Magna International Q2 2025 Earnings Report

Magna International EPS Results

• Actual EPS: $1.44
• Consensus EPS: $1.19
• Beat/Miss: Beat by +$0.25
• One Year Ago EPS: $1.35

Magna International Revenue Results

• Actual Revenue: $10.82 billion
• Expected Revenue: $10.10 billion
• Beat/Miss: Beat by +$720.25 million
• YoY Revenue Growth: -3.00%

Magna International Announcement Details

• Quarter: Q2 2025
• Date: 8/1/2025
• Time: Before Market Opens
• Conference Call Date: Friday, August 1, 2025
• Conference Call Time: 8:00AM ET

Magna International (NYSE:MGA) is a Canadian global automotive supplier headquartered in Aurora, Ontario. The company develops and manufactures components, systems and technologies for automakers, serving both traditional internal-combustion vehicle programs and electric-vehicle platforms.

Its principal business areas include body and exterior systems, structures and exteriors, powertrain and driveline systems, seating, electronic systems, advanced driver-assistance technologies and vehicle access systems. Magna also provides complete-vehicle engineering and contract manufacturing services, allowing automakers to outsource portions of vehicle design, development and assembly.

Founded in 1957 by Frank Stronach, Magna has grown into a diversified supplier with operations serving automotive customers across North America, Europe and Asia. The company works with many of the world's major automakers and maintains manufacturing, engineering and development facilities in multiple countries. Swamy Kotagiri serves as Magna's chief executive officer.

Magna International Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: This quarter saw adjusted EBIT increase 1% with a 20 bp margin improvement, adjusted EPS up 7%, and free cash flow up $178 M, leading the company to raise its full-year outlook.
• Positive Sentiment: Magna has reduced its annualized tariff exposure to $200 M from $250 M, settling with multiple OEMs and expecting a cadence of recoveries to largely mitigate remaining impacts.
• Positive Sentiment: Ongoing operational excellence and cost saving initiatives contributed to improved margins, and with disciplined capital spend Magna expects further upside to margins in H2 and into 2026.
• Positive Sentiment: Magna won several industry awards and new program contracts, including a dedicated hybrid transmission program launching in 2028 and a Platinum Plant Quality Award for the BMW Z4 assembly.
• Negative Sentiment: Despite these gains, the company faces a 3% year-over-year sales decline due to a 6% drop in North American and European production, prompting a 300k-unit cut to its North America outlook.

Presentation

[Operator]

Thank you for standing by. My name is Lacey and I will be your conference operator today. At this time I would like to welcome everyone to the Magna International second quarter 2025 results webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star followed by the number one on your telephone keypad. If you would like to withdraw your question, press Star one again. Thank you. I would now like to turn the conference over to Louis Tonelli. You may begin.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

Thanks, Operator. Hello everyone, and welcome to our conference call covering our second quarter 2025 results. Joining me today are Swamy Kotagiri and Pat McCann. Yesterday, our Board of Directors met and approved our financial results for the second quarter of 2025 and our updated outlook. We issued a press release this morning outlining our results. You'll find the press release, today's conference call webcast, and the slide presentation to go

[Louis Tonelli, Vice President of Investor Relations at Magna International]

along with the call and our update

[Louis Tonelli, Vice President of Investor Relations at Magna International]

in Quarterly financial review, all in the Investor Relations section of our website at magna.com before we get started. Just as a reminder, the discussion today may contain forward looking information or forward looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions, and uncertainties which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today's press release for a complete description of our Safe Harbor disclaimer. Please also refer to the reminder slide included in our presentation that relates to our commentary today. With that, I'll pass it over to Swamy.

[Swamy Kotagiri, CEO and Director at Magna International]

Thank you, Louis. Good morning, everyone. I hope you're all enjoying the summer so far, and I appreciate you joining our call today. Let's get started. I'm happy to share a few notable takeaways from the quarter that underscore our strong execution in spite of industry headwinds. We are pleased with our strong Q2 results, driven by consistent execution across our business and progress against our performance initiatives. I am proud of our team's focus and ongoing efforts. Despite lower production in our two largest markets, North America and Europe, negatively impacting year-over-year sales, we delivered solid financial results and notable improvements from last year. Adjusted EBIT increased 1%, and EBIT margin was 20 basis points better despite a 40 basis point negative impact from tariffs not yet recovered from customers.

