Garrett Motion (GTX) 8 Nov 192019 Q3 Earnings call transcript

Good morning, and my name is Chuck, and I’ll be your operator this morning. I would like to welcome everyone to the Garrett Motion Quarterly Earnings Conference Call. This call is being recorded and a replay will be available later today. After the company’s presentation, there will be a question-and-answer session. I would now like to hand the call over to Paul Blalock, Vice President of Investor Relations. sir. ahead, go Please

Good third and quarter Chuck. to for Garrett Motion’s XXXX day, you, thanks everyone, listening Thank conference call.

I'd are Garrett along with begin, and find links where we like important SEC that also mention Before filings, our today's you press will release website information available Motion the other to on at garrettmotion.com, to presentation about Garrett.

and business, as you encouraged risks in comments, such. company the comparable referring financial measures them. presentation measures of basis our terms those Slide in and We results of X, and financial press examine non-GAAP today slide measure, In Also statements also most as financial disclaimers the obligation note directly million factors the consolidated performance our contain the $X,XXX aware the liability and agreement release of post-spin numerous of the and are combined and read obligations Honeywell, with that reported the gasoline payable regarding with of manage using of today. reconcile our should presentation stand-alone, both may found we amount on only. liability terms to of the each liability appendix indemnification as be related operate of understand and you indemnification sheet balance uses a and respect of the which On performance. update disclaims is Honeywell's to any the risk provided payable that and our business forward-looking payments XX, in its anticipated reflects We and liability The of forward-looking estimates forward-looking claims reimbursement with our business. our encourage a asbestos-related presentation Honeywell with as accordance and the terms asbestos-related X. and describe only September Today's to and assessment the based in information future nature prospects, this future Slide contained presentation, number additional light-vehicle and Honeywell are carve-out XXXX. to and of its of those diesel strategies Honeywell reimbursement to reconciliations, indemnification the is estimates today's uncertainties to in light-vehicle financial notice to The financial only presentation. historical diesel this we statements products to in taken the will GAAP and to which the date Turning information in by agreement. please to for based gasoline by of such and way represent on of calculated be our accounts are us accordance filings, We goals, expectations to factors. management’s the own statements in become

indemnification and Form in for control XX, evidence to our disclosed our was under and has determined reimbursement internal and our management related statements our to XX-K, a previously the combined XXXX, Honeywell the there liability weakness As in consolidated financial material reporting our supporting our for financial of agreement. December that

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Peter Following it's our to President time interim I'll today us CEO; to purpose today's is and With the main our those and over Olivier hand call. Rabiller, Olivier. it to comments, Bracke, now turn of CFO. now

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success $X.XX to and in by earnings turbo gasoline technology the our per higher Net income, portfolios evidenced share produced versus in we up product our track to strong XX and diluted Garrett third of expectations. major underscores we ahead differentiated in driven win strong from as increased rate. customer gasoline in net in The earnings performance On our exceeded a net well year-to-date rebalancing and per quarter sales, basis, was of generated respectively. of $X.XX achieved launches products diluted $XXX gasoline new record up share is basic $X.XX respectively. basic points automaker $X.XX providing global was XX% by per share last and Sales original and income our have engines penetration Our and revenue proven million and year. diesel $XX percentage products million,

for – $XXX million, EBITDA first third was adjusted and quarter, was total the For year-to-date the million. the $XXX

year-to-date and XX.X% in XX% EBITDA basis. adjusted Our was on the quarter margin the

We quarter few Peter our in rebalancing in debt full later our million. on call. $XX year and improved revised year-to-date, third for vehicle by light reiterated these sheet third for by outlook EBITDA more quarter of of free balance the also gasoline to our will XXXX markets. the Both our flow commercial our reducing we detail activity organic positive and the end vehicle and to flow leverage million slightly and more a in on in guidance items, net net conversion minutes. cash detail sales posted for Based results $XXX discuss the strong adjusted We'll discuss level reflect cash points free adjusted adjusted softer of faster a in and effect

