wired system has several limitations. First, the wiring harness itself adds extra cost, weight, and space to the battery and requires additional work in manufacturing of the battery pack. Second, they limit design flexibility of the battery pack that limits its reuse across vehicle models. Third, the connectors and wires of the harness are prone to mechanical failures that are expensive to fix. The wireless BMS technology from Visteon replaces the wired connections with a highly secure and reliable wireless communication technology that eliminates these limitations with wired BMS solutions. We are developing the three electronics components of this solution, the wireless cell monitoring units, the wireless network control unit, and the battery control and vehicle interface unit to enable the assembly of battery packs without the need for low-voltage wiring harness.
The software algorithms that act on the information provided by the cell monitoring units are typically developed by the OEM in collaboration with the battery cell supplier. We integrate these algorithms in our system as part of the design and manufacture of the BMS solution. We are working with GM to introduce this solution on all planned EV models powered by their Ultium batteries. The wireless BMS system will help ensure the scalability of Ultium batteries across GM's future lineup, covering all brands and vehicle segments from heavy-duty trucks to performance vehicles. We are in discussions with other OEMs for this technology as well. Turning to page seven. Electric vehicles sold very well in the third quarter, especially in Europe, due to government incentives and tightening emissions requirements, and also in China, where sales of EVs have started to pick up again.
The number of available models are also growing, giving consumers a greater choice than before. The growth in the market share of EVs is expected to continue. By 2030, EVs are expected to represent about a fourth of the total market. Visteon is in a good position to leverage this trend. Our cockpit electronics products, such as digital cluster, infotainment, and SmartCore, are powertrain-agnostic and can seamlessly work for EVs as well as traditional vehicles. Our new microZone display technology is ideal for high-quality automotive displays, but without paying a price in higher power consumption. The wireless BMS provides a scalable solution for modular and reusable battery packs for OEMs. Our products are already on some of the best-selling EVs, such as the ZOE from Renault, which was the best-selling EV in Europe so far this year.
Starting next year, our products will launch on multiple models based on new electric vehicle platforms, such as the BEV3 from GM, the PMA platform from Geely, and the new EV platform from Nissan. Turning to page eight. While retail demand in the third quarter was stronger than initially expected, vehicle production volume was also helped by pent-up consumer demand and the replenishing of dealer inventories depleted by shutdowns in the second quarter. Government incentives, particularly in Europe, also helped spur production volume. Retail demand is expected to remain strong in the fourth quarter, particularly in the U.S. and in China, but much uncertainty remains in the market. First, there is the risk associated with the recent increase in COVID-19 cases, the so-called second wave, and several countries are already considering stricter restrictions to control the spread.
Government incentives in several countries in Europe that were put in place toward the end of the second quarter are slowly being phased out and will expire by the end of this year. The next level of European vehicle emissions requirements go into effect early next year, which may have an impact on the volume and mix of vehicles produced in the fourth quarter. The third quarter's quick demand recovery has caused some market watchers to increase expectations for the fourth quarter, with some forecasts indicating a double-digit sequential growth in vehicle production. We believe these estimates are too optimistic and may not reflect underlying market conditions. Given the above risks and based on our discussions with OEMs, we believe the sequential growth will be more muted in terms of demand and production.
On the other hand, while it is difficult to forecast vehicle production in this environment, we expect our outperformance to continue in the fourth quarter based on the same reasons that drove our results in the third quarter. Cockpit electronics trends and our new product launches will continue to be important factors that should drive our market outperformance to similar levels experienced in the third quarter. Turning to page nine. In summary, the company executed very well in the face of a challenging business environment, delivering another quarter of sales growth over market and at a robust 11.6% adjusted EBITDA margin. The 44 new programs we launched and the $3.2 billion in new business we won year to date build a solid foundation for continued growth in the future.
Our product and technology portfolio for the digital cockpit is stronger than ever before, and together with the wireless BMS solution, is very well positioned to leverage the growing interest in electric vehicles. The proactive actions that we took to streamline our operations and restructure the organization have resulted in improved operational performance and an optimized cost structure while maintaining a strong balance sheet that's helping us emerge stronger from the crisis. Now, I would like to turn the call over to Jerome.