[Swamy Kotagiri, CEO and Director at Magna International]

In addition, Adjusted Diluted EPS was up 7%, and Free Cash Flow improved by $178 million relative to our expectations. Our results for the quarter were better, reflecting strong incremental margins on higher sales. We are also raising our outlook for the year, with stronger sales supported largely by foreign currency translation and also better than expected second quarter program mix, raising the low end of our adjusted EBIT margin range despite lower expected vehicle production in North America. As we realize on our cost saving initiatives and an increase in adjusted net income attributable to Magna, mainly reflecting higher expected adjusted EBIT on higher sales and a lower effective income tax rate, we continue to work closely with our customers to mitigate the impact of tariffs.

[Swamy Kotagiri, CEO and Director at Magna International]

Based on our actions taken and recent updates to tariff rates up to mid-July, we have lowered our estimated annualized tariff exposure to $200 million from $250 million when we reported in Q1. We have settled with multiple OEMs for substantially all of our 2025 net tariff exposure with them, and we are working with our other customers and suppliers to mitigate substantially all of our remaining exposure, including through recoveries. Lastly, we returned $137 million to shareholders in dividends in the second quarter, bringing our year-to-date return of capital to $324 million. We continue to assess industry conditions as well as the macroeconomic and trade environment and remain committed to our long-stated capital allocation strategy, including share repurchases once conditions become less uncertain. Under our normal course issuer bid initiated last November, they have purchased about 5.7 million shares to date, representing 2% of our shares outstanding.

[Swamy Kotagiri, CEO and Director at Magna International]

At Magna, we place a premium on delivering innovation and high quality to our customers to differentiate ourselves in the industry, and we have enjoyed some success recently in J.D. Power's 39th annual Initial Quality Study. Their Platinum Plant Quality Award was recently given to our complete vehicle assembly operation in Graz, Austria. The award acknowledges quality and precision in producing the BMW Z4 based solely on defects and malfunctions reported by customers. Only one plant in the world receives this Platinum distinction each year, making it an exceptionally rare and elite achievement. We also earned the Volkswagen Group award for 2025 in the product category, recognizing Magna's technical ingenuity, flexibility, and persistence in developing and launching an innovative battery cover for VW's MEB all-electric platform. Even during this period of uncertainty for our industry, we continue to execute to win new business and advance automotive technologies.

[Swamy Kotagiri, CEO and Director at Magna International]

We were recently awarded a dedicated hybrid transmission program with a North American-based global OEM for PHEV models launching in 2028. We are also quoting a similar hybrid product with an additional global OEM. This award is a testament to the building block and platform strategy that we have been speaking about for some time, demonstrating our ability to support our customers to bring power to the wheels across a wide range of powertrain configurations from ICE through different hybrid variants all the way to pure BEVs. With the increased industry focus on hybrid technologies, we continue to add new business in this area, and we are advancing vehicle safety innovation with integrated interior sensing systems, including through our Child Presence Detection technology, which has been recognized recently with business awards from OEMs in Asia and North America.

[Swamy Kotagiri, CEO and Director at Magna International]

The industry continues to face a high degree of uncertainty as a result of the tariff and trade environment. Despite this uncertainty, we continue to execute against our plan as we have through a variety of challenges in recent years. In terms of recent updates impacting Magna, our estimate of annualized tariff exposure is reduced to approximately $200 million from approximately $250 million that we reported in Q1. We have settled with multiple OEMs for substantially all of our 2025 net tariff exposure with them, and in our current 2025 outlook, we expect a less than 10 basis point impact to our EBIT margin as well as a modest increase in working capital based on the timing of recoveries or expected tariff costs late in 2025.

[Swamy Kotagiri, CEO and Director at Magna International]

We remain highly focused on utilizing government remission programs where appropriate, continuing cost reduction programs already in place, and being disciplined with capital spend and working with our other customers and suppliers to mitigate substantially all of our remaining exposure, including through recoveries. Next, I'll cover our updated outlook. While the current environment makes forecasting more challenging than normal, we remain focused on what we can control and continue to adapt to an evolving situation. Relative to our previous outlook, we have adjusted our North American production forecast to 14.7 million units. While this reflects a reduction of about 300,000 units, the majority of the adjustment relates to a refinement in backward-looking data around first quarter production. These changes help align our outlook with current market dynamics. We are holding Europe production unchanged.