net by Slide illustrate X. product region and to We sales our line. Turning

the new product point year. due left-hand Asia industry percentage side, one launches. Europe and you by of On slowdown in one remain see makeup America net sales in the the that last China, geographic declined up gasoline continued in Garrett's to point compared was percentage despite strength unchanged to mainly our as North

of we further to XX%, products product XX from dollar percentage grew as We share third will On gasoline gasoline mentioned fourth percentage drive gasoline sales in net XX%. exceed I side, demand sales XXXX. forward of approximately moment the a vehicle from ongoing programs product of quarter. the exceeded in approximately by light up by a the points going diesel basis, gains sales gasoline On ago, and our current expect to diesel and ramp-ups anticipate XX% launches quarter that

than in the As the see, our higher on-highway acceleration last margin vehicle third Asia, in faster and America, industries. both continued can year, sales North of combined reflecting a Europe, from you forecasted. commercial commercial a XX% At softness expected and off-highway in The in down is time the volumes XX% activities Garrett quarter lower products quarter, when going industry is third us totaled when trend overall at and long-term gasoline down. positive resilience for than provides the time, same with with an with as revenue originally industry it softer vehicle towards greater net

more from of that XXXX our fourth pressure playbook productivity end quarter and slower margin the market well and remains To challenged. remain we deliver continue to industry. gasoline efficiency as although margins XXXX pace, this into commercial and the vehicle shift within the same, continuing, in shift industry to environment, as organization at will the to mitigate expect the see diesel top-tier We time this adverse as at driving a will

OEMs we estimate that in are we engaged platform market technology, technology geometry pioneered per On introduced on the to dollar And gasoline upon means this in highlight first platform vehicle Garrett currently towards turbos of In approximately over Europe continue internal industry's Turbo expect mass deploy Light basis Gasoline XX% top to Garrett are expected Slide segment, in higher engines. core turbine time technology It Garrett global XX% XXXX. worldwide from VNT by content electrified X, the we a combustion diesel both with emerging business. on hybrid that the pure the and variable-nozzle light industry's the to over broader transition Vehicle few benefit differentiated basis. the XXXX to VNT last based turbocharging a vehicle on decades powertrain. to variable be the engine alone, technologies up we the and or including in gasoline

as improving mandates, of reduction Euro engines. vehicle enable well on product will automakers content to gas VNT content margin diesel forward. benefit from providing and it our we on going remains we set as continue Double launch should industry these potential of we the to a Axle applications will macros these XX% global X advanced will help regulations stringent two-stage content the We to positive vehicle strong positioned per pushing regulations. as by Importantly, per and applications position significant In also increase reduction technology next-generation while benchmarks VNT and growth believe more increased our technology auto in our provide technology vehicle. provide VNT see Garrett's XX% and COX solutions expand and as Garrett the continue gasoline and short, the programs to increased their emissions to more Garrett’s and we to the long-term China positive X economy to mandated segment, content gasoline impact In have the long-term add commercial provide more new performance. greater meet sales fuel overtime, vehicle

first sectors. to turbocharger Slide We Show, progress Auto the unveiled we to In tomorrow. Frankfurt continued Turning our mass market growth be vehicle meaning the industry's launched passenger September, new X. for electric in XXXX, at in highlight

fuel ability Our hybrid the by innovative on higher delivering energy to provide of efficiency use have and responsiveness the recouping improve electricity exos to a capitalize generating will potential for while electrification platforms and ultimately well are the positioned added voltage up performance. designed products for Garrett XX%, solutions E-Boosting is in to gas. powertrain. These from

in hybrid worldwide be electrified of fact by approximately or vehicle. vehicle XXXX, In forecast production IHS XX% that will light

to portion from Garrett, significantly be we mentioned meaning on coming be of vehicle It overall hybrids earlier. I hybrid the the XX% means that industry sales, benefiting comment Garrett's our of from platforms. over outpacing that it for increased expect light As sales will the and

in we X Gen our plan Longer Fuel interest We Cell are particularly also Asia, in in seeing cell production to fuel Garrett's for compressor products local unique XXXX. vehicle strong light where applications, market, decade. Fuel application as and term, Cell middle deployed applications the vehicle commercial next see platform mass near from are the of we solutions costs moving decline into technological start

solution continue we make bringing strides our addition, to software to important In market. in

to recently for car proud contract are the maker. Detection first industry Asian prevention won a one of major We software have for Intrusion