Thank you, Sachin, and good morning, everyone. In addition to the increase in activity levels compared to Q2, the financial results in the third quarter also benefited from the proactive actions that we initiated very early on this year, some of which were implemented before the COVID-19 pandemic. These actions were focused on actively generating and preserving cash and aggressively adjusting our cost base. Net sales were $747 million in the quarter, representing a 3% year-over-year growth rate when excluding the impact of currency. Adjusted EBITDA for the quarter was $87 million, representing an adjusted EBITDA margin of 11.6%. Adjusted free cash flow was $37 million for the first nine months of the year. Our focus on cost control is evident by the significant reductions in both engineering and adjusted SG&A that we are reporting.
Gross engineering in the quarter is down 25% and adjusted SG&A is down 19% compared to last year. Both areas benefited from a combination of short-term and longer-term structural cost initiatives, which will allow Visteon to support a growing business with an optimized structure. Our focus on cash continued in Q3, allowing us to maintain a strong balance sheet. To address the numerous supply chain challenges throughout the last few quarters, we created a global sales and supply chain task force early in the pandemic, which continues today to optimize our inventory levels while ensuring we service our customers timely. We ended the quarter with $164 million in inventory, a 15% reduction year-over-year, representing a cash inflow of $10 million from Q2 2020, and this despite a significant increase in sales on a quarter-over-quarter basis.
CapEx was down 24% on a year-to-date basis, and we continued to target a 20% reduction for the full year versus 2019. In aggregate, adjusted free cash flow for the quarter was $103 million and $37 million for the full year. Q3 adjusted free cash flow also benefited from approximately $40 million of temporary supplier term extensions that we negotiated in the midst of the crisis in Q2, half of which will reverse in Q4 of this year and the remainder early next year. With cash generation coming in strong in Q3, combined with a strong balance sheet and improving activity levels, we repaid at the end of September the entire $400 million revolver credit facility that we had access as a precaution at the end of Q1. We also repaid our short-term debt.
As a result, our total debt was reduced to $348 million at the end of the quarter. Combined with a total cash position of $435 million, our net cash position after debt stands at $87 million. To put this in context, it is essentially the net cash position that we had at the end of 2019, which was $84 million. Turning to page 11. On page 11, we provide a summary of our sales and adjusted EBITDA for Q3 2020 versus 2019. Sales of $747 million in the third quarter increased $16 million year-over-year, representing a 3% improvement when excluding the impact of currency. In comparison, industry production volumes declined 3% in the same period, while production volumes at Visteon's top customers declined by approximately 6%. Pricing represented 2.3% of prior year sales and continues to be within our historical ranges.
The combination of ongoing new business wins and a robust launch schedule has enabled Visteon to continue to outperform the market. Adjusted EBITDA was $87 million, or 11.6%, representing an increase of $25 million versus prior year. Strong cost performance in manufacturing, engineering, and SG&A more than offset the negative impacts from mix and annual pricing. We estimate that short-term measures implemented earlier this year, including temporary salary reductions and curtailed spending, benefited margins in Q3 by approximately 1.5%-2%. These measures will not carry into Q4. Adjusted EBITDA benefited from permanent savings related to the restructuring programs announced earlier in the year and which are coming to completion. The most recently announced restructuring program will not have a material impact in the fourth quarter.
Before moving to cash flow, I would like to provide some context on our continued decision to not provide guidance for the remainder of the year. Although we are optimistic coming out of the third quarter, the rate of change in production forecast has not stabilized. For instance, IHS forecast for Q3 improved nearly eight percentage points in the last three months, with a two percentage point improvement in just the last month. In addition, the fourth quarter has the typical uncertainty related to holiday shutdowns and year-end OEM inventory managements, with the added complexity of COVID-19 this year. However, we do expect that we will continue to outgrow the market in the mid to high single digits.