[Swamy Kotagiri, CEO and Director at Magna International]

We are raising our China production to 30.8 million units, all of which relate to an adjustment to estimated Q1 production and our Q2 production outperformance. We also assume exchange rates in our outlook. With approximate recent rates, we now expect a higher Euro and slightly higher Canadian dollar and RMB for 2025 relative to our previous outlook. We increased our sales range as a result of foreign exchange translation due to the higher Euro relative to the U.S. dollar as well as better than anticipated program mix. Particularly this past quarter, we raised the low end of our adjusted EBIT margin range and now expect to be between 5.2% to 5.6%, reflecting our strong Q2 results supported by continued execution around our cost saving programs.

[Swamy Kotagiri, CEO and Director at Magna International]

Recall that we indicated over the past two reports that we expected approximately 40% of our EBIT to be generated in the first half of 2025, and we are forecast to end up slightly ahead of that. We also said we expected our 2025 earnings to be lowest in the first quarter of 2025 and to improve meaningfully in the second quarter, which we have also delivered on. Looking forward to H2, based on some timing updates and revised vehicle volumes, we now expect to generate approximately 35% of our full year EBIT in the fourth quarter of this year. The most significant margin drivers sequentially from H1 to H2 are expected to be commercial recoveries, lower engineering spend, net tariff recoveries, lower warranty expense, and a step up in the benefits from our operational excellence activities.

[Swamy Kotagiri, CEO and Director at Magna International]

We are excited about our progress in operational excellence, and while there is more work ahead, we continue to see additional potential upside to margin from these initiatives over time. We reduced our tax rate to approximately 25% from approximately 26%, mainly due to favorable FX adjustments recognized for U.S. GAAP purposes in Q2 and changes in our reserves for uncertain tax positions. We modestly increased our net income attributable to Magna, reflecting higher expected EBIT and the lower effective income tax rate. We are reducing our capital spending range by $100 million compared to our May outlook, reflecting our continuing efforts to defer or reduce capital wherever possible. Offsetting this CapEx reduction are modest increases in working capital related to tariffs and in other asset spending, resulting in an unchanged Free Cash Flow range. Lastly, our interest expense range is unchanged from our last outlook.

[Swamy Kotagiri, CEO and Director at Magna International]

To summarize, we are confident in our outlook for the remainder of the year, supported by strong Q2 execution and ongoing operational discipline. Despite ongoing industry challenges, we remain on track to deliver the outlook shared in February, which is a testament to strong execution throughout the organization. With that, I pass the call over to Pat.

[Patrick McCann, CFO at Magna International]

Thanks Swamy, and good morning everyone. As Swamy indicated, we delivered strong second quarter earnings better year over year and ahead of our expectations. Comparing the second quarter of 2025 to the second quarter of 2024, consolidated sales were $10.6 billion, down 3% compared to a 1% increase in global light vehicle production, which included 6% and 2% declines respectively in North America and Europe, our two largest markets. Despite the lower sales, adjusted EBIT was up 1% to $583 million and adjusted EBIT margin was 5.5%, up 20 basis points year over year. Despite a 40 basis point negative impact from tariffs, Adjusted Diluted EPS came in at $1.44, up 7%, and Free Cash Flow generated in the quarter was $301 million, up $178 million year over year and ahead of our expectations. Let me take you through some of the details.

[Patrick McCann, CFO at Magna International]

North American and European light vehicle production decreased 6% and 2% respectively, and production in China increased 5%, netting to a 1% increase in global production. On a sales weighted basis, light vehicle production declined 3% from Q2 2024. Our consolidated sales were $10.6 billion compared to $11 billion in the second quarter of 2024. On an organic basis, our sales decreased 4% year over year for a -1% growth over market in the quarter. The decline in our total sales largely reflects negative production mix from lower D3 production in North America, a decline in complete vehicle assembly volumes including the end of production of the Jaguar E and I Pace in Graz, Austria, the end of production of certain other programs, the divestiture of a controlling interest in our metal forming operations in India, and normal course customer price give backs.