Management for are electrified our We production demonstrate legacy are will our to global our towards in vehicle. discuss industry's summary, car control I advanced and to first now These Peter our bring remain more tool detail. with more focused over In diagnosis also market turn production to pilot now on that application. that financials and to for System on wins and in advancing turbo customers Garrett technologies customers the not for global linked bay we auto purely in the rely to calibrating business. Engine advanced service transformation connected

will Thanks, financials the everyone. Olivier. my start review Slide on I X. of Welcome,

net As quarter mentioned, increased sales basis third and reported organically Olivier were third XXXX. on X.X% quarter down X.X% for compared the with the a

– to by volumes once diesel $XX in launches, penetration Our for from volumes, advance particularly three again ended again withholding product internal down Net million resulted and offset of from higher turbocharger the $XXX spin-off months were in to global gasoline and ability, reflects the which sales a new lower foreign of an year, last that September production business Garrett's an from once XX, taxes increased commercial benefit recorded during engines in vehicles. on million gasoline auto quarter restructuring was outperform earnings stemming income product undistributed QX in lower the tax and XXXX. reduction which includes

$XXX debt, decline not any addition, a Adjusted the XXXX raised included debt In QX the expense XXXX our third of totaled the to long-term million interest interest time million of spin QX the last X% on at expense did in quarter $X year. include in related off. EBITDA versus million or $XX third whereas quarter,

QX XXXX. down sales, EBITDA points of XX.X% from net As Olivier margin mentioned, of the XX XX.X% adjusted in basis

quarter, For year. months third September X% down and EBIT EBITDA in versus nine million, period quarter was tracking Capital sales. $XX on last year from year-to-date the from year XXXX expenditures XXXX XX.X% ended up net the similar Adjusted XX, basis full year, of was a expectations. line margin in $XXX the XX.X% as in XX.X% adjusted levels our in the and last represented were million in but same with still our

strong cash payments million flow, in amid challenging free continues cash includes included $XXX conditions. for $XX leverage market to but to third interest flow our cash the financial quarter excludes quarter. Honeywell. payments strong was Lastly, which levered Including to our Honeywell, Garrett results free generate Overall, generation the million for expense, adjusted

the to Gasoline break Turning XX% Slide we performance products for X, quarter. $XX our representing million, growth. net grew organic sales down

vehicles and organic Aftermarket of Commercial $XX market million at due driven sales the decline due globally. currency XX% gasoline last a representing and or respectively. the $X versus million, volumes. market Overall, X% $XX by by primarily declined products to overall applications. decline, X.X% and runoff year, by other declined certain diesel increased $X million decreased softer organically million, to conditions constant net While higher

that We auto Garrett outperforming XX. Slide to the highlight significantly global Turning is industry.

Vehicle has the our each business, can been new slide, year. a production we of decline on by outperformance, growth see basis net LP driven our diesel in sales This you this last significant launches our organic since the segment. public went in largely on global year-over-year the despite quarter product light As gasoline has outperformed

XX. Slide Turning now to

versus walk You see QX EBITDA as XXXX. adjusted for – XXXX QX and to QX compared EBIT adjusted

primarily XXXX due to vehicle also quarter, adjusted million was compared in by EBIT $XX nonlinear our negative was rates to QX impact increase the in with the currency exchange sales which allocations was million by towards the FX part year-to-date $XXX offset down period. but from was full weaker For Adjusted corporate and driven million expectations. compared in in gasoline QX to Also, last in versus $XX basically to to consistent mostly expenses. and negative severance-related million period, from an XXXX $X year was lower hedging higher a offset volumes, the and by $XXX year, down XX, were accelerated mainly challenging euro-dollar EBITDA in included we Overall, EBIT our this detail for and is third in productivity mix. X%, quarter related prior million Slide the despite and and up conditions excluding and product the adjusted spin-off FX, provide price the period. shift commercial mix, prior shift slightly our in higher was income prior to products related R&D more Garrett's before market transformational On and to SG&A, Honeywell, taxes. increase losses