Adjusted EBITDA will continue to benefit from the structural savings that we benefited from in the third quarter, while we do expect cost increase due to the expiration of short-term salary reductions and a gradual increase in discretionary spending. Engineering recoveries will not have the same seasonality in the fourth quarter as they had in prior year. We expect full-year net engineering to be down in the mid 20% range compared to prior year. In total, we are now anticipating that incremental margins will be in the mid-teens for the full year. Moving to cash flow. Page 12 provides an overview of our cash and net cash position at the end of the quarter, as well as our adjusted free cash flow for the first three quarters of the year.
Our balance sheet continues to be one of the best in the industry, with a net cash position of $87 million and a net debt to last 12-month EBITDA ratio of negative 0.4 times, with no near-term debt maturity before 2024. Adjusted free cash flow year to date was $37 million, and Q3 adjusted free cash flow was $103 million. Working capital was a source of cash, benefiting from our focus on optimizing inventory levels and negotiating temporary extended payment terms with our suppliers. Capital expenditures decreased by more than 20% on the year-to-date basis, putting us on track to reduce CapEx by 20% and spend $115 million for the full year. In the fourth quarter, we anticipate approximately a $20 million reversal from temporary supplier payment term expansions and will plan to contribute approximately $17 million to the Visteon US pension plan.
Despite these expected cash outflows in the fourth quarter, we are anticipating adjusted free cash flow for the full year to be slightly above break-even levels. Turning to page 13. Visteon continues to be a compelling long-term investment opportunity. We have positioned the company for top-line growth, margin expansion, and increased free cash flow generation, while our strong balance sheet provides maximum flexibility. Thank you for your time today. I would now like to open the call for your questions.
At this time if you would like to ask an audio question please press star then the number one on your telephone keypad. Again press star and the number one.
We will pause for just a moment to compile the Q&A roster. Your first question is from the line of Brian Johnson with Barclays.
Yes. Hello. Let me get you off the speaker. A couple questions. First, I might have missed it, but in terms of, on page 11, the $25 million year-over-year EBITDA increase, how much of the temporary measures can come back, and how much is just permanent reduction in SG&A operational improvement and so forth?
Good morning, Brian. It's Jerome here. I've mentioned it in the script indeed. We are estimating that close to 1.52 percentage point of EBITDA is related to austerity measures that we took in Q2 and Q3 that will not be repeating again in Q4. In a very simplified way, you could normalize our results in Q3 by just removing that, which would give you a 9.5%-9.6% EBITDA to 10% EBITDA range for the quarter. I think the one point which is important to mention as well is that I think we benefited from reduced activity levels in Q3 like we did as well in Q2. As we are getting into Q4, we do see a regain of activity level, especially on the engineering side. That will probably as well continue going into 2021.
Okay. Second, sort of a follow-on question on margins. When we think on page three about those three big drivers of your growth, the digital clusters, the audio infotainment, and the displays, another competitor, Aptiv, continues to emphasize that they are moving away from displays, not happy with the margins there. Indeed, digital clusters are growing much faster than displays. Could you maybe talk about the margin implications of the rapid growth in digital clusters? Is that somehow more of a software and hence software-driven and hence marginable opportunity than just simply display business.
Hi, Brian. Absolutely. Digital clusters have a fair amount of software content, which continues to grow, and the growth comes from the integration of ADAS and infotainment features in the cockpit into the cluster. As you may have noted, we have been insourcing a lot of that software content by developing it in-house as compared to the earlier, where we would be, like the rest of the industry, licensing those software components from third parties. That makes digital clusters very good margin business for us, and we expect that to continue with all of the innovation coming in. When it comes to displays, I have also noted the point that you made about some competitors, I want to be very clear about our strategy. There are two classes of displays in the industry. You have the small displays, flat, rectangular, essentially commodities.
Then you have these displays that are getting larger, more different shapes, curved, and with integration of many features, including some that are more manufacturing-related challenges, such as integration of anti-reflectance, anti-glare capabilities on the display, optical bonding of the glass that gives a much higher user experience. These things and those displays are good margin business for us as well. As we look forward to the cockpit, the cockpit is becoming a display-driven environment. We see the displays grow in size, eventually pillar to pillar, but the steps are being taken to get there. That's where we believe it is essential for us to be in and to be part of that evolution, because those displays are going to be what is going to drive the content in the electronics and software.
