Autoliv Inc (ALV) 2025 Q1 法說會逐字稿

Welcome everyone to our first-quarter 2025 earnings call. On this call, we have our President and Chief Executive Officer, Mikael Bratt; our Chief Financial Officer, Fredrik Westin; and me, Anders Trapp, VP Investor Relations.

During today's earnings call, we will cover several topics including our strong sales and earnings development in the first quarter, market development and tariffs that are affecting the automotive industry, as well as how our strong balance sheet and asset returns provide financial resilience and support the continued high-level of shareholder returns. Following the presentation, we will be available to answer your question. As usual, the slides are available on autoliv.com. Turning to the next slide.

So we have the statement which is an integrated part of this presentation and includes the (technical difficulty). During the presentation, we will reference non-US GAAP measures. The reconciliations of historical US GAAP to non-US GAAP measures are disclosed in our quarterly earnings release available on autoliv.com and in the 10-Q that will be filed with the SEC.

Lastly, I should mention that this call is intended to conclude at 3:00 PM, Central European time, so please follow a limit of two questions per person. I now hand over to our CEO, Mikael Bratt.

Thank you, Andres. Looking on the next slide.

I am happy to present the solid first quarter, the showcasing that the company adaptability and resilience, driven by our diverse product portfolio and strong customer relationships. This achievement laid a solid foundation for 2025. However, we remain cautious about the remainder of the year as we navigate the complexities of tariffs and other economic factors.

It is encouraging that we, based on light vehicle production data from March, outperformed global light vehicle production despite continued significant headwinds from light vehicle production mix shifts, particularly in China. The stronger than expected sales were portrait driven by LDP pull forward in Europe and North America.

We significantly improve our profit and operating margin compared to a year ago. This strong performance was primarily driven by well executed cost reduction activities. Our structural cost reduction program reduced our indirect workforce by over 1,500 since Q1 2023 and our direct headcount by 3,700 over the past year.

We neutralized tariffs almost entirely in the quarter by agreement with customers. We also achieved record earnings per share for the first quarter thanks to a lower number of shares and high net profit.

I am also pleased that we continue to generate a high level of return on capital employed. Our cash flow remains solid despite higher receivables from strong sales towards the end of the quarter, supporting a high level of shareholder returns. In the quarter, we repurchased and retired 500,000 shares for $50 million and paid a dividend of $0.70 per share. Looking now on the next slide.

Last night, Autoliv was recognized by the automotive news in the category PACE Pilot Innovation to Watch. The prestigious PACE Pilot Award recognizes achievements under development with new materials, fresh (technical difficulty) processes, and bold execution in the automotive and future mobility space.

Autoliv received the award for its Bernoulli airbag module, which inflates larger airbags more efficiently by leveraging pressure differentials with a small single stage inflator, lowering deployment costs and weight. I want to thank the team for this great achievement. It reflects our collective effort and commitment to excellence and innovation. Looking now on financials in more detail on the next slide.

Sales in the first quarter decreased by 1% year over year due to negative effects from currency, light vehicle production development, and adverse regional and customer mixed development. The adjusted operating income for Q1 increased by 28% to $255 million from $199 million last year. The adjusted operating margin was 9.9%, 230 basis points better than in the same quarter last year. Operating cash flow was a solid 70 (technical difficulty) despite a temporary working capital buildup. Looking now on the next slide.

We continue to generate broad-based improvements. Our positive direct labor productivity trend continues as we reduce our direct production personnel by 3,700 year over year. This is supported by the implementation of our strategic initiatives, including automation and digitalization.

Our gross margin was 18.6%, an increase of 160 basis points year over year. The improvement was mainly the result of direct labor efficiency and headcount reduction, partly obsessed by a supplier settlement as communicated last year. As a result of our structural efficiency initiatives, the positive trend for RD&E continued combined with the gross marginal improvements, this led to 230 basis point improvements in adjusted operating module. Looking now on the market development in the first quarter on the next slide.

