Q4 2024 Earnings Call Transcript

Please standby. We are about to begin. Good day, and welcome to the Aptiv Q4 2024 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jane Wu, Vice President of Investor Relations and Corporate Development. Please go ahead. Thank you, Jess.

Good morning, and thank you for joining Aptiv's fourth quarter 2024 earnings conference. The press release and related tables along with the slide presentation can be found on the Investor Relations portion of our website at Aptiv.com. Today's review of our financials excludes amortization, restructuring, and other special items, and will address the continuing operations of Aptiv. The reconciliations between GAAP and non-GAAP measures for our fourth quarter and full year 2024 results, as well as our first quarter and full year 2025 outlook, are included at the back of the slide presentation and the earnings press release.

During today's call, we will be providing certain forward-looking information that reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings. Joining us today will be Kevin Clark, Aptiv Chair and CEO, and Varun Lloroya, Executive Vice President and Chief Financial Officer. Kevin will provide a strategic update on the business, and Varun will cover financial results in more detail before we open the call to Q&A. With that, I would like to turn the call over to Kevin Clark.

Thanks, Jane, and thanks everyone for joining us this morning. Let's begin on Slide three. Aptiv ended the year on a solid note with fourth quarter results in line with our expectations, demonstrating our ability to execute in today's dynamic market environment. Touching on a few of the highlights, new business bookings reached a fourth quarter record of $10.1 billion, reflecting the strength of our portfolio of industry-leading advanced technologies.

Revenue totaled $4.9 billion, down 1% as a result of strong revenue growth from new program launches across key product lines offset by continued weakness in production schedules at select OEMs, primarily in Europe and with multinational joint ventures in China. Quarterly operating income reached $623 million, reflecting strong operating performance and ongoing cost reduction initiatives, which, along with share repurchases and the restructuring of Aptiv's ownership interest in the Motional joint venture, drove earnings per share growth of 25%. Lastly, operating cash flow totaled a record $1.1 billion, allowing us to accelerate our deleveraging, which Varun will discuss shortly.

In summary, our team is doing an exceptional job addressing the evolving needs of our customers while also operating efficiently and further optimizing our cost structure. Moving to the next slide to cover our major achievements during 2024, Aptiv has continued to capitalize on the safe, green, and connected megatrends, reaching numerous technology milestones during the year, including two awards for full system Genesys data platforms, one of which is from an EMEA-based OEM. That also includes in-cabin sensing and our full suite of Wind River embedded and studio developer software. Multiple program launches with Mahindra that utilize our integrated cockpit controller, which consolidates multiple ECUs into a single compute platform capable of supporting higher levels of performance and scalability.

And the expansion of our portfolio of 48-volt connectors to meet the increasing demand from OEMs. We are also capitalizing on strong commercial traction with the local Chinese OEMs leading the transition to software-defined vehicles, reflected in 16% revenue growth with the domestic OEMs and our recent SCA Zonal Control award from Cherry, which includes both Wind River and Aptiv software. And lastly, Wind River's launch of Elixir Pro, which has generated significant interest from the broader enterprise Linux ecosystem with launch partners including AWS, Capgemini, Intel, SEIC, and Supermicro. These notable achievements during 2024 validate the strength of our industry-leading portfolio and have resulted in new business bookings of $31 billion, including record bookings for Signal Power Solutions, record operating income and earnings per share, reflecting our strong operating performance and optimized cost structure, and record operating cash flow, positioning us to continue to invest in the business while also accelerating the return of a significant amount of capital to shareholders.

This will result in more than a 20% reduction in outstanding shares. We continued executing on our long-term strategy while also launching a record number of new vehicle programs and increasing the resiliency of our supply chain. We are extremely proud of our accomplishments in 2024 and the performance of the Aptiv team. Moving to slide five to review new business awards, as I mentioned on the previous slide, our industry-leading portfolio of advanced technologies enabled us to reach just under $31 billion of new business awards during the year.

Advanced safety and user experience bookings totaled $4.4 billion, driven by active safety bookings of $2.7 billion, including the two Gen 6 ADAS platform awards I mentioned earlier, as well as Gen 6 radar awards with the German luxury OEM and two large Japanese OEMs. Signal and Power Solutions bookings reached $26.4 billion, including $8 billion in the engineered components group across the full product portfolio in multiple end markets, and a record $18.4 billion in the electrical distribution systems business. And lastly, across all product lines, a record $7 billion of new business in China, of which over $5 billion was with top local Chinese OEMs and a US-based global electric vehicle OEM.

With a broad portfolio of advanced technologies that provides OEMs with increased flexibility at a competitive cost, we have a clear line of sight to over $31 billion of new business awards in 2025.

Turning to slide six.