Then final question around BMS, which we're dimly aware of, but frankly snuck up on us in terms of your big role on the Ultium platform. Is there any way dimensionally to think about CPV and margin opportunity in wireless BMS?
Yeah. Let me take a step back and talk about BMS, because we haven't really been very vocal about it. The reasons are, we have been waiting for the opportunity to talk about our first major win, which is with GM. We have been providing BMS solutions to GM for a number of years, and are on some of their older EV vehicles. Those are wired BMS solutions. As we looked at how the technology, the battery technology itself was evolving, which is, by the way, evolving rapidly from cylindrical to prismatic to pouches and newer forms, as well as chemistry, it became apparent that wired solutions have limitations. We have been working on this wireless approach, which fundamentally does away with the low voltage wiring harness, makes the BMS and the battery pack a lot more modular and scalable.
We are very happy to be working with GM. We are across their whole portfolio of products that are announced already and will be in the future on their new BEV platform, the battery electric platform. It gives us a great position to, one, get more experience, but also build scale. We expect that we'll be able to bring that solution to other OEMs as we go forward. Now, in terms of how to think about the content, it depends on the size of the battery. A good way to think about it is that depending upon, let's say, 60-kilowatt hour battery, all the way up to, let's say, just over 100, the range of the price would be between $350-$500 per vehicle, just for the BMS solution. It's a pretty high-value component and a solution for us in that segment.
Okay. Thank you.
Your next question is from the line of Michael Filatov with the Berenberg Capital Markets .
Hi. Good morning, guys. Thanks for taking my question. First one or more of your competitors has sort of talked about maybe more aggressive pricing pressure on their analog systems. I was wondering whether or not you're having to make additional pricing concessions on those systems.
Yeah.
You're seeing pressure on that side of the business.
Hi, Michael. Yes. No, what I want to be very clear in saying is that we are not seeing any more pressure than normal. The pressure, even in normal times, is pretty intense on pricing in this industry, as you know. We have been able to offset that through various means. We have done that this quarter as well in Q3, and we expect to be able to continue going forward.
Okay. Got it. One more, sort of around the software that you guys are doing in-house, behind the displays and the clusters. Just wondering if you could just give me a bit more detail around that software and how that sort of differentiates you guys and helps you win new business.
Yeah. No, absolutely. If you think about clusters, and I'll come to displays later. In clusters, there are really two large components of software that the industry, and until recently, Visteon as well, would license from third parties. There's an operating system that is specifically needed for digital clusters called AUTOSAR. AUTOSAR has been traditionally licensed from third parties. In the last 12 months, we have built that software. We have been building it over a longer period of time than that, but in the last 12 months, we've been able to introduce it into the new clusters that we are developing for our customers. That's one component. The second component is the 2D/3D graphic software. As the displays are getting more capable, larger, rendering high-quality graphics is a very big part of the value proposition of the device.
This also used to be something that was licensed from third parties. We have introduced our own solution. We are unique in that sense, both on the AUTOSAR and on the 2D/3D graphics. Two of the larger components that were third party, we now are doing it in-house. Now, how does that help us competitively? One, very simply is cost. Right. Our competitors have a royalty that they have to pay to third parties. Even more importantly for us, with the pace at which the technology is evolving in the cockpit, the fact that we are doing it ourselves, gives us control on the innovation that's happening within the cockpit. That to me is even more important than just the cost benefit.
Got it. Sorry, just one quick follow-up. I know visibility's probably limited and your margins were clearly better than expected, even adjusting for those austerity measures. Is there any sort of update around that 12% margin target in the next two or three years?
Yeah, let me talk about that. I'm sure that's a question on many people's minds, so let me try to address it. If you go back to Q3, where we have a growth over a market of six percentage points. That, by the way, also includes the non-recurrence of some special sales promotion we had last year. If you really look at our performance, it's really more like 8%-9% market outperformance. Clearly the sales side is coming through with respect to the growth driven by new product launches. If you think about our margin expansion, that's based on two factors. One, our ability to take cost out, and I'll talk about that in a minute. The second is, experiencing the growth in sales that we need for the margins to expand beyond this current level.
