Autoliv, Inc. Q3 FY2025 earnings call

• Record-breaking third quarter sales and earnings, driven by strong customer relationships and continuous improvement amidst tariffs and economic factors.
• Significant sales growth in multiple regions, with high growth in India accounting for 1/3 of global organic growth. Sales growth with Chinese OEMs has returned to outperformance due to recent product launches.
• Investing in a second R&D center in China, signed a strategic agreement with a Qatar research institution to shape automotive safety standards, and formed a joint venture with HSAE to develop advanced safety electronics.
• Continued broad-based improvement in direct costs and SG&A expenses, with positive direct labor productivity trend as direct production personnel reduced by 1,900 year-over-year through automation and digitalization.

Third quarter sales increased by 6% year-over-year, reaching over USD 2.7 billion. Adjusted operating income for Q3 increased by 14% to USD 271 million, with an adjusted operating margin of 10%, 70 basis points better than the same quarter last year. Operating cash flow was solid at USD 258 million, an increase of USD 81 million or 46% compared to last year. Gross margin was 19.3%, an increase of 130 basis points year-over-year. China accounted for 90% of the group sales. Asia, including China, accounted for 20% and Americas was 33% and Europe for around 28%. Organic sales grew by 4% excluding currencies, with sales to domestic OEMs in China growing by almost 23%, 8 percentage points more than their light vehicle production growth.

• Full year 2025 guidance excludes effects from capacity alignment and antitrust-related matters, based on no material changes to tariffs or trade restrictions. Organic sales expected to increase by around 3%. Adjusted operating margin expected at the midpoint of the guided range of 10% to 10.5%. Operating cash flow expected to be around USD 1.2 billion. CapEx expected to be around 4.5% of sales, revised from previous guidance of around 5%.
• Fourth quarter expected to be challenging for the automotive industry with lower light vehicle production and geopolitical challenges, but continued focus on efficiency expected to offset some headwinds. Anticipate higher sales and continued outperformance, particularly in China, but facing headwinds like lack of out-of-period inflation compensation, higher depreciation costs, and temporary decline in engineering income.

• Automotive industry facing trade volatility and regional dynamics. North American aluminum plant fire may impact customers. European light vehicle production facing downside risks due to announced production stoppages at key customers. China light vehicle production expected to decline by 5% in fourth quarter due to strong Q4 2024. Lack of out-of-period inflation compensation in fourth quarter. Higher depreciation costs due to new manufacturing capacity. Temporary decline in engineering income driven by timing of specific customer development projects.

Q: Edison Yu asked about GM supplier contracts and European supply issues.

A: Mikael Bratt said no comment on specific contracts but confident in managing OEM clauses, and too early to comment on Experia supply issues impact on European production.

Q: Dan Levy asked about China performance dynamics.

A: Mikael Bratt explained mix effect from global OEMs and positive development with domestic OEMs, expecting improvement in future quarters.