as important of to year-over-year As capital comparison best off. interest reflects $XX $XX as post-spin in income basis QX million different period. Honeywell lower and the $XX expenses to free taxes to structure, prior in the the QX million the versus million on you prior with indemnification million basis, line due On is expense post-spin It before a in net also see, in year higher XXXX. expense $XX note can were our that of the XXXX QX to was spin a

in effective effective our tax we mentioned in vary XX%. XXXX, rate resulted tax to around effective call, to earnings previous proportional rate tax believe are a operating items our in And higher discrete changes QX mostly Swiss work tax rate due $XX that in This in some rate XXXX by reform. effective excluding QX As in reform. XXXX. of quarter-to-quarter Tax XX%, is and consideration of model tracking business reform, in as million driven as compares expense continue U.S. are items such an our year can We to well uncertainties tax tax from pre-spin tax we The through of of XX% full items. our rate still approximately historical we we geographic as U.S. tax on working to and

a obligation we million cash XX, to provided we levered debt and $XX cash net paid of partially million for indemnity of million net third the Honeywell. result free in benefit $XX free a FX in as related walk $XX quarter. capital, $XXX and debt $XX $X The in EBITDA Slide QX, million. billion resulting of million depiction by assets cash flow $XX as to cash of and in to our taxes, an adjusted Turning $XX XX reduction additional flow is $XX of $X.XXX In mainly CapEx, offset from interest $XX of working geographical million other, million by levered to other reduced million million million million liabilities,

to Turning with revolving down million, QX our million equivalents facility, that of from due including $XX to the XX. prepaid our and million cash half slide, and quarter the cash see cash Loan under $XXX $XXX XXXX exchange in available and early on rates. also changes liquidity which which to amortization. Also in you we million term Slide deployed We is slightly ended available first $XXX repayment credit A, XXXX make on a

debt million obligation a $XX or primarily related payments our exchange billion, Honeywell. as items due note the million net foreign balance was to to We related well from we indemnity and deleverage of reduced payment $XXX $XX remain cash a was our from $X.XXX mandatory benefit no from QX of by on as to liabilities million to to lowered $XXX indemnity our quarter, as and Slide near-term taxes of transition Year-to-date, were for total lowered to year-to-date obligation. ratio obligations million strong to generation September X.XX sheet. balance have our debt our X.XX utilizing to On focused Our maturities. EBITDA as sheet continue last consolidated – we XX, XX

$XXX is cash $X.XXX obligation, any capped reminder, at of the year. with respect payments a million indemnification stands which As to billion, at

Slide current Turning provide to XXXX. outlook We XX. for our

minus the level and and and have cash For stated year, adjusted net guidance sales XX%. organic plus of full we between between free conversion previously growth X% XX% our reiterated X% flow

Our a of range between and full revised range year outlook million $XXX and EBITDA between for $XXX $XXX has a to from been $XXX million million adjusted million.

shift XXXX Our gas by in ramp-up commercial faster China. and in our lower, diesel primarily between midpoint partially lower was The Both earlier. growth, than previous impact sales production faster discussed X.X% into outlook we X% between gasoline approximately third as and for the a is or the call minus vehicle slower auto diesel, a to margins quarter, and global will the anticipated but remain I expected mix pace, number fourth XXXX in offset production a Olivier environment to of factors some on change particularly additional an now adverse X.X% back gasoline quarter EBITDA minus due a final vehicles, at as hand these previously between well as although adjusted is challenging. as we anticipate to a for commercial will now had continue the mix and and in that at for are remarks.