According to S&P Global data from March, global light vehicle production for the first quarter declined 40 basis points, exceeding the expectation from the beginning of the quarter by 140 basis points. Supported by the scrapping and replacement subsidy policy, we continue to see strong growth for domestic OEMs in China, while light production in higher content per vehicle markets in North America and Western Europe declined by 7% and 10% respectively. This resulted in an unfavorable regional lightly production mix of more than 3% points in the quarter, significantly impacting our outperformance negatively.

In the quarter, we did see call of volatility continue to improve year over year. We will talk about the market development more in detail later in the presentation. Looking now on our sales growth in more detail on the next slide.

Our consolidated net sales were $2.6 billion. This was slightly lower than a year earlier, driven by negative currency translation effects, which reduced sales by almost 4% in the quarter. Excluding currency, our organic sales grow by 2%, including out of period compensations of $4 million.

The regional sales split reflects the seasonally weak sales in China due to the Lunar New Year celebrations. China accounted for 17%; Asia, excluding China accounted for 20%; Americans for 33%; and Europe for 30%. We outline our organic sales growth compared to light leaks in production on the next slide.

Our quarterly sales were robust and slightly exceeded our expectations, driven by strong performance across most regions, particularly in Europe and America. Based on light vehicle production data from March, we outperformed light vehicle production in all regions except China fueled by product launchers and prices.

In China, our sales to domestic OEMs grow by 19% aligned with their rightly production growth. Our growth with the global customers in China was just 1% point below their LDP growth. Due to LDP mix shifts that continues, we underperformed significantly in China overall. Among the primary net sales growth drivers for the company this quarter, four were Chinese OEMs and two were Japanese, highlighting the importance of the Asian market and its customers. On the next slide we show some key model launches.

New launches in the first quarter of 2025 was, as you can see on this slide, mostly in Americas, Europe, and South Korea, with few launches in China. The reason for this is that many OEMs are planning to unveil new vehicles in the Shanghai Auto Show in April. We expect a significant number of new launchers in China as of Q2. But we are unable to disclose these launches as the vehicles have not yet been unveiled.

The models displayed here features out to lead content for vehicle ranging from approximately $130 to nearly $500. In terms of Autoliv sales potential, the US produced Honda Passport and the Ford Expedition are the most significant.

Now, looking at the next slide. I will now hand it over to Frederick Westin.

Thank you, Mikael. I will talk about the financials now more in detail on the next few slides. So turning to the next slide.

This slide highlights our key figures for the first quarter of 2025 compared to the first quarter of 2024. Our net sales was $2.6 billion, representing a 1% decrease. Gross profit increased by $35 million and the gross margin increased by 1.6 percentage points.

The adjusted operating income increased from $199 million to $255 million, and the adjusted operating margin increased by 230 basis points to 9.9%. The reported operating income was $1 million lower than the adjusted operating income, mainly due to costs for capacity alignment. Adjusted earnings per share diluted increased by $0.58, where the main drivers were $0.48 from higher operating income, and $0.13 from lower number of shares.

Our adjusted return on capital employed was a solid 26% and our adjusted return on equity was 29%, driven by share buybacks impacting total equity. We paid a dividend of $0.70 per share in the quarter, and we purchased shares for slightly over $50 million and retired 500,000 shares. Looking down on the adjusted operating income bridge on the next slide.

In the first quarter of 2025, our adjusted operating income increased by $56 million. Operations contributed with $46 million, mainly from higher organic sales and improved operational efficiency, supported by the better code of accuracy.

The net currency effect was $5 million negative as the positive effects from the Mexican peso versus the US dollar was offset by translation and revaluation effects. The impact from raw materials was around $5 million negative. Out of period cost compensation was $4 million higher than last year.

Costs for SG&A and RD%E net decreased slightly despite higher costs for SG&A personnel. The recycled accumulated currency translation differences related to the divestment of our idle operations in Russia amounted to $12 million, and the year-over-year impact from the supplier settlement in 2024 was around $2 million negative. Looking now at the full year result on the next slide. Sorry, on the cash flow, sorry, on the next slide.