To review the highlights for the Advanced Safety and User Experience segment, we achieved record revenue and earnings in 2024, underscoring the competitiveness of our product portfolio and the strength of our operating capabilities. Revenues increased 2%, driven by double-digit growth in North America with local OEMs in China, partially offset by low single-digit declines in Europe and Asia Pacific. Active safety revenues increased mid-teens, partially offset by declining user experience revenues due to the roll-off of legacy programs. Operating margins were over 12%, benefiting from the continued rotation of our engineering footprint to India and our ongoing adoption of Wind River's DevSecOps tools, which have improved the productivity of our software developers by over 20%.

Wind River revenues increased 14% in the fourth quarter, primarily driven by studio operator awards in telco, but full-year revenues were down slightly as a result of the continued slowdown in investment in 5G infrastructure and telco, impacting closure rates on commercial opportunities, and a longer selling cycle for studio developer in the automotive and industrial markets. We increased investment in Wind River's commercial and product organization during the year to enhance our existing portfolio of products, including VxWorks, Operator, and Developer, and also build new products such as Elixir Pro, which we are confident will drive strong revenue growth in 2025. In addition, the advancements in AI are providing Wind River with incremental growth opportunities as customers look to reduce costs by moving AI workloads to the edge.

Overall, advanced safety and user experience provide solutions that increase flexibility while lowering costs, making us a partner of choice for our customers. This is reflected in our recent awards, including a central computer award for active safety and user experience applications across multiple Geely brands, an award for an integrated cockpit controller from a major global truck manufacturer, additional awards with leading Japanese OEMs for Genesys radar solution, and an award with Goose Mobile to provide porta edge cloud infrastructure for the world's largest open RAN deployment, which demonstrates Wind River's leadership position in the telco industry.

Turning to the Signal and Power Solutions segment on slide seven, revenues declined 3% during the year, with electrical distribution systems impacted by lower vehicle production schedules with select OEMs in North America and Europe, and two multinational JVs in China. The engineered components group benefited from growth in non-auto markets, offset by lower high voltage revenue. To drive further margin expansion in electrical distribution systems, we are accelerating the rotation of our manufacturing footprint to Central America and North Africa, while also increasing the automation of select manufacturing processes.

We are targeting automation levels of 30% by 2026, and over 50% in 2030. As we have discussed previously, we have also demonstrated strong commercial momentum across all regions, as reflected in fourth quarter bookings, including a significant electrical architectural award with a major North American OEM for their light and heavy-duty truck platforms, over $1 billion of new business awards with leading local OEMs in China, and several customer awards for interconnect solutions in the aerospace and defense, space, and industrial markets. Moving to slide eight, I wanted to touch on our recent announcement to separate the electrical distribution systems business from Aptiv, creating two optimally positioned, independent companies, each with its own unique product portfolio, financial profile, and with greater flexibility to pursue their own individual market and capital allocation strategies.

By enhancing strategic and operational focus, we are positioning both Aptiv and EDS to more effectively address the evolving needs of our customers and to further capitalize on market opportunities, which we believe will drive even greater success and value creation for both companies. We are targeting the completion of the separation by March 31, 2026, subject to final approval by Aptiv's board of directors and customary conditions. In the meantime, we will continue to keep investors updated as the separation progresses, and we will host investor days for both Aptiv and EDS in the fall of this year.

Moving to slide nine and our outlook for 2025.

We remain confident that the trend towards greater levels of electrification, automation, digitalization, and connectivity will continue. With our portfolio of advanced technologies, Aptiv is well-positioned to address the evolving needs of our customers and to further capitalize on market opportunities across multiple industries. The market remains dynamic, and the recent announcements regarding trade policy have created incremental uncertainty, which could impact supply chain and vehicle production. As a result, as Varun will discuss shortly, we believe it is prudent to include additional conservatism for North American vehicle production in our current outlook for 2025. To be clear, our outlook has not factored in changes in tax, trade, or tariff policy by the new administration.

We will monitor the situation closely and take actions as necessary while continuing to capitalize on growth opportunities, including the continued growth in electric vehicles, the ongoing adoption of advanced ADAS solutions globally, an improved customer mix by new vehicle program launches, and continued penetration and accelerated growth with the leading local Chinese OEMs. We will continue to optimize our cost structure, pursue strategic capital deployment opportunities, including further debt paydown, bolt-on M&A, and the opportunity to return cash to shareholders, and flawlessly execute the EDS separation targeted for the first quarter of 2026. I will now turn the call over to Varun to go through the numbers in more detail.

Thanks, Kevin, and good morning, everyone. Kevin shared an overview of the quarter, and I will share further details. Additionally, in connection with the previously announced planned spin-off of our electrical distribution systems business effective first quarter 2025, we are realigning our business into three reportable segments: EDS, ECG, and ASUX. To reflect this change, we are furnishing supplemental recast quarterly financial information for 2024 and 2023. Starting with slide ten, Aptiv delivered strong earnings growth in the quarter despite revenues down 1%, as we continue to drive operating performance improvements across the business.