XX, results were Peter. by growth, strong significantly exceeding reaffirming organic global led In for long-term Slide Thanks, on quarter our outlook. sales the summary, production Garrett auto growth and

now customer gasoline portfolio strong accelerated sales, and which produced diesel win sales. shift exceeds efforts Our have rates

solid flow well the debt. quarter focus in quarter application, new our cash momentum gasoline Intrusion Garrett customer deleveraging progress vectors making and positions portfolio in products, detection maintain programs. Garrett our in We new well as shareholders. generation our broad VNT maintained We sheet, and notable such drive as also with long-term South believe we eboosting electrification for to produced as net on strong technologies Intrusion reducing balanced during system and wins growth the balance value

today motion have to now supply advancing our cycle throughout focus leveraging will address our while term customers on the remarks model we back powertrain hand intact across This Paul. challenging, global integrated to remain cost business all market we platforms. will challenges Although to short chain ensure it our to I the of long-term formal remain our macros concludes and and fundamentals controlling continue

Olivier. you, Thank

of our line, indemnification are the will open our financial on to be I questions. to we obligation open we today we agreement. not future Before our Operator, the that for course reporting material actions now in questions related to under weakness need ready mention the taking call

you. Thank

the will of [Operator session. will begin the come Please We now question And from Jefferies. go ahead. Instructions] first David Kelley question-and-answer

the launches my diesel Can the on rising of taking guess for of your gap fair and Thanks of the gas as and amount to start gas questions. beginning back us geometry gas think guys. those gap timing we you margins and you progression morning have half you margins, ultimately closing diesel? through about Good view margin the to I between just variable today of a with can and of also scale penetration the us walk content. remind

interesting a we've Dave, said that about between always you and a question, everything said gasoline margin that's very So remember products. mid-single-digit When difference, indeed. there diesel difference the we've is

by be if the Now time that averaging where price China, can the growth is exacerbated some driven lower. primarily is

So are we seeing that’s what today.

content significant We trend XXXX. in same out, XXXX before, are date. Europe that number will worldwide increase, you the But as years. will they on is the penetration in we launches expecting about production will account the expect the two, by of said XX% within there per XX% VNT of that of we XX% pointed next gasoline three as And production happen the and this are the and the XX% to by VNT to continue for vehicle additional

to So the date the ramp-ups start of the improvement will to Little over of years. an you the improvement from difficult all VNT coming see in But part this when bit penetration. will come margin. on will increase these happen exact give the you margin clearly,

headwind margins? yet, volumes that well to expecting you're we as the in appreciate through, us it. guess, about it. vehicle vehicles. it. of walk got Okay, think as we're kind in to could like How in And we're if you the I XXXX not know should sounds Appreciate holding related commercial as on I commercial landscape, market a guiding some impact but maybe I changes underlying it follow-up, volume

a the of So commercial vehicle the sorry. and X% back QX weakening – commercial the QX, was in down are first see we And half, down not seen industry, CD was organically get in vehicle know industry to that. QX, you anyone it in we've you X%. when significant minus to

little a it's I because off-highway and a where too customers you lot pieces to little seeing view a have right moving next there trend But think trend year. frankly, different we some that now. the to in give So that's And of are that will of know the probably that our some are regions. on-highway, commercial year. quite bit see QX we bit And hypothesis of for the early we the remain give between the vehicle same started next working

pass Okay you. heading me definitely drivers and end? it's from that, the you you The your China tough ramp, into some year And gas underlying thank there. then of of been obviously last market on provide surprise color Can on some upside That’s exceeding a in referenced along. the launches It's views and helpful. one expectations China. your I’ll the

a when year end all happen launches. slower potentially from at that to the uncertainty you QX – we – launches would it's by had of whether also QX, back were the a about we would we and happen, in we anticipated. initially was And were those said we rate having than back-end loaded. we what And and and get that Well, at the all QX they in beginning, driven we having know you were had that knew we discussions

bit expecting having miles offset it's see of from are look we we end vehicle away we the scope all a So they QX, say have And two, are I But that the share for at gains see consequence wins you last when in a what the mind. at up than to probably a weakness years. other regions. commercial coming good we vehicle, higher we related which passenger us are little what on for and on we demand also three the would it's the not what of of as is in

it. the I color. got all Okay, appreciate you. Thank

RBC Please from Capital Markets. comes Joe of go question next Our ahead. Spak

Hey the I'm for actually math more third Also, diesel good than looks And your to Thanks the the quarter it versus be questions like a If the profile. the you couple supposed in favorable even guidance, quarter. morning. margin is the on the just slides, fourth on of mix obviously, bit question. doing implied right, for a gas higher little gas. that be would margins noted