[Patrick McCann, CFO at Magna International]

These are partially offset by the launch of new programs, the favorable impact of changes in foreign exchange rates, and customer price increases to recover certain higher production input costs. Adjusted EBIT was $583 million and adjusted EBIT margin was 5.5%, up 20 basis points from Q2 2024, largely due to our ongoing cost savings and efficiency initiatives.

[Patrick McCann, CFO at Magna International]

The higher EBIT % in the quarter reflects positive 50 basis points from operational items reflecting operational excellence initiatives and lower launch costs, partially offset by higher new facility costs, positive 20 basis points related to higher equity income as a result of higher net favorable commercial items, higher earnings due to favorable product mix and higher sales and lower launch costs, all with respect to certain equity accounted investments, and positive 10 basis points in net discrete items including supply chain premiums incurred in 2024 and lower warranty and restructuring costs, partially offset by lower net favorable commercial items. These were partially offset by -40 basis points for tariff costs incurred but not yet recovered from our customers, and volume and other items which impacts us by -20 basis points, largely reflecting reduced earnings on lower sales. Below the EBIT line

[Patrick McCann, CFO at Magna International]

interest was modestly lower than last year. Our adjusted effective income tax rate came in at 20.5%, lower than Q2 of last year, primarily due to favorable FX adjustments recognized for U.S. GAAP purposes and favorable changes in our reserves for uncertain tax positions, partially offset by lower non-taxable items, losses not benefited in Europe, and a change in the mix of earnings. Net income was $407 million, $18 million higher than Q2 2024, mainly reflecting higher EBIT and lower income taxes, and adjusted EPS was $1.44, 7% better than last year, reflecting higher net income and 2% fewer diluted shares outstanding. The fewer shares outstanding largely reflects share repurchases in the fourth quarter of 2024 and first quarter of 2025.

[Patrick McCann, CFO at Magna International]

Turning to a review of our cash flows and investment activities, in the second quarter of 2025 we generated $762 million in cash from operations before changes in working capital and used $135 million in working capital. Investment activities in the quarter included $246 million for fixed assets and a $94 million increase in investments, other assets, and intangibles. Overall, we generated Free Cash Flow of $301 million in Q2, higher than we were forecasting and $178 million better than the second quarter of 2024, and we continue to return capital to shareholders, paying $137 million in dividends in Q2. Our balance sheet continues to be strong with investment-grade ratings from the major credit agencies. During the second quarter we successfully raised EUR 575 million and $400 million in the form of senior notes, principally to repay $650 million of debt in September of this year.

[Patrick McCann, CFO at Magna International]

At the end of Q2 we had over $5 billion in liquidity, including about $1.5 billion in cash. Currently our adjusted debt to adjusted EBITDA ratio is at 1.87, excluding excess cash held to repay debt coming due, better than we had anticipated coming into the quarter and compared to our target ratio of between 1 and 1.5 times. In summary, we delivered strong financial performance in the second quarter which exceeded our expectations and showed meaningful improvements to the bottom line on a year-over-year basis. We have also updated our outlook to reflect this continued momentum, including higher sales supported by favorable foreign currency translation and better than anticipated program mix, particularly in Q2, raising the low end of our adjusted EBIT margin range and increasing adjusted net income largely due to higher expected adjusted EBIT and lower effective income tax rate.

[Patrick McCann, CFO at Magna International]

In addition, we are proactively working with our customers to mitigate tariff impacts. Our annualized direct tariff exposure has been reduced since last quarter. We have settled with multiple OEMs for substantively all of our 2025 net tariff exposure with them and we are working with our other customers and suppliers to mitigate substantively all of our remaining exposure, including through recoveries. Our operational excellence initiatives continue to contribute positively to margins despite a challenging industry backdrop and we expect further contributions from these activities into 2026. Lastly, we returned $137 million to shareholders in the quarter in the form of dividends and we continue to assess industry conditions as well as the macroeconomic and trade environment and remain committed to our long-stated capital allocation strategy, including share repurchases once conditions become less uncertain. Thanks for your attention this morning. We'd be happy to take your questions.

[Operator]

At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Tamy Chen with BMO Capital Markets. You may go ahead.