On the cost front, as you have seen in the results in this quarter, both the short term as well as more importantly the structural changes that we have made that are going to drive sustainable savings, those are progressing well. By this time next year, we should be substantially done with all of those actions. That's one piece we feel good about that has lowered our cost base which going into next year is going to help in terms of our drive towards the 12%. With respect to the sales growth, clearly it depends on the underlying production environment. We do expect production to grow for and also into 2021. Our expectations may be a little more conservative than IHS, we expect growth.
Combined with our growth over market, we think that we should be in a position by 2023 timeframe, as we have stated before, to achieve this 12% target. Our confidence now on account of the cost takeout is actually even higher than it was at the beginning of the year.
Great. Thank you very much.
Your next question is from the line of Steven Fox with Fox Advisors.
Thanks. Good morning. You mentioned a couple of wins related to mid-cycle updates, I was curious if there's any takeaway now, you've been talking about the potential for that, and if there's any learnings from the recent wins that suggest maybe more businesses coming along that front next year. I had a quick follow-up after that.
Yeah, sure. We are seeing, as we have stated before, more interest in mid-cycle upgrades. If you look at our year-to-date performance of $3.2 billion, if you just focus on the cockpit electronics wins, excluding BMS, our mid-cycle update related wins account for almost 25%, a full fourth of the total wins. One of the benefits of that is also that those wins are going to launch into production within roughly 18-20 months. The revenue is also generated faster than on new vehicle models. This 25% is much higher than what has been the case historically. I think we are benefiting from two things. One, the fact that in this environment, especially with OEMs trying to extend the life of some of the vehicles, given the overall market environment, that is helping us.
I'm not sure, it's too early to say whether 25% is the sustainable level to expect going forward. It's a very welcome development so far. We do expect, at least in the near term, the next couple of quarters, that to continue.
That's helpful. Just on Europe, you mentioned a lot of concerns, which definitely seem to be top of mind in the last couple of weeks. Are you seeing any evidence of some of the issues playing out yet, or it's too early to tell? Thanks.
Yeah. It is too early to tell. We wanted to make sure that we are thoughtful about expectations for the future, given all of the things that we mentioned with respect to Europe. As you are aware, there were several incentives put in place towards the end of the second quarter, and those incentives have been slowly being phased out. At the end of this year, unless they decide to renew, this will finish and end. There's also the emissions stricter requirements that are going to go into effect beginning of the year, and that might have an impact on the production mix, especially in the fourth quarter. We wanted to call that out, especially in light of some of the forecasts that we saw, which in our opinion, were running a little ahead of themselves.
At this point, I would say too early, but we are very carefully watching the development, discussing with our customers, and making sure that we are on top of it.
Great. Thank you very much.
Your next question is from the line of Rod Lache with Wolfe Research.
Everybody. I had a few follow-ups. One is on the BMS contract. Ultium alone is expected to grow to more than 1 million vehicles a year by the middle of the decade. It sounds like you're targeting other OEMs. Are you thinking that that part of the business for Visteon alone could be a $350 million-$500 million business, or does the pricing that you're indicating here kind of reflect low volumes and that declines over time?
No, Rod. The pricing clearly does not reflect the low volume. We believe that this pricing will continue to hold, and there's also more content that's coming in that will continue to make the BMS system stay within the range that I talked about. Yes, we are aware of the high volume implications of this business. At this point in time, we are only really reflecting what has been awarded and the models that have been planned for launch. As you know, as they add more models to it, volumes will increase, but that's for the future.
With this OEM, there are other opportunities as well. I'm optimistic, and I feel like it can be of the level that you mentioned, $350 million or so annual business opportunity for Visteon.
Great. Thanks, Sachin. Just on that as well, a few companies have mentioned wireless BMS as an opportunity. Sensata is one that comes to mind. Can you just maybe give us a sense of what's the competitive landscape here, and what do you bring to the table that would be proprietary or differentiated versus the others?