For the first quarter of 2025, operating cash flow decreased by $45 million compared to the same period last year to $77 million, mainly a result of increased receivables following the strong sales towards the end of the quarter. Capital expenditures net decreased by $47 million. Capital expenditures net in relation to sales was 3.6% versus 5.4% a year earlier. The lower level is mainly related to lowers in Europe (technical difficulty)

The free operating cash flow was negative $16 million compared to negative $18 million in the same period the prior year, as the lower operating cash flow was offset by lower CapEx. The cash conversion in the last 12 months, defined as free operating cash flow in relation to net income, was around 72%, slightly below our target of 80%. Now, looking at our trade working capital development on the next slide.

Trade working capital decreased by $56 million compared to the prior year, where the main drivers were $11 million in higher accounts receivables, $17 million in lower accounts payables, and $84 million in lower inventories.

In relation to sales, the trade working capital decreased from 12.8% to 12.4%. Improvement in trade working capital is a result of our multi-year working capital improvement program and an improvement in customer code of accuracy enabling a more efficient inventory management. Now, looking on our debt leverage ratio development on the next slide.

Autoliv has consistently prioritized maintaining a strong leverage ratio, reflecting our prudent financial management and commitment to a strong balance sheet. This approach has enabled the company to navigate economic fluctuations, invest in innovation, and continue delivering value to its stakeholders over time.

Our leverage ratio is virtually flat year over year at 1.3 times despite close to $700 million in shareholder returns. Compared to the end of last year, our debt leverage ratio increased by 0.1 times, as our net debt increased by $242 million, while the twelve-month trading adjusted EBITDA increased by $55 million.

With that, I'll hand it back to you, Mikael.

Thank you very much, Fredrik. On to the next slide.

In recent years, our business has faced significant challenges from COVID, disrupted global supply chains, component shortages, inflation, and the cha --- changing LVP landscape. Our company has adapted quickly, found new ways to mitigate risk and maintaining profitability.

Now, facing a challenging tariff situation, we are well equipped with a diverse -- diversified customer portfolio, a broad regionalized footprint, a strong balance sheet, and a single focus on automotive safety and saving lives.

Autoliv has a diversified customer and model mix in North America. This diverse model mix base helps outlive, mitigate risks associated with slowing import of certain vehicle models from Mexico and Canada.

The company has multiple production and assembly facilities across North America, ensuring timely delivery of airbags, seatbelts, and steering wheels. Our largest production hub is in Mexico. However, not all products are made there meet USMCA standards due to customer specific components or the unavailability of certain materials like magnesium and leather for steering wheel.

Our logistics in North America are complex. While some of our Mexican production support local vehicle manufacturing, the majority is still destined for US vehicle assembly plants. For products sent to the US customers managed about one-third of the transportation and import, and these shares continue to grow.

Driving from past experiences, Autoliv have developed the (technical difficulty) can handle tariffs. Over the years, we demonstrated that our methods for navigating challenging environments are effective. On to the next slide.

The instability and overall magnitude of the tariffs have placed the automotive industry in a challenging position. Tariff costs need to be passed on to the end consumers, which would lead to higher vehicle prices and potentially impact consumer demand and light vehicle production.

To mitigate the effects of US tariffs on our approach and materials, we have implemented several strategic measures. We established a task force early in the year with a focus on minimizing the impact of (technical difficulty). We are engaged in ongoing discussions with our customers to find setups that are mutually beneficial while negotiating compensation for the transition period.

Our large existing footprint in the US enable us to navigate the challenges posed by tariffs effectively. It gives us opportunities to ramp up production in the US, should that be the best option when evaluating future production locations together with our customers?

We are committed to increasing our compliance with the USMCA regulation. Working closely with our customers and suppliers to achieve this through increased local sourcing of components and changing of specification. On to the next slide.

The outlook for global light vehicle production in 2025 has become significantly more uncertain since January with regional variation influenced by tariffs, slowing economic growth, and other factors.