R&D offsetting would else or there some the that? So maybe that or it in reimbursements something is fourth quarter drive something

it's opportunity a call, implied with that's the that what guidance. not good we with maybe take Joe, offline to question but after Peter our

in We reported third have believe slightly that margin slightly be – for fourth quarter can below we will below quarter. what the the be the

we may in We'll in that do you then the get XXXX, sort Okay. into scale that overtake maybe where it sort recheck that some other call markets. period to efficiencies that and need temporarily up back range? normally were think be XX% we're long-term in of, and and gas Or below this just, now the we've then, and here reevaluate XX% just the continuing half of, back range? expected but then math. Do margin we you in on to And I returns diesel guess, seen some of commercial vehicle

are overall I we half that are the we this you than the we the it what seeing second same EBITDA two today your are of an in have think really results in are having The impacts XX% question. lower industry combination margin confident are same long Today, really much our to are have run. industry keep gasoline commercial when mind, And time, you expecting. going anticipated. of than we faster overall let's vehicle lower. being corridor as year XX% consolidated that the of At

lower, the gasoline meaning the Commercial we you the being disfavor. in of same So the three cost – not vehicle overall absorbing are that higher lower, are volumes company. things our playing way being and being

anticipating feel in years, view, three, are on will negative anyone last think for everything we those three situation passenger difficult temporary, that which five will now. is else, I commercial except So that get right vehicle we don't are and into a They drivers. the our the if stay for both any

for longer we we of So but your in XX%. doesn't to we corridor of are what the shooting continuing are say pressure fundamentals back we to business, change. right the XX% still question, now Obviously, XXXX, in for that term, books future the have having the is our

Just point. that last be to on clear

vehicle Let's for shift to vehicle of valid? you range? levels then the is stays a get global couple the still at back next need saying years to assume continues global you around to and XX% from gasoline these rebound XX% to mix that the Or in that well diesel are actually production production as

soft done the It's the difficult matter fundamentals earlier very increased were much what an will side difficult low to is the penetration that [indiscernible] China four industry, as vehicle commercial on back with everything reading doing, we on we it's no making, technology when what keep remain is see for are stay years and you economy about of three, as as at is VNT at that mind and level making XXXX, stay will as turbochargers period cycle, an on-highway comment row, the seeing Dave XXXX, assuming point little looking will and let's in But a premature. we in are of we think think XXXX and to by on for look in today bit bullets still increased off-highway. a that time The penetration. and a to longer the that

much. very you Thank

that to are should margins will So put help we they specific back business have our be. where things the that

again. Thanks

will Our Stanley. of question ahead. from Morgan go Please Armintas come Sinkevicius next

on good for morning. Hey is Dailey Armintas. This George

really saw one you just guide that full drove first September, guidance So which something in was you year the negative revision reiterated or in that, today? it to the your is, after September given

you we possible trying as be everything as in we are George say. straightforward to Well, know as

seeing expecting a in have two So about, in on is recently the not I by China, lot volume the we vehicle that what the September. expecting July. are of increased way, company. were seen we we and by the weakness are mean on-highway commercial that we that we second, slightly above across confirmed, in have two And people verticals the commercial that are main coming change talked serving off-highway. side been the the really increased That that vehicle the

more, you Okay your to are thanks asbestos any would this, some so something maybe of to color for liability. that? not one be that. why its And on And reasons able peers to sold recently do as give if what then can possible, you similar if one

have don't we asbestos answer, liability. simple Very

is an build Honeywell bit on towards is an liability, up asbestos wants a have indemnity Peter that which to of We having obligation different animal, maybe a but that? little

No. exactly That's right.

it – just definitely, could asbestos Honeywell. don't but would we we the be to consider, liability. So obligation we an would own something It's

Fair very enough. Thanks much.

of come America will ahead. question next Aileen Lynch. Please Bank Smith Merrill of go Our from

Good morning the Thanks for everyone. questions.

turbo gas gas if a in wastegate diesel up if remind Slide VNT question than from CPV we increase VNT turbo? just gas come gas and X had on VNT the about new of next the versus to growth But diesel, VNT. at is over David's versus in be the penetration? asked is wastes from years, few more think a could per necessarily or net gas content where Following of to VNT to expense earlier more it the it us diesel the between I vehicle can you appreciate going