Consistent with the third quarter, revenue growth was impacted by lower vehicle production at select customers. Fourth quarter adjusted EBITDA and operating income were $811 million and $623 million, respectively, with performance more than offsetting labor economics, which contributed to an increase in operating margin by 50 basis points over the prior year. FX and commodities were a $26 million tailwind in the quarter, primarily the favorable impact of the Mexican peso. We delivered quarterly adjusted earnings per share of $1.75, an increase of 25% from the prior year, which primarily reflects the benefits of share repurchases and restructuring of the Motional joint venture.

Operating cash flow for the quarter totaled a record $1.1 billion, and capital expenditures were $166 million. Finally, during the quarter, we paid down $1.1 billion of debt, including the 1.5% euro notes that were due in 2025, as well as $350 million, or over half of the term loan A due in 2027. Moving to slide eleven, as previously stated, revenue was negatively impacted, which was down 4% in the quarter, driven by revenue on electrified vehicle platforms down 20% globally. Net price and commodities were positive in the quarter, partially offset by foreign exchange. Revenue performance was mixed across regions, with North America up 3% driven by strong active safety growth, Europe was down 8% impacted by slower growth in electrified vehicle platforms, partially offset by active safety, and China grew 4% with sales to local OEMs up 25%.

Bringing full-year 2024 revenue mix in China to 53% with local OEMs, 34% with multinational joint ventures, and the balance with a large global EV manufacturer. Moving to the ASUX segment on the next slide, fourth quarter year-over-year revenues were up 2%. The active safety product line grew 15% in the quarter driven by North America, which grew over 50% as a result of proliferation across platforms. The smart vehicle compute and software product line grew 13% in line with expectations, offset by the user experience product line down 12% in the quarter reflecting roll-offs of legacy programs as well as lower multinational JV vehicle production in China.

Fourth quarter adjusted operating income and margin were $193 million and 14%, respectively, resulting from significant year-over-year improvement in operating performance and our continued focus on cost improvement initiatives. For the full year, revenue grew 2% with strong active safety growth of 16% offset by user experience down 12%. Full-year operating income and margins were up 58% to $714 million with 40 basis points of margin expansion. Turning to Signal and Power on slide thirteen, revenue in the fourth quarter was $3.5 billion, down 2% due to lower volumes, partially offset by 5% growth in non-auto end markets.

Fourth quarter adjusted operating income was $430 million or 12.1%, impacted by the lower volume flow-through. For the full year, revenue growth was down 3%, as weakness in North America and Europe was partially offset by growth with local China OEMs, while low voltage and high voltage revenue on electrified platforms was down 15%. Full-year segment adjusted operating income was $1.7 billion or 11.8%, up 20 basis points reflecting improved operating performance as well as benefit from price and commodities, while the year-over-year FX impact was not significant. Turning now to Slide fourteen and macro expectations for 2025, as Kevin mentioned, we remain cautious about the impact of geopolitical factors, including uncertainty around tariffs.

While our outlook does not reflect the direct impacts of potential trade policy changes, we have included additional conservatism in our expectations for North America production. We are forecasting Aptiv-weighted global vehicle production to be down 3% for the year, reflecting approximately 92 million units. Regionally, we expect strong full-year revenue growth in North America despite production down 5%, driven by content growth with key customers, including the D3, which represents over half our revenue in the region. Europe production is down as major European OEMs transition from ICE to electrified vehicle platforms, which are expected to grow approximately 20% year-over-year.

And China production is flat, with local China OEMs continuing to win share from multinational joint ventures. Given the dynamics as well as our accelerating traction with local players, we are on track to exit the year approaching market parity on China revenue. Moving to slide fifteen and our full-year 2025 outlook, while we expect a lower vehicle production environment, we remain confident that our continuous improvement initiatives will drive strong operating performance and cash flow generation. Given the volatility in production schedules last year, we also want to provide guidance on our expectations for the first quarter.

First quarter revenue is expected to be in the range of $4.6 billion to $4.8 billion, down 3% at the midpoint. Operating income and adjusted EPS are expected to be $520 million and $1.50 at the midpoint of the range, respectively. Our full-year outlook for revenue is in the range of $19.6 to $20.4 billion, up 2% at the midpoint year-over-year, reflecting ASUX up mid-single digits, ECG up low single digits, and EDS flat. EBITDA and operating income are expected to be approximately $3.19 billion and $2.42 billion at the midpoint, reflecting flow-through on sales growth and performance and cost reduction initiatives offsetting labor headwinds.

Adjusted earnings per share is estimated to be in the range of $7.00 and $7.60, up 17% at the midpoint, with operating cash flow of $2.1 billion and capital expenditures at approximately 4.5% of revenue. On slide sixteen, we provide a bridge of 2025 revenue and operating income guidance as compared to 2024. Starting with revenue, sales growth of over $500 million is expected to be driven by active safety, up high single digits year-over-year, and low voltage and high voltage on electrified platforms up low double digits. We expect annual price declines within the historical range of down 1.5% to 2%, offset by commodities and recoveries.

