Magna International Inc at JPMorgan Auto Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ryan Brinkman - JPMorgan - Analyst : Give it to me. (multiple speakers) We're asking each of the companies at the conference to comment on some broad industry themes. And the first one is one of the biggest changes that's been taking place in the industry, which is the significant reset of expectations regarding battery electric vehicle, right? So, for so long, we just kept chasing the forecast off, but it felt like it could only go in one direction. More recently, though there's been a big reversal in at the start of the year, S&P Global mobility was looking for a 32% increase in 2024 bed production and I looked at it just a couple weeks ago, they were looking for 14%. (inaudible) now they are looking for 10%. So what do you think accounts for this just really significant reset in expectations? Has the slower growth near term cause you think any differently about the medium or long term, I think on your earnings call, you did give some indication about 2026. We'll call them medium term. So yes, maybe give that a complete the thought with the long term, what you think the ultimate implications are for your company?

Question: Ryan Brinkman - JPMorgan - Analyst : Another trend in the industry that I'd say is changing just as rapidly as this tremendous rise in the competitiveness and the sales and production volumes of the domestic Chinese automakers, they're quick to embrace electrification, which hasn't really reset in China like it has in other regions, the quality and design demonstrably better, coming out with vehicles, twice as fast as the global peers. BYD has gone from 13th to 1st and just shy of 4 or 5 years collectively, since the start of the pandemic, they've gone the domestics from [35 to 55] or even higher percent share of the market on (inaudible) while outside of China, but with some ambitions to export and and even build vehicles outside, how do you see this trend evolving? What are the implications for Magna? Most of companies recover still underexposed to the domestic Chinese? What's your exposure to them? I actually met with Pat in China during the quarter. So I know the answer to some of these questions, including that you are the largest supplier of seats to the domestic. You made the strategic decision to get in the (inaudible), which is like a $30,000, Porsche Panamera, Tesla Model S combo? And what are you doing to maybe further benefit from this trend?

Question: Ryan Brinkman - JPMorgan - Analyst : And I think you get a lot of credit for targeting BYD in particular. I wonder if if you were a little bit lucky because obviously Adient's, [Yanfeng] Johnson Controls based which dominated that market for so long because (inaudible) you and things affiliation with SAIC, which was familiar with REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 5:40PM, MG.TO - Magna International Inc at JPMorgan Auto Conference GM and VW, so they gave them that business and by the time you got around to China because first your focus in some other markets, (inaudible) China skeptical at one point, right? And it's about time, you got the area. These JV relationships are so coveted, they were already taken. And so you had to settle with the domestic Chinese turned out to be the winning ticket?

Question: Ryan Brinkman - JPMorgan - Analyst : I think there's some opportunity to because some challenges working with the domestics. It is (inaudible) they don't always pay on time. Another thing is when they do pay you, they might pay you an IOU. (inaudible) And then, you know, they want to productivity all upfront and they can dictate these terms because they're so attractive to be levered to because of the growth. But they're also they're very vertically integrated, which you eliminate some opportunity. But I've heard you mentioned before, but love to hear an update in terms of as they start to export to Europe beginning to up the game in terms of the seeding quality or the sheet metal, you got the relationship with them now. How do you see that maybe evolving as they start to build vehicles overseas, export vehicles overseas?

Question: Ryan Brinkman - JPMorgan - Analyst : Yes, I wanted to ask a question on the outlook for suppliers from the expected interplay between new vehicle prices and the quantity that's than demanded or produced. We saw during the pandemic that the automakers can do very well in a low volume, high price environment because, while they're hurt by the lower volume, they are hurt by the higher price, whereas the suppliers, unfortunately just levered to the lower volume without that leverage to the higher price. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 5:40PM, MG.TO - Magna International Inc at JPMorgan Auto Conference Note that vehicle sales are still about 8% lower in the US than where they were pre pandemic, hurt by vehicle prices that have outpaced CPI by about 8 or 9 points, makes sense. Automakers say, they're going to remain disciplined and hold onto those relative pricing gains. Alternatively, some include I think you at the conference last year that they might revert back to old practices and discount more and build inventories, which would be good for the suppliers levered to the production we have gotten back, like you anticipated were back to the pre chip shortage levels of inventory. We're not back to the pre-COVID, maybe this, to what extent you think there's some structural change there, some structurally higher price, some structurally lower volume, which could potentially be negative for (inaudible) ?

Question: Ryan Brinkman - JPMorgan - Analyst : Great. And by the way you're the only supplier who said that last year and I haven't hosted all this prior sessions this year, but so far, it's more balanced this year. I think as the inventories have gone to about $1.8 million to $2.6million Just wanted to ask on your Complete Vehicles assembly business in Europe after a couple of changes there recently. Firstly, there was the [Fisker] bankruptcy now result in you no longer building the ocean for them and now more recently, you've got the cancellation of the planned Ineos (inaudible). So where does that leave draws from a capacity utilization or profitability perspective? Are there other programs that you're looking at which could potentially backfill that volume. And prior to Fisker, I think you've mostly built vehicles in Europe for established automakers, including very sound, your German luxury and what that, does the experience with Fisker NEOs, maybe cause you to think any differently about with my new partner in Europe? And what does the process look like when it comes to taking a calculated risks with some of these more start-up manufacturers?