[Tamy Chen, Director and Equity Research Analyst at BMO Capital Markets]

Hi, good morning. Thanks for the question. First, I just want to confirm for the BES segment, were there any one-time items or really the strong margin result was largely just on the much better program mix.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

Morning Tamy. I don't think there was no real significant one timers out of the extraordinary. It really was being driven by operational excellence and as you said, positive mix on a year over year basis. The only thing we did have last year, we did have a supplier issue at one facility down in Mexico and that's behind us. That's a little bit of the improvement in margin, but it's not significant.

[Tamy Chen, Director and Equity Research Analyst at BMO Capital Markets]

Okay, thanks for confirming that. On tariffs, thanks for the update on all of that. I just want to confirm, are you expecting to receive the recoveries for your this year tariff impact by Q4 of this year? Given you're saying you know already by this point you've settled for a substantial exposure amount of this tariff impact, I'm wondering, have you been able to establish a more formal mechanism with your OEM customers to receive recoveries going forward at a more timely basis or will those still be quite lumpy?

[Swamy Kotagiri, CEO and Director at Magna International]

Good morning, Tamy. A few things, I think, mitigation of tariffs. Part of it is recoveries, part of it is internal efforts to increase USMCA compliance, working through rebalancing and so on and so forth. We have signed agreements with a few customers, and there is framework in place to finish with the other customers. We have been focused on working through a mechanism rather than a lump sum payment. In short, to your question, we expect a cadence of recovery. With that said, I think still in Q4 we will have some tariffs coming in. It's a timing issue, but we feel comfortable with the outlook that we have given.

[Tamy Chen, Director and Equity Research Analyst at BMO Capital Markets]

Got it. Last one here, bit of a two part just on impact you since the tariffs come in. First, we've seen some of your major customers increase production in their U.S. plants and either lower production or idle in their Canadian or Mexican plants. Just wondering, so those ones that have been announced, how they affected your assets in North America, is it on net negative for your Canadian Mexican plants.

[Tamy Chen, Director and Equity Research Analyst at BMO Capital Markets]

Is it a bit of a what.

[Tamy Chen, Director and Equity Research Analyst at BMO Capital Markets]

Are you just shipping to those OEMs' U.S. plants? I'm wondering if the topic of reshoring is coming up a bit more in your discussions with OEMs. Thank you.

[Swamy Kotagiri, CEO and Director at Magna International]

Yeah, Tamy, I think the discussions are definitely there to look at rebalancing based on the USMCA compliance and upcoming program planning. The good thing is that we have the footprint in all three regions. As far as the rebalancing of the production is concerned, we will be in a good position. Still, it's a variable to be addressed as the planning goes forward. The good thing is we have a seat at the table through the planning process with the OEMs. With the tariffs on the rest of the world, if that changes or increases local production, it would be an opportunity for Magna.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

I think the other thing to consider, Tamy, is our sales in Canada are about $4.5 billion and 70% of those sales are already coming into the U.S., so increased production in the U.S. versus Canada really is impacting our Canadian ops at this point.

[Swamy Kotagiri, CEO and Director at Magna International]

And most of it is USMCA compliant. That is the key thing for us.

[Tamy Chen, Director and Equity Research Analyst at BMO Capital Markets]

Right. Thank you.

[Operator]

Your next question comes from the line of Dan Levy with Barclays. You may go ahead. Dan Levy, your line is open.

[Dan Levy, Senior Equity Research Analyst at Barclays]

Oh, sorry.

[Dan Levy, Senior Equity Research Analyst at Barclays]

Thank you for taking the questions. Wanted to first ask about the step up into the second half and appreciate the commentary about, you know, a number of drivers, the commercial recoveries, lower spend. Maybe you could just unpack of those items where you have clear line of sight versus where you know it's going to require a little bit more work. Just as a follow up to that, you're going to have a 6% margin in the second half. Is that the right jumping off point as we start to think about what 2026 will be?