In North America, the production outlook may be significantly downgraded due to trade risk and higher vehicle prices from import tariffs. This reduction is likely to affect vehicles produced in Mexico and Canada more severely.

In Europe, production is expected to increase slightly short term, due to revision in EU regulations and higher demand in some Eastern European markets.

China is also growing, driven by government policies supporting the new energy vehicle market. Japan and South Korea are potentially facing declines due to the impact of lower exports to the US.

Overall, while some regions are still expecting growth, the global auto industry remains cautious navigating the complexities of tariffs and other economic factors. Now, looking on the business outlook on the next slide.

We expect 2 -- we expect 2025 to be a challenging year for the automotive industry. However, our ongoing focus on efficiency is expected to further enhance our profitability. We anticipate a significant improvement in our sales performance in China. Additionally, our strong cash conversion and solid balance sheet provide financial resilience and a robust foundation for maintaining high shareholder returns.

We expect cost pressures from (technical difficulty) in 2025, but still, we expect some pressure coming mainly from labor, especially in Europe and America. However, the ongoing tariff situation could add inflationary pressure. Certain raw material prices have increased, and we expect headwind for the year mainly in the US.

We successfully navigated the new tariff environment in the first quarter. This gives us confidence that it's possible to continue on that course, but there is significant uncertainty.

Contrary to the past three years, we do not anticipate a gradual quarter-by-quarter adjusted operating margin increase as the inflationary environment differs from recent years. However, the fourth quarter is still expected to be the strongest of the year. Turning to the next slide.

This slide shows our full year 2025 guidance, which excludes effects from capacity alignment, anti-trust related matters, as well as no further changes to tariffs or trade restrictions that are in effect as of April 15, 2025, as well as no significant changes in the macroeconomic environment or changes in customer call of volatility, or significant supply chain disruptions.

The business environment uncertainties makes it difficult to predict the reminder of 2025. However, based on the strong first quarter performance and (technical difficulty)

Operating cash flow is expected to be around $1.2 billion. Our positive cash flow and strong balance sheet, it supports our continued commitment to a high level of share return.

Our full year guidance is based on a global lifecycle production decline of around negative 0.5%. The tax rate around 28% and that the net currency translation effects on sale will be around minus 3%. We are monitoring the situation closely and are prepared to be as agile as needed to adjust to any changes. Looking on the next slide.

We are pleased to invite you to the Autoliv Capital Markets Day on June 4, 2025, in Stockholm, Sweden. Join us to learn more about our journey towards achieving our targets, capturing growth opportunities and translating these into attractive and sustainable shareholder return.

We will showcase our Autoliv, strategically securing a strong position with successful OEMs, supporting our medium and long-term growth in a rapidly changing market environment. You will also have the opportunity to see our latest innovation and technologies. I personally look forward to seeing you all in Stockholm. Now, turning the slide.

This concludes our formal comments for today's earnings call, and we would like to open the line for questions from analysts and investors. I will now hand it back to Madeline.

(Operator Instructions)

Colin Langan, Wells Fargo.

I know mid-quarter you were trying to size the USMCA exposure. Do you have any better clarity now on how much of your sales are non-USMCA compliant that are at risk because, I didn't see any actual impact on the walks on margin or sales, so I assume it was pretty small in March, but at any one rate, you could kind of help so we could frame the potential risk.

Yeah, we haven't given you any detail around the split there with the USMCA compliance or non-compliance here because it's -- I would say with the current circumstances here, I mean, it's a pretty fluid, the situation here, and giving too much details in this environment I think would more confuse and support. I think the bottom line here is that we are well positioned here, with the footprints we have described here.

We are having a really nice set up so meaning America for America. However, now with this known focus on the US side, it means the tariffs, imply -- impacts us mainly for the Mexico --- Mexican flow, but as we have mentioned here, that production we have in Mexico is to a large extent for OEMs in Mexico, so our customers are there. They also have pick up points in Mexico, meaning that they are carrying them over and then a smaller part of that is also carried by us over the border into the customer's plant in the US.