Correct. A lot of the attention is on the wireless technology itself from these third parties. Clearly, Visteon is not going to be the provider of the wireless silicon solutions. At the same time, what we want to do is be agnostic to the evolution and the choices that might be available for us on the wireless side. If you think about what we do, we provide the software, the hardware that is the basis of the solution. The algorithms come themselves from the OEM and their battery providers. It's something that we necessarily don't see value in doing because that becomes very custom to each OEM. What we want to offer is a platform that consists of the hardware, the software integrated so that the whole system works very well.
There's a lot of learning involved in building a wireless solution, very different from a wired. What we really have at this point in time, more than a unique IP, is the advantage of time. We have a couple of years of lead over anybody else in developing this wireless solution, and I expect that this will continue, this technology, this system will continue to evolve very rapidly, as we learn more about the challenges overall in terms of coming up with the scalable, flexible BMS solution. That's what we are trying to address here. Right? The ultimate goal is to make that investment once on part of the OEM and have them be able to source different batteries of different chemistry, different physical characteristics, and be able to manufacture a scalable set of battery packs for the various models.
Our goal is to enable them to achieve that objective.
Right. Thanks for explaining that. Two other things. One is, I believe you have five contracts that you've won so far for the Android-based infotainment. Volkswagen is the one that you've referenced a number of times as being in launch right now. What's the timing of some of the others? Any high-level comments on?
Yeah.
Expected growth? Lastly, just to clarify your gross engineering spend being down $26 million, net engineering about 6% of revenue. Obviously, it is unusual to see those kinds of declines as organic growth accelerates, maybe any thoughts on longer term over the next few years, how we should be thinking about engineering spending level?
Yes, it's Jerome, Rod. We've taken a lot of cost on the engineering side. We were at $300 million net engineering last year. We are guiding close to $225 million for the full year of this year. A lot of that is essentially restructuring actions as well as cost save actions that we've embarked on early on this year. The activity levels will come back definitely in 2021. We expect this number to be higher next year. However, if you step back and look at our engineering percentage, we were at 10% last year, we'll be close to 9%. We'll have taken one point this year, and we're expecting to continue to chip away in terms of percentage points going into next year, but definitely not at the level that we've been at this year in terms of absolute dollars.
On the infotainment side, Rod, we expect all of the rest to go into production in 2021. Obviously, with some we are further along than with others, but all of them will launch. The other color that I would like to provide for you is that of the rest, we have one other that is a North American OEM, the others are in Asia. We are seeing, besides the activities related to launch, there's a lot of interest from OEMs that we have had since the launch of the system with VW, which we are hopeful will result in more business wins in the coming quarters. The last point I would like to add is that we're also working on expanding our launches within VW. There's a lot of activity going on with respect to this Android-based infotainment.
Frankly, it has exceeded my expectations in terms of the market acceptance and the opportunities that we are seeing. We have to, as usual, make sure that we have a good launch performance that's very critical in this area, as you know. That's going to be our biggest factor in continuing the success we are seeing now.
Terrific. Thank you.
Thank you.
Your next question is from the line of Mark Delaney with Goldman Sachs.
Yes, good morning. Thanks very much for taking the questions, and thanks for all the details, especially on the BMS program. It is very helpful. I had a few more on the financial side. Maybe starting on margins, the comment about that there is some benefits from temporary cost actions of one and a half to two points in the third quarter, and that would go away. At the same time, the company announced the restructuring program earlier this month. Maybe talk about what this restructuring program could mean in terms of savings, to timing, magnitude, where we see that between COGS and SG&A. Thank you.
Sure. Good morning, Mark. It's Jerome. I'll start with the October restructuring program that we've just announced. We've announced $35 million-$40 million in terms of cost, and we're estimating at this stage that the payback will be close to 1.5 years. Overall, in terms of annual run rate savings, we're anticipating that we'll have close to $25 million of savings. From a timing standpoint, we don't anticipate to have much, if anything, in Q4. We are, at this stage, expecting that we'll have a little more than 50% of the saving next year. Let's say close to $15 million of saving going into 2021.
Got it. That's helpful. I just want to ask on the engineering recoveries, if I understood the guidance for the full year down mid-20% range, I think it implies engineering recoveries are more like $20 million in the fourth quarter compared to the $30 million or so in this current quarter.