FX is estimated to be a headwind of $200 million. Turning to adjusted operating income, we expect margin expansion of 10 basis points at the midpoint of our guide, driven by flow-through on incremental sales, partially offset by net price, commodities, and FX, while performance initiatives are expected to offset incremental labor inflation. Slide seventeen provides further detail on adjusted EPS. Building on our strong performance last year, year-over-year adjusted EPS growth of 17% is driven by volume flow-through, partially offset by higher tax expense due to the OECD pillar two implementation, and our proactive capital allocation actions, including share repurchases and our reduced equity holdings in Motional.

Before handing the call back to Kevin, I would like to touch upon our cash flow outlook. While we generated a record $2.4 billion in operating cash flow in 2024, we expect 2025 to be impacted by a return to growth and a strategic inventory build of semiconductors in anticipation of possible shortages in late 2025 and early 2026, which we will calibrate based on availability and demand forecasts. We will also continue to maintain a balanced approach to capital allocation, including investing in the business to drive innovation that will deliver sustainable profitable growth. And while we increased leverage last year to return capital to shareholders, including the $3 billion GSR, we are ahead of our commitment to delever our balance sheet.

Building on our debt paydown in the fourth quarter, as I mentioned earlier, and stronger performance in cash, we have retired an additional $250 million year-to-date, thereby extinguishing the term loan A in its entirety and bringing our total debt paid out in the last two months to $1.4 billion. We also plan to accelerate further debt paydown into the first half of 2025. We will consider utilizing excess cash to explore bolt-on M&A opportunities and opportunistically return capital to shareholders, all within the parameters of investment-grade ratings. With that, I would now like to hand the call back to Kevin for his closing remarks.

Thanks, Varun. I will wrap up on slide nineteen before opening the line for questions. As the management team reflects on 2024, we expect the market to remain dynamic and the pace of innovation to continue to accelerate and drive ongoing transformation across industries. Looking forward, while our 2025 guidance does not include the impact of future policy changes, including tariffs, we believe that we have taken an appropriately conservative approach to our outlook.

We have purpose-built our technology portfolio to deliver flexible, high-performance, and cost-effective solutions that address our customers' needs all on a global scale, and at the same time, remain committed to flawlessly executing and delivering a strong operational performance, enabling us to unlock incremental profitability and deliver long-term value to our shareholders. In closing, I am proud of what the Aptiv team accomplished during 2024, and I am excited about what we will deliver in the years ahead. Operator, let's now open the line for questions.

Thank you. Using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We request that you limit your questions to one initial with one follow-up so we may take as many questions as possible. We will pause for just a moment to allow everyone the opportunity to signal. We will now take our first question from John Murphy at Bank of America.

Good morning, guys. Kevin, just a first question on your statement that you are taking somewhat of a conservative outlook, which is totally understandable given what is going on in the world and in the country, you know, in the US right now. But when you look at that down 5% in North America, if we said that was closer to flat, you know, it seems like it would add, you know, I do not know, $360 million, $370 million, you know, more of sales, you know, roughly. If that were to occur, what kind of incremental margin, I am saying if.

Right? I mean, it is, you know, it is a big if. What kind of incremental margin do you think you would get on those incremental sales that were to occur?

Yeah. So, John, let me start with just a process on it. Just in light of a couple of things, one, just the dynamics from a geopolitical standpoint, the dynamics as it relates to policy, whether that be trade, whether it be tariff, whether it be tax, we think it is very, very important at this point in time to be more conservative, quite frankly. And then when you overlay on top of that, the fact that inventories in North America are still relatively high, especially the D3 where we have a fair amount of exposure.

That is something that we are watching early part of this year, a lot of progress has been made reducing that during the fourth quarter of last year, but inventories still remained relatively high. So as we came into the year and we thought about the first quarter, that was the context or the lens that we were viewing it through. As it relates to vehicle production in North America being stronger in the first quarter, it is a possibility. Again, it is not in our guidance.

We would expect volumes to flow in the range that we have traditionally talked about in that 18% to 22% sort of flow-through range on volume. But, again, we have not included that in our guidance, and we have done that very intentionally just given the environment right now.

Okay. And then just so I can follow-up on slide five. Thirty-one billion of gross bookings is another big year for you. As you kind of walk forward two to three years out, has anything changed in sort of the mix of customers in China? And are you shifting more quickly towards the domestics than you were, you know, previously? Just curious if there are any updated thoughts there.

Well, I am not sure if it is more rapid. It has been rapid the last twelve or twenty-four months. I think we picked up roughly ten points of share with local Chinese OEMs during 2024, maybe a little bit less than that. I think our outlook for 2025 is a full ten-point increase.

So at the end of 2025, early 2026, we should be at parity with market mix in terms of vehicle production of locals versus the multinationals. So we have made a lot of progress, and that is what accounts for, as you look at our outlook for the full year relative to where we are guiding in the first quarter, that is some of the pickup in revenue that we are seeing now, and we expect to continue through the balance of 2025.

Great. Very helpful. Thank you very much.

We will move next to Joe Spak with UBS.