Thanks, an interesting say I Aileen. question. answer steps. would That's But two probably I in question would your

which adding VNT. the So the of lower compared technology gasoline the growth materials go is look in the exacerbated gas turbo. the seeing smaller smaller with an lower a in variable higher on gasoline, are is that a selling having you vehicle, what Why? average gasoline. have is And you're and one sales per you therefore, lot the to driven at then in to have in are exos is the the the of geometry vehicles, exos happening don't have XX% versus it's on coming at more to into And is past, since The additional on of you engines, launches price but the exotic now we we of content content? application. a temperature, content VNT. what diesel, saying the are more still The Because a when wastegate. But you're our little question hand, point equivalent top the we [indiscernible] we temperature diesel technology gas we are QX on quarter first XX% that sticking in wastegate because obviously, on gasoline bit more right what less to is, China, is gasoline and that, for of that is know and your on by that or the said to point VNT obviously, you

that's the Now answer to part the question. first your of

the your therefore, between terms to more movement then technologies, know Electric the significant happening to have ones, car versus emissions makers have in on part COX diesel impact shift a diesel a from is say, to shift some geometry gasoline, are to to VNT putting to a advantage mitigate VNT engines to shift COX of emission to in COX and order have variable further. emission from you and diesel engines gasoline that as gasoline having do the diesel technology Boosting. reduce Europe. the in We still second gasoline on of to gasoline that's the other The linked pressure like Hence we question wastegate from is by

grand the in of and mostly comes the when gasoline targets are of of the we between platform geometry So at gasoline seeing scheme the to favoring it the the diesel on shift penetration European that Chinese reaching to market this carmakers emission overall stage. is things, variable

us. to to the carmakers under of where then to directly from in exactly very good news on technology put shift shift to the pushing is So shift. see it's gas and VNT this the not for VNT, gas diesel more a from emissions. in order but It's mitigate Overall, shift diesel COX that's a we impact gasoline

within diesel from are to been on terms year heading and the to chargers changed on met hit and different this, pursuing target in or sort ways Europe customers your you Europe, solutions in higher range answered color. very year. that the OEMs – and broad next powertrain next with combustion compliance traditional targets, that’s replacement of into emissions a has interest XX-gram Okay, from solutions? has are think any commentary customers and helpful the turbochargers aggressively the I specifically, with like costs pushing the of follow-up shift gasoline discussions And of around And around as one-for-one with engagement a

next what's years. an there much, vehicles to into market. year year, seen much In everything is for be is Pretty the available next cannot That's increasing are not casted of it's pretty in the the interest, for XX% a but too already We've next vehicles last we happening not with – lot only that that because will already. new fact, linked year it's what's next launch two, Carmakers, sale year. three recent. happening the

so of are year trend the the then, that XXXX car for So it's next the not driving makers much target beyond that. and but reaching the that's the discussions, anticipating

this industry having – industry this is time. As cycle you a know, automotive

we for feel to time, we And innovation, their for the when same push of slow. it is long-term technology provides where Sometimes it, milestones but want cycle to time at advance need in work too And view that people to going. – the engines. convert those

the I are on I driving pure whether look for technology interest, it's and side There pretty would a moves engine, hybrid, by China. in much internal turbocharger increased driven whether say say more interest your point or lot Europe post-XXXX it, you when at would is hybrids right. So absolutely is the combustion but

Or that some way, last suppliers. productivity OEMs X base that suppliers another harder things heard chain you're of corroborates instances or supply the distress anything Is would level and base that you've helpful. among down same are very your with the you asked a be others? from to supply getting We've integrated expecting? Tier cost push your efficiencies price you we're more other supply seeing chains. in some from the got have lately and Great. Obviously, than supply And X some there question. that Tier the gains much chain That's from their of of hearing it through anecdotally supply made

think, I similar I a quarter. a answer. And I think, got similar question I give last will

not are with The increase lot the anything, We that. we it's We opportunities supply any negotiate If seeing therefore, a more a is contracts maintaining our suppliers much in I We we long lot it, our seeing way. we that's we've suppliers. right, we as investing them a a change manage way why development. with suppliers. so in base And base. supply favoring volume And the scale call on one. far is as the mind, are long developed business term that time already long-term probably keep much liquidity supplier And exiting them. for driving so our been And within are on western our a the point we of ago. are can legacy a would to