We are working with our customers here to see what we can do to improve that, but the reason why we are not and while we have US non -- USMCA non-compliant components here is because there is no to a very large extent there is no available supply in the region there. And we mentioned, for example, leather we mentioned magnesium for the steering wheels. We have also uniqueness when it comes to certain directed components when it comes to electronics in the in the dealings, et cetera.

So we are working to find alternatives with our customers but that will take time. But whatever we are impacted by there, it's what we pass on to the customer here through surcharges. So I think we are as good as we can get in this environment here right now and we monitor carefully going forward, see what we can do.

And the vast majority was passed on to the customer in the quarter already?

Yes.

And just as a follow up, you in your comments, you said -- I believe maybe I misheard, but the profit trajectory is not going to be like prior years now is that, but it would be strongest in Q4. So how should we be thinking about, I know you don't get quarters, but Q2, any rough color there? Are we now expecting that to not increase sequentially, and why would that be the case?

No, what the -- I mean, the -- we have -- I mean, I would say we are more back to the normal pre-inflationary environment here where you always had a weaker Q1, you had the stronger Q4, and then Q2 and Q3 was more averaging between there. And I think that's what we're trying to say now that we are not seeing the same inflationary pressure that creates this sequential development that we have seen for the last three years more back to normal.

Erik Golrang, SEB.

Firstly, on Europe, if you get some more color on that big outperformance, what's behind that? And then the second question on the size of tariff compensation in Q1 to the extent you would share that.

And then thirdly, continue on the tariff topic, just some more sort of color on this. I mean, you've covered yourself fully in Q1. It seems that you're confident that you'll be able to continue to do so. Just thinking of why wouldn't this burden be shared across the value chain. Thank you.

On the European side, I think -- we -- I think we see the result of our position here with the European OEMs and a positive result of the mix we have there, as they have some because I put forward here also to well connected to the European regulations here. So we have a a good mix there.

So more on the tariff side, I would say here that we start with the last question there maybe my confident that -- I mean, we have been very clear thing here that these tariffs needs to be passed on to our customers and obviously, to the end consumer here in my view. Then of course, it's up to the OEMs what they want to do here.

But I don't see any logic at all why the supply chain should absorb these tariffs. And this is the cost of doing business, which is implemented from one day to another and yeah, we'll see for how long and what magnitude they will be, but there's no way the supply chain can absorb this kind of magnitude of additional costs. So the pure nature of it, in my mind, needs to be passed on to the consumer.

So we start forming that and we will continue to hold that position as we move forward. And with that said, of course, we'll be working with our customers to see what can be done in terms of fulfill the requirements, so you don't need to have to pay a tariff at all. But in order to do any bigger things there, you need to have some kind of stability and certainty on the tariff situation before you can take that kind of decisions, for example, moving large part of your capacity from, let's say Mexico or somewhere else into the US so you -- you'll see that you have the right circumstances that to have a business case to do it.

But I said, we are well positioned here with the footprint we have and of course, we can work on the footprint we have here to see what kind of stretches we can do there in terms of using the footprints we already have. We are, I would say among our peers, the one with the strongest industrial footprint in the US here so we are in a good start there.

And then when it comes to what we discussed before here with the non-USMCA compliance is the availability. And there, of course, it's more forces than our own force here that can change that. So we are dependent on the industry here as well, but we're working together with industry on this and see what happens.

But once again, stability and predictability is required before any bigger changes can be done, if they should be done. And we haven't given any details on how much the tariffs are because I don't think that -- I mean, it's a figure that is not meaningful in terms of the details here because we passing on the tariffs that we get as a result of this. And it's changing all the time also, so it's a lot of changing port because besides the automotive tariffs here, you have the steel aluminum and all that, so yeah, it's a very complicated picture.

Thank you. And if I could just follow up, have you mentioned the business case to relocate production probably early days, but do you see that is there a sort of an investment that you could do in the US where the total cost to bring your product to the market and your customer doesn't go up or it's actually beneficiary, or do you think that you'll stay where you are based on the at least the current level of tariffs.