Good morning, everyone. Kevin, maybe, you know, just going back to sort of the conservatism comment. Are there any other areas of the outlook that you highlight besides that sort of adjustment to North American production? And somewhat related, I mean, just, you know, the growth over market, which I know is not sort of an official metric anymore, but implied in North America.

Maybe just some commentary on what is driving that for the year.

As it relates to conservatism overall, the bulk of it sits in North America. I would say Europe and US, we have a more conservative outlook for EV growth. Market right now, I believe IHS is forecasting roughly 20% growth in EV production. Our outlook from a revenue standpoint is roughly 10% plus, so mid-single digits.

So we have taken a more conservative approach on revenue outlook given, you know, our experience last year. As you look at growth over market in North America, I would say it is really a couple of things. It is a case of launch cadence, back half of this year and into the start of next year. So new program launches were up roughly 10% last year versus the prior year.

A lot of that was really starting in Q2 through Q3 and Q4, and we will benefit from that. And then I would say, Joe, there is a little bit of a normalization as it relates to a couple of the OEMs where we saw significant corrections or reduction in their vehicle production schedules in 2024, especially in the third and fourth quarters. We expect that to effectively normalize and not see the same level of decline. So I would refer to it as stability, basically, in schedule.

Okay. Thank you for that. I guess just as a second question, this is, I know, bigger picture because there is obviously a lot going on. But it sounds like the automakers, as they, I guess, should be, at least have some contingency planning scenarios that they have to react to tariffs even if it, you know, my impression is that still might be a lower probability.

But I guess, I am sure you are doing something similar from a contingency plan perspective. I am curious though if any of those OEM conversations have cascaded down to you, because if anything like this were to need to occur, there would obviously need to be some pretty meaningful coordination and time and validation and ramp-up. So I guess I just want to understand, you know, how you guys are internally planning for this and the level of coordination across the value chain.

Yeah. I would say the level of coordination is pretty good. I think the magnitude of what was initially proposed regarding tariffs within North America from an industry standpoint was a bit surprising. But I would say we have been working with our OEM customers late last year, early this year as it relates to, where possible, deploying inventory.

As we have talked about a lot last year in terms of supply chain and supply chain visibility, that is something that we are very closely connected with our OEMs globally on. We spent a lot of time with our North American OEMs making sure they understand our supply chains well. So we have developed, I would say, at least near-term plans in terms of addressing some of the challenges that if there was a flip of a switch, how we would deal with that, including investments in inventory, including areas where we have duplicate manufacturing in North America and other regions. And then some discussion, I would not call them firm plans at this point in time, but some discussions about alignment of their production schedules and, importantly, product mix to simplify the situation so that, you know, we can pre-produce products in certain areas where it is a little bit more complicated to do, for example, wire harnesses, products like that.

So I would say we are reasonably coordinated to the extent this gets implemented. But, ultimately, obviously, it would be somewhat disruptive.

Okay. Appreciate that. Thank you.

We will move to Chris McNally with Evercore.

Thanks so much, Tim. Just you could see the tone of everyone's questions is around the conservatism, you know, in the guide in Q1, Kevin, you know, particularly around the volatility we have seen in mix over the last two years. I think one of the things that we all struggle with is, you know, the discussion of production that you give for Q1 and for you, you look below IHS, you know, minus 5%, minus 3%, but that is probably on an Aptiv regionally adjusted basis. Have you looked at those numbers for top customers, you know, where your top customers are for Q1 and full year, just so we can have a sense of how much the conservatism is built in?

Yeah. Listen. I am not going to provide kind of specific customer, you know, customer sort of production schedules. Right, Chris.

And you understand that. Our estimate for production is lower than what customers' schedules currently show. Yes, they are. They are.

And in our forecasting process, and guidance process, and planning process, we have gone through customer by customer, platform by platform, region by region. So we have gone through it in detail. Have those been haircut? Yes.

Have they been haircut more than they typically are for the first quarter? Yes. Last year was volatile, as you said, we do not want to go through that again. But then overlaid on top of that, what we do worry about is just given some of the announcements regarding trade policy and tariffs, that does introduce a certain amount of uncertainty into the system, which in our view will affect supply chains.

And when it affects supply chains, it will affect production. It is tough to predict exactly how much, but it will. So we have gone through that process and to the best as we could estimate what we thought Q1 could look like in light of some element of that uncertainty. I know that is not a detailed answer.

We try to be very soft.

And Kevin, I would say, I mean, look, I think trying to figure out March, depending upon how tariffs play out, is, you know, sort of across the street, no one has really done. So that is actually super helpful. And you did call out North America, I think, which is where the concern lies, particularly when we have seen, you know, two of the three OEMs who had good years sort of last year already being cautious on Q1, and you mentioned the third who is going to rebound. Just a simple one for me.

I do not know if this has been answered yet. I apologize if it has just sort of peso benefit year over year, we have been sort of waiting for it. Got a little bit of help in the second half. But you would pay to us at twenty-one.

Should this be a tailwind of, you know, material form to margin in twenty-five?