Yeah.
Maybe there's a margin headwind next quarter. I just want to make sure I understood that properly.
Yeah, we're guiding net engineering to be close to $225 for the full year. If you back into what it means for Q4, in fact, it's close to $60 million of net engineering recoveries. In fact, we're very happy in the way things have developed over the last few quarters. We've been very flat and very even in our recoveries, and we've been averaging around $30 million per quarter. We're expecting to see similar levels in Q4, maybe between $30 million and $35 million. It's important because that will obviously impact the incrementals year-over-year quite significantly. We had close to $60 million of recoveries last year at the same for Q4, and we're expecting something like $30 million- $35 million. It will have a year-over-year impact, obviously, given that we had more recoveries earlier in the year.
Yeah, it's really helpful. Thanks for clarifying. Just one last one for me, if I could. Just free cash flow conversion, any puts and takes you can share on free cash flow for 2021? Thank you.
2021. It's obviously a little bit early to give guidance, especially on the free cash flow side. We are very focused on cash flow since the beginning of the year, as you know. The two big drivers are going to be EBITDA and CapEx. EBITDA, we're expecting to keep on growing our EBITDA percentage. CapEx as well. We've done a lot of good work this year on the CapEx side. We started last year with 4.8% of sales. This year, despite the decline in sales, we'll be close to 4.8%, and we're expecting to continue to drive that percentage down as well, even though the dollar value will be slightly up versus what we are seeing this year. More to come on the adjusted free cash flow versus EBITDA, but a lot of focus on this area.
Thank you.
Your next question is from the line of Joseph Spak with RBC Capital Markets.
Thank you very much. I just want to sort of follow up on, again, some of the actions you've taken, similar to the last question. I get the part that is to offset some of the austerity measures you've taken in sort of dealing with lower volume. It also seems like you're doing more than that, and it seems like maybe a tightening up of the cost structure. Is that fair? If so, how does that actually play into your longer term 12% margin target? Is that actually needed to still hit that target? If things break your way, volume comes back, you would say the margin opportunity is now greater?
Yeah. Let me first start, Joe, and then I will pass it on to Jerome for additional color. Let me first share with you what we are doing and why that's important. As you may know, our cost structure in the past was high-cost country heavy. We also had a few more sites than I would have liked, especially in Europe and Japan. Over the past, I would say, two years or so, we have been steadily, gradually moving more and more of our footprint to lower cost bases. We opened new technical centers in Bangalore, India, in Romania, as well as in Mexico. Now that they've had a couple of years to get trained and participate in product development, they are now ready to take on more full system development.
That will mean that our cost structure will fundamentally be much better, going forward, in a more sustainable manner. That's also a competitive advantage for us. To answer your second question about whether is it needed and how does this impact, as we go forward, our 12% target, I think it puts us, first of all, in a much better position than ever in terms of being able to achieve 12%, even with a lower sales level than as compared to what we indicated at the beginning of the year for 2023. Clearly, if sales returns and the volumes hold up, our opportunity to expand beyond 12% certainly will be available to us. Anything you would like to add, Jerome?
Just that you summarized it very well, Sachin, the restructuring efforts are definitely driving the improvement in cost. We have as well a lot of focus on cost, and I think the discipline that we've put in place since the beginning of the year is paying off, and we see that in the Q3 results. I think on the other side, what we've got to be just a touch careful is that we'll have this activity coming back. We'll see that, I think, in Q4 as well as in 2021, and we're still trying to get our arms around what it means from a dollar standpoint. We've got definitely some tailwinds coming from all the actions that we've taken, but activity will be, I'll call it, a headwind, and we'll be guiding a little bit more on that as we go into our February earnings call.
Thank you. I know we're at the hour. I'll follow up with other questions offline. Thanks.
Thank you.
Great. Thanks, Joe. This does conclude our earnings call for the third quarter of 2020. Thank you everyone for participating in today's call and your ongoing interest in Visteon. If you have any follow-up questions, please contact me directly. Thank you.
This concludes Visteon's third quarter 2020 earnings call. You may now disconnect.