Question: Ryan Brinkman - JPMorgan - Analyst : And maybe sticking with complete vehicle assembly, but switching to China, would be great to get an update there, starting with the existing ARC Fox product. I think they're going after a little bit of a slower start, but also been hearing that it's recently been gaining more steam. And then also like with Fisker NEOs in Europe, there are a lot of start-up manufacturers in China would have been great to get the [Xiaomi] at (inaudible) . But, you don't know which is going to be Xiaomi, which is going to be Fisker, right? But how do you go through the process in China REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 5:40PM, MG.TO - Magna International Inc at JPMorgan Auto Conference of deciding if you're going to deal with and not deal with and I guess doesn't even relate to just complete because somebody even of every additional supply relationship?

Question: Ryan Brinkman - JPMorgan - Analyst : Okay. Now regarding the recent changes to the 2026 outlook that we communicated in the 2Q call. I don't think they shouldn't come as too huge of a surprise, given the evolution in the S&P Global mobility forecast over the past year, including the numbers we're just talking about and after some other suppliers earlier in the earnings season, for example, Aptiv and BorgWarner also like took down their revenue estimates for this year well, actually kind of ticking up the margin and because, talking about (inaudible) take a margin analysis case, but there's an offset, there is a partial offset in terms of reduced spending associated with the megatrends and reduced capital spending to (inaudible) So, a few questions around this. First of all, can you just kind of clean it up like the revenue came down at the midpoint by 10%. That's scared a lot of people, I think investors and obviously, but it's impacted by the complete vehicle assembly. So if I strip Complete Vehicles assembly out, like REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 5:40PM, MG.TO - Magna International Inc at JPMorgan Auto Conference what's the kind of underlying change adjusted for that? And then secondly, talk about the headwinds, but also maybe the opportunities in terms of the ability to cut spending and capital outlay.

Question: Ryan Brinkman - JPMorgan - Analyst : You mentioned, when talking about this that on the call that ordinarily you wouldn't be updating this soon. You just introduced it in February, and, maybe if you'd given yourselves until next February, you could have had some more time to identify some of these and not frightened the market (inaudible)

Question: Ryan Brinkman - JPMorgan - Analyst : That's fair. Maybe your updated thoughts on capital allocation. Obviously, you're holding pattern here with the debt deleverage, but historically, there had been a very strong focus on return of capital to shareholders. Of course, you want to get in your 1 to 1.5 times range, anticipate at some point in [25] questions around that. First of all, why is 1 times to 1.5 times, the optimal range, a couple of other investment grade suppliers, including active Infineon this quarter announced increases in the level of leverage that they'd be comfortable operating with at least for a time? And then secondly, how should we think about your priorities for allocating excess capital when you do get into the targeted range, if you do keep that targeted range, should we think about M&A being less of a focus given that, first of all, it's harder for M&A now to compete against share repurchases, right, for allocation to capital, given the shares are cheaper than in the past. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 5:40PM, MG.TO - Magna International Inc at JPMorgan Auto Conference And then with (inaudible) and LG Electronics pieces in place. Have you pretty much satisfied whatever strategic needs that you thought that needed to be accomplished or could be accomplished from an M&A perspective?

Question: Ryan Brinkman - JPMorgan - Analyst : And when you do allocate capital toward M&A, when you return to that, I'm curious if you might think differently about it in the future versus how you, in recent years, it's been about shoring up the leverage to the megatrend areas (inaudible) electrification with LG Electronics JV. But does the store growth in the megatrend areas or cause you to maybe change that calculus at all? It may be being incrementally more willing to consider a high return on investment opportunities or cash-on-cash returns in slower growth areas. For example, when Don Walker, Louis Tonelli couldn't stop them from saying at the [Detroit] auto show that it maybe hit by audience, which is the opposite of the Vaneer, right? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 08, 2024 / 5:40PM, MG.TO - Magna International Inc at JPMorgan Auto Conference I'm just curious, whether you still I mean, investors have tried pressure you into disposing of certain things, how that's low margin, I like seating, but it's great returns, would you return to being more economic animals as opposed to addressing up and optimizing leverage to this area of the market?

Question: Ryan Brinkman - JPMorgan - Analyst : No, it's helpful. I wanted to ask on switching gears a bit on fully autonomous opportunity, robo-taxis, hearing less of this now we do have [Auto-X] taking the stage after you and Luminar, but it's been a continual push out right of the timing there. And just given the strong exposure you have to radars and 4D radar, the partnerships you've got with a number of the LiDAR suppliers. I'd be curious what the conversations with customers might look like in terms of the timing on full self-driving and what the opportunity could be for Magna even if a little longer term? And then maybe specific to Waymo because you figure about that a lot about that haven't heard about (inaudible) about $100 million in there, right? Just remind us, and, can you review what you did or continue to do for them from an integration or other perspective, obviously you're making as [I paces] that are driving on. But weren't you retrofitting and give us any kind of update you can.

Question: Ryan Brinkman - JPMorgan - Analyst : Any questions in the audience for Magna. I'll ask one, you referred in China to the company's cost plus journey and I was just wanted to check in on, what your current raw material pass through looks like. And obviously, it's a big corporation and you have to blend it together, it's hard to do, but, now relative to prior to the chip shortage, inflation, pandemic, et cetera. And then also when it comes to the non-commodity supply chain, that's something you're always pretty well protected on most parts of the raw material buy, but on the non-commodity side, electricity in Germany, natural gas, ocean shipping that kind of stuff. And also like what the right balance is because I've asked companies how much progress have you made and sometimes there is, but we don't want to get too much (inaudible) because that means we're not going to get as good pricing the rest of the time. Just where are you? I mean, certainly, I think you need to reduce the risk of what happened to margins the business in the event that inflation worsens like higher again. So what is the right balance? And how are you tracking relative to the right balance?

Question: Ryan Brinkman - JPMorgan - Analyst : Okay, great. Well, we are over time. So please join me in thanking Pat and Louis for all the great color.