Hey, Chris. It is Varun out here. This is all about managing risk. Right? And so, you know, we tend to take out hedges. And that basically is what it says. So no, we do not really expect it to be a tailwind for twenty twenty-five.

Yeah. So no big tailwind as a group as it relates to peso weakening, if that continues to happen.

Excellent. Thanks so much, Steve.

We will move next to Dan Levy with Barclays.

Hi. Good morning. Thanks for taking the questions. Wanted to ask about the China commentary, which shows that you are expecting some underperformance versus the China market.

Is this just the continuation of what we saw in 2025 or 2024 where it was just a couple of key customers that were dragging down results but you are still growing with its metrics? Maybe you could just provide a little more color on the expectations within China and the domestic versus multinational.

Yeah. We expect China locals to continue to take significant share, not to the extent that they did in 2024, but they will continue to take significant share. We expect the multinationals, global multinational, traditional OEMs to continue to lose fairly significant share. That is factored into our outlook.

I think the net impact for us is our revenue growth versus vehicle production in China is basically, you know, our growth over vehicle production is down 1% versus what it was in 2024. So we are closing that gap. We have internally a more, I would say, aggressive outlook for China local share gain relative to what IHS has. I mean, we are north of 75% share gain in 2025. So we expect them to continue to take some share. And as I mentioned, we will reduce the differential in growth versus market down to about roughly one point.

And then in 2026, as I mentioned, we are at parity.

Okay. And the underlying domestic growth, that is in line with sort of where the market is?

The underlying outlook for domestic growth, our outlook is slightly higher than what IHS would have for vehicle production. And our growth with those customers is over their market share growth rate. So we are growing over market with the local OEMs in China.

Okay. Great. Thank you. As a follow-up, wanted to ask about some of the cost actions, which you had talked about on the third quarter call.

I think there are a number of things you talked about, you know, salary reductions and flexing the workforce, material cost, manufacturing, pricing. I see in your bridge that you are assuming, you know, some positive performance, but maybe you could just double-click on the extent to which you are seeing benefits on the cost actions, what is low-hanging fruit, versus what is going to take a little more effort to achieve on the cost side.

Maybe I will start at a high level and Varun can answer in more detail. The last couple of years, the last several years, we have been very focused on reducing overhead. You have heard us talk about that. Last year, we had a roughly 10% reduction in salary workforce.

This year, within our plan, we were targeting mid-single digits. Given what we are hearing regarding trade policy, we will be increasing that to some extent just to provide additional room and offset any incremental risk that is out there. So those are activities that we have a pretty good muscle for. I think as it relates to footprint rotation, that requires a bit more effort, but it is something that obviously we do.

When you think about material cost savings, there are two aspects to that. There is the leveraging price to price, the team has done a great job. I think the mapping of our supply chain, building our digital twin, and significantly increasing visibility to BOM costs and where there is leverage, that is paying dividends. Although it requires negotiation, it requires effort.

And negotiation with both customer and supplier. And then when you think about what is more permanent, engineering in low-cost solutions or engineering out higher-cost components, that is something the group or the team has been doing for the last couple of years. And a big portion of our year-over-year material performance in 2025 will be the result of that. It is important to note though that to do that, it requires support from our OEM customers.

And at times, customers, given constraints on resources, are less focused on it. But that is an area that we have made a lot of progress.

No, Kevin. I think that is comprehensive.

Great. Thank you. That is very helpful.

We will move next to Emmanuel Rosner with Wolfe Research.

Thanks. Good morning. My first question is around the outlook for EDS. I wanted to zoom in on it because it will obviously be its own stock, you know, soon enough, and investors need to understand how to value it.

So basically, it looks like revenues were down 6% in 2024. In your guidance for 2025, you assume stable revenue in EDS. And then, obviously, when you announce the, you know, future spin-off, mid-single digit is sort of, like, the midterm target in terms of growth for it. So can you maybe just give a little bit of color on what you expect for this year? Why just stable if electrification, you know, accelerates a little bit maybe in Europe?

And then what will drive this acceleration to mid-single digit through 2026?

Yeah, Emmanuel. So adjusting growth for EDS in 2024 was down 5%. A big driver of that were the customers we mentioned, but then an incremental overlay on it as it relates to high voltage or EV exposure. So to put it in perspective, high voltage revenues for the EDS business were down, you know, just shy of 20% in 2024. So significant impact throughout the year.

Our outlook for growth in 2025 is basically flat growth. So about three points over global vehicle production. In terms of our outlook for average weighted market growth, when you look at our view for EV penetration adoption and the impact on overall growth rate, we would expect roughly mid-double digit growth in EDS in the EV space to be a driver, as well as strong growth with commercial vehicle OEMs, who we have had a concerted effort over the last couple of years to diversify revenues more broadly in transportation. So those benefit there.

So, you know, we would say as we look at 2025, those are the primary drivers. As we look at beyond 2025, it is the continued pace of EV adoption. It is continued market share gains. We talked about our bookings in EDS in 2024, how strong they were.