It's way too early to be any -- have any firm views on that because as I said, we need to know what the landscape will be for the foreseeable futures. You can actually do a business case around it and for the cost in the US will go up. I mean, there's a reason why we are in Mexico. So the question is what that would be and what everybody's prepare to do there. So it's too early to have any firm opinions about.

Emmanuel Rosner, Wolfe.

My first question is your decision to reiterate guidance. Can you elaborate a little bit about this? Is it mostly a function of just a lot of uncertainty, so it's really difficult to know what to assume for any changes, or is it strong confidence in the ability to offset future challenges? Is it both? Can you just comment a little bit more about it?

Sure. No, I think first of all, we feel comfortable with the guidance here when we look at our own ability to move forward here. I think we had the strong first quarter here, and we continue to see also when we look into the horizon that we have with the call offs that we continue to see a healthy level of light vehicle production moving into the second quarter with the horizon we have there.

And as I said, our own activity level controlling what we in a good way. So I think that we are steadily moving forward in the right direction there. So we have no reasons, I would say to change our guidance here. We feel comfortable with what we can see.

Then of course, what you're pointing to here, we are absolutely fully aware of the risks you could say that is out there connected to the tariffs and overall uncertainty there. But today, we don't have any data points pointing in dramatic changes to that plus that, we, also in our guidance has a range mentioned that also that you know can absorb some movements as well. So yeah, we've been comfortable with the guidance we've given you today with what we know.

Thank you. If I could just ask this sort of like a different way and then I have a quick follow up. But so for example, this morning I think you're based on the March S&P file. But this morning, S&P cut the global production a little bit deeper than the down 0.5% that you're assuming. So all else equal, is that something that we should be flowing through your guidance and essentially saying, look, the production is lower than assumed therefore, it's actually sort of like a lower outcome or are you essentially saying that you have offsets or the Q1 was so much stronger than expected that all in even with sort of like this somewhat weaker outlook, you still do it with your guidance.

I mean, we -- as we said here, I mean, we have based our guidance on the 1%, 0.5% negative, so we were already from the beginning remember more of a negative than S&P Global. Now, they have made an adjustment. I would say that's ballpark figure around where we are at also, I mean, 1% lower than what we have. So I mean, I would say it's within margin of errors when you look at the light vehicle production, so it doesn't change the picture for me here.

That's great. And then the quick follow up is like your capital allocation strategy and in particular the shareholder returns, are you still comfortable with your existing strategy, or is the current uncertain environment make you want to potentially slow down the cash returns to shareholders or change it in any other way?

No, I think -- I mean, our strategy and commitment here lays firm to be shareholder-friendly company return liquidity to our shareholders. We continued in the first quarter here with our buybacks even though at the slightly lower pace, but we hold on to it and what we will do going forward, of course, we can't comment here, but our commitment still stands.

Edison Yu, Deutsche Bank.

First on a near term, in terms of the tariff-related cost, it seems like you absorbed it or able to pass it on, sorry, pass it on very quickly. Would you expect that going forward to be that quick in terms of the time when you pass it on to when you actually run it through the P&L?

Yeah, I think, it's -- it needs to be quickly. I mean, you remember when we have described our negotiations when it comes to the inflationary compensation, that was related to very detailed and complicated negotiations on the component by component, the plant-by-plant level across the whole globe. The tariffs is very, I would say, clear and obvious, when you have to pay them and say the evidence to prove that you have had this cost is much more simple and therefore, the negotiations should go much faster.

Okay. So just to check, let's say tariffs continue on for the next couple quarters, you would expect to recover that pretty much in quarter going forward?

I mean, I will not promise anything here. But as I said, we stand firm in our opinion here that the tariff cost needs to be passed on, and we will continue to do so. And I think we have a well-established way of doing it with our customers.