Great.

suppliers key and generate growth them is winning may we into year. that this with I to offer supply you to so productivity add, future business negotiation that front, think that are If productivity your driving on to new base. And the with can doing I bring well

Great, the I that’s had, questions thanks.

will question Steven come go ahead. Please Hempel next from our And of Barclays.

go right it neutral-ish in diesel, light here of potentially the of as you about potentially terms call little I potentially margin stabilizes now see to that business next business think that margin just over or think look structurally we bit as certain the down that we would isolation years get R&D some But about diesel is suppliers take higher five business, of outside over other actually in trajectory, want business the at the as a the and XX% goes that's reallocate that to margins reallocated expect R&D time, the in vehicle, that. to obviously, boost relative in range, long a particular, term. remain gasoline. to of kind down businesses generally out as from We three

now diesel is on what the take the coming business over treasury wondering years? margin profile. up just your you Can So

are are by that one. questions few them maybe few a that are interesting there I'll answer points – question, your one into So

first is The the one worldwide. trajectory diesel the of business

look the at regions in growth at terms of slower although of at you same and it's – but Europe. First, a pace look diesel in time of relative the at you decrease a the when when business going

diesel penetration a have now will between drop we positions worldwide that probably We is another forecast what and that anticipate. XXXX. This X.X%

On hybrid that, of So vehicles that Okay? most is will growth gasoline diesel by gasoline mean, percentage is going means vehicles. down front, be in or it not first, a still I worldwide volume dead. driven diesel as the because

diesel than on that strong, stay sold diesel we have one I the happening second in drives is What emission in which your we another with is disappearing X the sweet are much increasing. stable margin that moving question. the content. marketplace which have applications us expect bigger for is, of lot know will content the me that, diesel. small the as said displacement But And to the vehicle, of end diesel that heavier for on remain the XXXX. therefore, therefore, margin think forward? there quite The engines, all where to point challenge is that is the of Tier a are Since from lower and of result diesel spot a

about Okay North that’s specifically helpful. And the American think I you guess, diesel base… if just

cost. specifically and see to that they allocating them also in do to mean Maybe, not one of today. question, not R&D would the their to would enough Steven, a very what point. technology – we read add be technologies, with of your terms rest. help When one compromise technology your bet out That I That's think carmakers to benefit allocating often more money perfect I and are emission specific that targets on reach

For to XXXX at targets, need work to they same reach on time. COX carmakers their everything the

to additional putting segments it engine all need just electric, I’ll is working. those So easy on on we to XXXX to engines an anymore, carmakers with optimizing see. that add-on versus combustion in work that reach and what the which will not work hybrid overall targets architectures this the they of a And you give believe I work efficiency the need as improving on then if from on just the that they this internal cost optimized was the platforms. as on are me And need are not to by of they color combustion engines have work And are because on architecture. can electrification. the they energy the standpoint powertrain on then,

Okay.

So expect the over to to term, remain do mid net-net, of margins I stable? you still kind long diesel mean, relatively the

slightly but for at expecting we Yes, next sales, last as the said, our years few we the not five the seen to remain down are years. over we've pace

over the regulatory Okay. And China in terms maybe change then just of on there.

do up? kind now your from potential levels benefit of new where right China customer the standing inventory production ramp terms then specific and you In X mix, of see

seeing of lot are seeing launches we China a X. that we the Well, of are

So we pretty are happy that. with

the to – As disruptive little job X. think we conferences at few move September, bit managing more China in is market I and know their done we carmakers to X a And have a for level China Quite a shift the China China to good that. I volatile. the been. frankly, quite all China mentioned then were be what did in inventory on the has in expanding X than pushing it We

I So think of the range outcome next wide still. for year is

questions. great. Thanks for taking Okay, the

for presentation. conference Thank today’s concluded. Instructions] [Operator now you has The attending

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