They were actually strong in 2023 as well. So it is low voltage as well as high voltage growth, market share penetration, and the roll-on of those new programs that will drive growth in the out years beyond 2025.

Got it. Thanks for the color. And then I wanted to come back on the potential for cost reductions. So in this year's guidance, you have about $400 million of performance offsetting essentially labor economics and, you know, increased depreciation.

What is the potential for Aptiv to take further cost actions or the appetite for it beyond just ceramic performance and inefficiencies? We have seen some other suppliers meaningfully scale back, maybe R&D, based on maybe a slower pace of electrification than previously anticipated. Is there room to do something that is sort of, like, more structural, or have those actions already been taken and it is really about offsetting the economics?

Yeah. Listen. There is always an opportunity, Emmanuel, so we are always focused on it. I mentioned to you what we are doing from payroll reduction, so that will continue.

Footprint rotation, especially within the EDS business, has been accelerated. So we will get benefits there as well. Material cost is a big piece of what we, you know, a big piece of our cost structure in the BOM for OEMs. So that is an area that we are really focused on.

From an engineering standpoint, we have a lot of productivity out of engineering in 2024. I mean, a lot. And we did that principally by, you know, it was not about reducing advanced engineering or R&D. It was more about operating engineering, so program launch, manufacturing engineering within our facilities, software development engineering within ASUX. So those were areas where we were able to get that productivity, and we would expect to continue to get productivity out of engineering in 2025. Transparently, it will not be as significant as it was in 2024, given the size of the change in 2024.

Great. Thank you.

We will move to Adam Jonas with Morgan Stanley.

Hey, everybody. A bit longer-term question, if I may. You mentioned aerospace and defense in the SPNS and also diversifying your TAM within Wind River as well. I am curious who you are winning business with, how significant is the aerospace and defense contribution today?

And I am curious how big this could be. And any other TAM that you might describe here, because your customers, I believe, especially post-spin, if you only anchor your revenue to the auto end and the legacy auto industry, there are scenarios where those companies are going to be much, much smaller, and many of them will not exist. So if I even see, you know, kind of a gold standard of Western EV, Tesla, they are effectively pillaging resources, getting resources out of the traditional electric vehicle market and other markets, even humanoids and things, that gives you a very unique perspective, I think, of those next TAMs.

So I did not know if you and the board are kind of actively tracking this and any messages that you had for investors today thinking longer-term of the surface area between what you do and other expressions of smart machines beyond just cars.

Thanks, Adam. It is a great question, and I would say it is one of the big pillars of our strategy that the board has us focus on in terms of diversification into adjacent markets. It is accelerating that, making sure that is a priority from a business plan, a strategy, and quite frankly, from a compensation standpoint. Aerospace and defense is one of those priority markets.

There are applications, as you mentioned, for what we do now in those markets today. Within the A&D space, when you consider what we have within the SPS business and ASUX business, it is probably about $400 million in revenues growing fast. It is a higher margin profile. It is a longer selling cycle.

But we have strong relationships with all of the primes in the A&D space as well as the various parts of the armed forces. So there are existing customers and that our portfolio businesses within Winchester have to continue to penetrate that market. And, obviously, it is going to be a high growth market. I would say the second area outside of aerospace and defense is in and around energy and energy distribution.

There is a relationship that we have with a global EV OEM where that is one of the areas where we have been awarded business and we expect to continue to be awarded business in parts of the page in that. So that is an exciting area. And then lastly, your point on robots, humanoids, others, whether it be the edge software from Wind River or it be the perception systems for ASUX or it be the vehicle architecture solution or the wire harnesses and connectors from SPS, those are all opportunities. And again, there are a couple of customers that we are actually working on that specific area now.

Those revenues are not quite as significant at this point, though, to be transparent.

Thanks, Kevin. You guys made our humanoid hundred, by the way. So congratulations. But look forward to continuing the discussion. That is all I got.

Thank you.

We will go to Colin Langan with Wells Fargo.

Oh, great. Thanks for taking my questions. Just wanted to follow-up on if I go through the margin walk on slide sixteen, talked about the pace is not an issue this year. If I translate the FX, it would be smaller than a hundred million drag. What is driving that headwind for FX on margin? And also, what is the net price in commodity? Is there a commodity headwind we should be thinking about too?

Yeah. Colin, this morning, I just had mentioned earlier with regards to the Mexican peso, we are largely hedged. So even a weakening of that currency really does not bring us any tailwinds. And then with regards to the other commodity where we actively participate from a hedging perspective is copper.

And then that is the other area where we essentially are hedged also. So, again, it is all about managing risk for us within the FX and the commodity side of it. There are some elements with regards to, you know, what trade policy and stuff is coming through and, you know, with the US dollar, you know, we are still seeing some fluctuations out there. And while we are largely hedged for some of the major currencies, we do see some risk out there.