[Swamy Kotagiri, CEO and Director at Magna International]

I'll give you a good morning Dan, a few points and Pat, you can add some. I think if you look at H1 to H2, part of it is the launch cadence that we talked about of new programs into 2H25, going into 2026. I would say a large number of these programs are also coming with new economics. You mentioned the cadence of tariff recoveries which had a negative impact in the first half. As I said with the framework agreements, the payments are coming in the second half of the year and usually on commercial recoveries. Based on all discussions, they tend to be back ended. Overall, I would say we have pretty good visibility on what we have included in the outlook. There's always some puts and takes, but we feel the visibility is pretty good in terms of looking at it

[Swamy Kotagiri, CEO and Director at Magna International]

we particularly mentioned, as we did at the beginning of the year, that 40% of our earnings were coming in the first half. We were a little bit ahead of that. For this cadence of the second half, I would say about, I think we mentioned roughly 35% of our earnings will come in the fourth quarter. Right. That should give you that. We also talked a little bit of the operational activities taking traction which we have been working for years and with the incremental volumes that is starting to show the incremental flow through into our margins. We talked about 150 basis points improvement in our margin from 2024, 2025. So 110 basis points of that is behind us on track to finish the remaining 40 this year. We also see a similar cadence of about 35 basis points going into 2026.

[Swamy Kotagiri, CEO and Director at Magna International]

All in all, if the volumes hold and if the assumptions that we talked about in February stay, we feel pretty good about operationally of what's in our control if nothing changes, again, right on the outside world, we feel pretty good about 2026 outlook that we talked about in February.

[Dan Levy, Senior Equity Research Analyst at Barclays]

Great, that's very helpful. As a follow-up, wanted to ask about seating specifically, and first maybe you could just address, you know, there is a fairly material implied ramp in seating margins in the back half of the year. I know that first quarter was dragged by warranty, and we saw probably a more appropriate run rate in the second quarter.

[Dan Levy, Senior Equity Research Analyst at Barclays]

You do have a big step up.

[Dan Levy, Senior Equity Research Analyst at Barclays]

I think it's almost like implied 5% margin second half, which you haven't done in a while. Could you just talk to that? Then just broadly, do you feel comfortable that within the context of your broader, you know, ROIC targets and how you're managing the portfolio, that Seating is still earning in excess of its cost of capital and that this business still fits well within the type of return profile that's needed at Magna?

[Swamy Kotagiri, CEO and Director at Magna International]

Again, Dan, I think the more tactical question on seating, you have to remember that there is a tariff impact in the first half of the year in seating, but with agreements in place, you will see the recoveries come in the second half. That's something to consider. As we look into the second half, based on what we see in terms of releases and volumes and so on and so forth, it looks pretty good. That's what we've included in the outlook. Pat, anything to add there?

[Patrick McCann, CFO at Magna International]

No, I think the tariff impact is disproportionately hitting our PNV segment and our Seating segment. Just the tariff impact alone on Seating is in the range of about 60 basis points in the first half of the year. The margin, the warranty impact was about 110 basis points. That's the bulk of the step up from H1 to H2 Dan.

[Swamy Kotagiri, CEO and Director at Magna International]

To the second part of your question. Look, we've always talked about looking at portfolio from the guiding principles from a returns perspective. Seating has been a good business, you know, in terms of ROIC, can definitely, you know, clears the bar for financial metrics for returns. We have seen the operational improvements that we've talked about. We are starting to see that going from year to year. Except for the warranty issue in the first quarter, we are seeing the path, but again, like I said, we continue to look at the portfolio every year and, you know, we have to assess.

[Dan Levy, Senior Equity Research Analyst at Barclays]

Great, thank you.

[Operator]

Your next question comes from the line of Chris McNally with Evercore ISI. You may go ahead.

[Chris McNally, Senior Managing Director at Evercore ISI]

Good morning, team.

[Chris McNally, Senior Managing Director at Evercore ISI]

Apologize for being a little monotonous, but I'm going to follow Dan and Tamy's question and ask about the second half of the PNV segment. Again, you know, looking at the second half implied ramp versus the first half, I think what we're all trying to think about is, you know, volumes are going to be lower in the second half, but there's a heavier tint here to international. You talked about Swamy, some of the launches that you have. Could you just apply that to PNV? Because margins have been all over the place over the last year or two. We'd love to know if there's a natural progression here that we can take into 2026.