And then longer term on automation, I know it's a bit early to decide whether to necessarily relocate a lot back to the US, but I think you -- you've discussed in the past, you've done a lot of automation overseas in China, it's been very successful. So if you had to automate, do you have a playbook? Do you have kind of a system that you can implement based on your learnings?

Yeah. I mean, I'm not worried about the process or the way of moving capacity or establishing capacity in the US. It's more a question about the business case, and as I said, the reliability in the environment that makes you comfortable in making investment in this environment. It's not the how or so that is the problem. It's the calculation, the business case that we can provide the competitive better cost domestically than with others basically to break even calculation.

Chris McNally, Evercore.

Thanks so much, team. And I apologize if I missed this in the prepared remarks, but just in terms of the call ups you're seeing, through early April, do they align with some of the March projections around Q2? I think we're all sort of anticipating basically any day now that we'll get major Mexico and Canadian shutdowns, you know, basically permanently until tariffs are changed, so just curious if some of that is reflected in what you've seen in the call off over the last two to three weeks.

As I indicated before here, we see that the call offs is holding up well and no other indications than that we are moving forward here with the horizon we have from the call offs.

And maybe just to follow up on that because I think you've answered the other questions really helpfully. It basically seems like production is the primary variable here. There'll be a little bit on raw materials, but you're expecting to get repaid for any tariffs from the suppliers I think we've heard that on from every supplier. I'm just a little surprised.

I mean, basically, if there was no change in call offs, particularly for Mexican and Canadian facilities, it would sort of imply that the Detroit 3 were continuing to build which means they weren't planning to cross the border, which does not seem to be the case. So could you help us reconcile that because you would imagine that we would see weakness based on everything that we know if shutdowns were to be coming soon because they're building inventory at the border essentially.

No, I mean, I can't comment or speculate in what our customers are doing here in or specifically. But I mean, the totality of the call offs that I referred to here when we look at the Autoliv order book, so to speak, is as I said, holding up well here as we move forward into the second quarter with what we can see and the time horizon we have.

Okay, excellent. So it it's sort of a global order perspective and maybe we'll hold off on giving very specific Canadian, Mexican facilities so a lot of that that stuff is live. Thanks so much for the comments, really appreciate it.

Hampus Engellau, Handelsbanken.

Two questions for me, starting off on the capacity line and program, I used a question if you -- are you happy where you are on these levels, or are you going to go ahead fully on the 8,000 that you previously indicated in terms of (inaudible) production.

The second question is more related to the mix. I was also surprised of the very outgrowth in Q1 and if we look at the quarters ahead on the outlook, should we assume any big changes in mix in the quarters from what you see now? I know you're not going to get on the quarters, but just the sound for the model. Thank you.

Yeah. On your first question on the head count reduction, I think we're progressing well. You found out that we have reduced our indirect or salaried headcount by over 1,500. So that has progressed further versus the Q4 report, and we also hold on to the expected savings of an incremental $50 million for the year. So that's progressing well.

Also on the direct labor side, I think we're down in total headcount. We're down 6%, whereas organically, we grew sales by 2%. So here, we see a good development on the operational excellence side and productivity side. So that's also was helped by the better call affordability, that was around 93% here in the first quarter, so a continuation of the positive trend we saw in the fourth quarter.

And then on the mix side, and we mentioned that we had 3 percentage points negative mix, in the first quarter, that's will most likely continue in the second quarter. And then we expect a more favorable development in the second half of the year, at least when you look at our expected sales performance versus LVP development in China, but we still expect a negative mix also for the full year, still about 1 percentage point.

Agnieszka Vilela, Nordea.

So my first question is on the pull forward impact that you saw in Q1 when it comes to car production. I wonder if you can just tell us about what has been happening, and also, did you only see that on the kind of car production or did you also see that OEMs are stocking up your products?

Yeah. I mean, it's very difficult for us to say what volume deviation here that we saw in the first quarter, which was favorable and the volumes in the first quarter were better than we had expected going into the quarter. But to quantify a pull ahead of effect of that is incredibly difficult for us and even impossible.