Yeah. Maybe if I can add to it, just so I think on the headwinds on FX are largely euro and RMB related. When you think about twenty-four to twenty-five, just that sort of walk, as Varun said, from a copper standpoint, that is largely indexed with our customers. So that hedge remains in above what is not been indexed, but that is not a huge amount.

Those are the big pieces of that. As it relates to price and price recoveries, you know, our expectation, I think we have talked about it, is pricing to be somewhere between 1.5% and 2%. Historically, we have done a good job managing through that, as you know. We have some element of price recoveries in our plan, not remotely close to what we have had in historical periods.

But there still is some element of labor recovery, especially as it relates to material inflation from prior periods that we need to close out on.

Got it. And we talk a lot about trying to catch up with the mix with locals in China. There is growing concern about the profitability on that business because, you know, the product cycle is so short. It is kind of hard to sort of get your costs back, all the upfront investments.

Any color on, you know, how your margins with China locals look today and whether you are able to kind of get the added sort of tooling cost given the shorter lifecycle of products over there?

Yeah. So first, we are very selective in terms of those programs and customers we are pursuing, as we have mentioned, you have heard us mention previously. We are really focused on those that want to either export or expand manufacturing outside of China. We feel like we can bring more value in those programs, quite frankly, and have less price pressure.

On average, you do see lower margins on those programs. We have been able to balance it to date, or I should say lower pricing on those programs. We have been able to balance to date with further cost reductions. So our China team has been consolidating footprint as an example.

To the extent we are investing in the development of new technologies, we are getting support from the Chinese government to use that we are investing in engineering. We have used the opportunity to shift footprint out of, for instance, Shanghai into other locations west to lower our overall cost. And again, not only is the hourly cost differential lower, but we have been able to get pretty good support from the Chinese government in terms of enabling that both from setting up a facility standpoint as well as subsidizing the employees.

Got it. Alright. Thanks for taking my questions.

We will move to our final question from Tom Narayan with RBC Capital Markets.

Thanks for taking my question. The first question is on ASUX. You know, we heard from one of the D3s last night that they are at a critical point in deciding on what to do with advanced autonomy, you know, whether they work in-house or do more partnerships with others. We experienced your guys' level two plus demo at CES and it was quite impressive, not overly costly.

Just curious, in recent months, have you experienced an increase in interest for advanced autonomy? And on the flip side, on the UX side, there seem to be structural kind of impediments there. Just curious how you see that business playing out. If there are things you could do to reverse any structural issues there.

Yeah. No. Tom, good question on both. So I would say that we are in more discussions.

They like our cost-effective solution. I think several of them are dealing with kind of vehicle architecture decisions, platform mix decisions, which is making that decision in that process play out over a longer period of time. There is a lot of interest, lots of interest in our solution given its cost. I think fewer of the OEMs are now of the view that there are certain aspects of this that are religion and they need to own.

That there is a more cost-effective approach from a supplier standpoint, especially in our case where we have developed solutions that are open architected that gives them flexibility to contribute to the platform, to do more, to do less, and even supplier alternatives, whether it be on the SOC or be on the perception system. So we are trying to present them with that flexibility. So we are in the midst of negotiations slash discussions with multiple OEMs across the globe now and feel like that will translate into significant bookings during 2025. I would say a few of the decisions dragged out of 2024 into 2025. But we keep working at it.

As it relates to UX, we have some programs that we are working on now that we expect will translate into awards. You are right. The traditional infotainment model that operated within automotive five years ago is very different today. Our real focus is in and around the software or the cockpit controller with end-user experience, especially given the trend to see the up-integration of the user experience domain controller into the ADAS controller.

So that is a place that we continue to play. There are a couple of large pursuits that we are in the midst of at this point in time, awards that will position that business for stronger growth. And, you know, listen, we continue to evaluate our entire product portfolio in terms of where it sits, what it is enabling for our customers, what the return is, and how do we maximize, you know, value for shareholders. So that is one of the areas that we consistently, you know, just given some of the changes, we are consistently evaluating.

Okay. And then a quick follow-up, on that semis topic, there is the shortfall you see. Is that company-specific, or is it, like, an industry-wide dynamic or something you were always expecting?

Yeah. Our concern is it is an industry-wide dynamic with the advancements in AI and the need for more compute that you are going to see more pull in the computers, into laptops, into other areas. So a possibility that you see a shortage of semiconductors in areas that were similar to what we saw back a few years ago. So we are going to monitor the situation very closely.

Varun is all over this. And to the extent we start seeing, you know, extended kind of periods in terms of order and delivery of product, we will start ramping up investment in inventory. If we do not see it, we will not make the investment, but we thought it prudent to include in our outlook for free cash flow.

Got it. Thank you.

And then we will wrap up the Q&A portion of today's call. I will now turn the conference back to Mr. Kevin Clark for any additional or closing remarks.

Thank you, everyone, for joining us and look forward to seeing all of you in the upcoming NDRs and other conferences that we will be attending. So thank you very much, and have a great day.

Ladies and gentlemen, that will conclude today's conference. We thank you for your participation. You may disconnect at this time and have a great day.