[Swamy Kotagiri, CEO and Director at Magna International]

I would say the tariff comment applies to the PNV, Chris. Definitely going from the first half to the second half, if you exclude that part of it. I think, again, from a performance perspective, PNV is doing well. The cadence of arches I talked about is not specific to PNV. It's all across Magna, as you can imagine. Again, going back to the operational initiatives that are in place, we are starting to see the benefits coming through as we talk about it. If you just go back to what I talked about, the improvements in 2024, 2025, what is to be seen in 2026? I would say we feel pretty good going into what we talked about in 2026. The big, big assumption is the volume staying. The assumption we have for 2026 volumes is roughly in the same level as what we're talking about in 2025.

[Chris McNally, Senior Managing Director at Evercore ISI]

That's great. Swamy, maybe the best way to think about a base of growth for Power Vision is really more to think again about the full year rather than a second half versus first half. As we grow it in 2026, a lot of the actions, the better contracts, but then we need some

[Chris McNally, Senior Managing Director at Evercore ISI]

volume to grow it at your typical

[Chris McNally, Senior Managing Director at Evercore ISI]

incrementals, whatever that be 20% or greater, is that a fair way to think? What, use that full base, the full year base of, of roughly low $5 for PNV.

[Swamy Kotagiri, CEO and Director at Magna International]

Chris, you summed it better than I could have.

[Chris McNally, Senior Managing Director at Evercore ISI]

Excellent.

[Chris McNally, Senior Managing Director at Evercore ISI]

Thanks so much, team.

[Operator]

Your next question comes from the line of Joe Spak with UBS. You may go ahead.

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

Thanks so much, everyone. I just want to dig into the

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

35% of EBIT in the fourth quarter comment again. We've seen obviously some lower schedules.

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

On some key programs in the third quarter.

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

Is that really what's sort of

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

driving that, you know, 3Q versus 4Q.

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

Timing you're talking about, or is it

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

also recoveries or is there anything else you could provide on that split?

[Louis Tonelli, Vice President of Investor Relations at Magna International]

I think, Joe, it's a combination of the two. Right. If we go back in history, the seasonality of our business is that Q3 tends to have lower sales with the shutdowns in North America and in Europe. We're seeing some of that, which reflects your comment on the schedules for the next three months. The second part is the commercial recoveries, as we've seen over the last couple of years, have been more in the fourth quarter and that's still what we're expecting across the board. What we've added this year to some of that volatility, I would say, is the recovery of tariffs. I just want to emphasize, like the questions on PNV and seating, as Swamy said, the impacts, just for Magna alone, we've expensed $55 million of tariffs in the first half of the year. That impact alone is about 25 basis points.

[Patrick McCann, CFO at Magna International]

Our expectation is to recover substantially all of that. We have another swing of close to, say, 20 basis points going the other way in the second half of the year. That's another driver of that H1 to H2 improvement.

[Swamy Kotagiri, CEO and Director at Magna International]

Pat, that's what we were saying. We have some agreements already signed with the customers and some in place that need to be just signed. You know, that's the cadence.

[Joe Spak, Analyst at UBS]

I guess maybe to follow up on that. I know this gets super confusing

[Joe Spak, Analyst at UBS]

because, you know, it's like

[Joe Spak, Analyst at UBS]

you said the timing issue, but if I take at face what you said

[Joe Spak, Analyst at UBS]

margin impact was in the quarter, it sounds like maybe $40 million or so wasn't recovered. You're saying now $200 million for the year. You said 10 basis point margin hit for the year. That's like another $40 million. You're saying $40 million hit for the year. I understand what you get next quarter might not be for the tariffs in that quarter and everything, but overall, is what you're saying is, on a net basis, you don't expect that whatever the tariff hit is versus the recoveries to be as big an issue in the back half versus this quarter. I know that's a convoluted question. Hopefully you followed.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

Yeah, no, I absolutely get it. It's actually tariffs will be a pickup in the second half of the year as opposed to a headwind. Remember.

[Patrick McCann, CFO at Magna International]

You'll recover more than you actually incur.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

Correct.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

We're going to have a pickup in EBIT related to tariffs in the second half of the year. As Swamy said, based on the signed agreements to date, plus the frameworks that are in place with most of our other customers.

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

Okay, maybe one last quick one. You know, GM sort of had you

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

know, put out a release about bringing back some production to the U.S.