But as Mikael already pointed out here that we see the call off continuing at a good level also here in the second quarter, so it's not that we see them falling off. Yeah, so that would indicate that the -- either the pool ahead effect continues, or it was smaller in the first quarter.

Understood, thank you. And then maybe just if you could help us to understand the impact on the P&L from getting compensation from tariffs and overall tariff impact, does it filter through sales and your cost or how should we think about it when you get the compensation for tariffs?

Yeah, the majority filters through sales. But in the first quarter, it was not such a large magnitude that it would have any meaningful effect on the top line.

Jairam Nathan, Daiwa Capital Markets America.

Just wanted to understand in terms of the cost reduction or any SCP, can you make any enhancements or you know, increase the cost reduction potential if things worsen from here? What kind of flexibility would you have?

No, I think, I mean -- I think we have already shown that we have high flexibility in the company to manage big shifts in demand here. So of course, what we we're seeing the results of from now in the quarter one here, for example, is from really the what we call on the strategic road map activities here to drive towards our mid-term targets here. If something domestically would happen in the market, then of course, we have more lever -- levers to pull to bring down the cost and reduce the labor, et cetera. So the short answer is yes, we can do more if needed.

Okay. And just like to follow up, the -- we are seeing a lot of, especially Japanese VMs, I think, moving, trying to shift production back to the US, and I just want to understand how would that have any impact on margins, coming from in Japan was this -- was the US or -- and would the US facilities have the capacity?

Yeah, I think -- I mean, first of all, if -- I mean, yes, we see some of that also. And of course, we -- If there are platforms that we are on that changes location, we have a procedure for that. That has happened before, so that's not nothing dramatically with that. That's basically a reset of the program and you need to do new calculation and all that stuff, so we have a well-defined way of working around that.

And I think, here, we have also a big advantage since we have this global footprint we have. We can also support our customers if they want to move to a different medium so that's not very dramatic for us today. So yeah, and I think it will take some time until you actually see any meaningful volume impacting that. I think they have this same situation here as we, as a supplier, have that you need to make sure that you have a long-term view on the landscape here in order to actually make those investments at the end of the day.

Dan Levy, Barclays.

First, can you just outline what your exposure is within Europe and Asia to vehicles that are exported to North America?

I don't have the number here in front of me. We could come back to you on that one. Yeah, I mean, it's typically premium vehicles, more that are exported and then we are a bit overweighted maybe against those. But I would have to come back on the exact number, but you can talk to Henri Kaar on this.

Okay, thank you. And then second question is on the tariffs and what specifically is not USMCA compliant? How much of this is tier two directed content by the OEMs that is essentially in a position where the OEMs have to negotiate because they've directed this content as opposed to content that you chose to source on your own and there's maybe a little less of a basis for getting those recoveries.

We -- we're not breaking it down in the (technical difficulty) I was going to say too detailed to keep in an external content there and especially in a situation like this one, it's quite fluid here. As I said, I mean, the direct report as you said it, it's obviously something we need the support from the OEMs that our customers here to find alternatives to. But most cases when we are not USMCA compliant is because it's not available in the -- under those conditions so I think you have to live with it.

Thank you. Due to time constraints, this concludes our question-and-answer session, so I'll hand the call back to Mikael Bratt, President and CEO, for closing remarks.

Thank you, Melanie. Before we conclude today's call, I want to emphasize our commitment to achieve our financial targets. Our focus remains on structural cost reductions, innovation, quality, sustainability, and on tariff mitigation efforts.

Despite significant market challenges in key markets, we expect to continue to perform strongly. We remain vigilant about the risks associated with the tariffs and new political challenges, which could impact our cost structure and markets. Navigating these complex complexities as well as we did in the first quarter will be instrumental in maintaining our momentum throughout the year.

Once again, I'm delighted to invite you to our Capital Markets Day on June 4, 2025. I look forward to see you there. Our second-quarter call is scheduled for Friday, July 18, 2025. Thank you for your attention. Drive safely.