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

Looks like you do have some

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

facilities, including in seating, that support those facilities, those production facilities.

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

Is that business you would

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

look to sort of go after that you don't have today, or how are you thinking about that opportunity?

[Swamy Kotagiri, CEO and Director at Magna International]

Yeah, I think there's many discussions ongoing, Joe. Right. You know, we have to look at one rebalancing as the OEMs are thinking about it. The other one is given our footprint of where we are as part of the overall rebalancing, and like I said, if there is other OEMs that are trying to increase the local production in U.S., we got to take all of that into account. I would say if it's a rebalancing between Mexico and Canada, we are in a good place, but it won't be an upside to sales, but it helps us think through. If it's an increase in local production, we are in a better place to add further to what we have.

[Swamy Kotagiri, CEO and Director at Magna International]

The key thing for us right now where we are focused is on capital and investments, really, really focused to understand long term what the plan is before we go do anything in terms of investments. The customers have been very collaborative in sharing the plans and working with us.

[Joe Spak, Executive Director and Equity Research Analyst at UBS]

Thanks, Swamy.

[Operator]

Your next question comes from the line of Tom Narayan with RBC. You may go ahead.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

Hey, thanks for taking the question. The first one, you know, there's been some thought that, you know, the tariff deals that are struck between the U.S. and other countries, you know, it seems to be this 15% level for Europe, Japan, Korea, but there could be a more favorable one for, you know, Mexico, Canada. Given your program mix, just curious, would a situation where volumes benefit in the North American OEMs versus, you know, European, Japanese, Korean, would that be a net positive for you or a net negative? I have a follow up.

[Swamy Kotagiri, CEO and Director at Magna International]

Yeah. Good morning, Tom. If you look at the net import from Europe, it's roughly 800,000 units. I would say half a million of that are coming from BMW and Mercedes. With that said, the total exports for these OEMs into the U.S. is about 10% or less. That might have an impact in Europe sales if they're supplying there. On the other hand, as they think of localizing in the U.S. as being part of the ecosystem, there would be an uptick, hopefully, there. As I said before, if the OEMs in North America are rebalancing between Canada, Mexico, and the U.S., we are at the table, we have the footprint, but that is just a matter of working through the planning process with them. That remains to be seen.

[Swamy Kotagiri, CEO and Director at Magna International]

Since we have the footprint in all three areas or all three regions, I would say we are in a better place to address the planning changes as the OEMs are going through.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

Got it. Another question on this H1H2 dynamic. I know that the tariff dynamic is kind of like a double swing, right? I get that it's a pretty big benefit to Seating in PNV, but you also called out the commercial recoveries as something you've expected based on prior years. Is that just based on what you'd expect based on prior years, or is this actually stuff that's already been negotiated? How much confidence do you have in that? You've already negotiated the tariffs with these OEMs. Now the recoveries, just curious as to how confident you are in getting that. Thanks.

[Swamy Kotagiri, CEO and Director at Magna International]

I think, Tom, when we talk about commercial recoveries, some of them are based on, you know, normal cadence that we've done over years. It is part of the overall discussions in terms of LTAs and, you know, new programs and so on and so forth. Difficult to say binary that it's 100% or 0, but given where we stand with our discussions and looking historically over the last, I don't know, decades of work, I think I would say we are very comfortable and that's what we make a pretty good judgment and that's what we include in the outlook.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

Just to be clear, Tom, these aren't placeholders. These are specific program related commercial items that were in discussions with the customers already. I just want to set everybody as well. Our implied guide, our implied range for H2 of 2025 is in line with what we had in 2024 and in 2023. The cadence is there. I think we have confidence whether it's on the tariffs or the other commercial, so we have traction. Where we are, we haven't changed our second half of the year from our own expectations. I think we're tracking to where we expect to be.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

Actually, if I could just, a quick follow up to Dan's question on the portfolio discussion. I think in the past you said there was some macro uncertainty.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

With everything that's been happening, it feels like maybe that uncertainty is dissipating a little as you examine the portfolio of the different businesses you have. Would you say that the macro situation is now less of a hindrance in your evaluation or is that still a factor? Thanks.

[Swamy Kotagiri, CEO and Director at Magna International]

Yeah, Tom, I think the key word that you said is the macro fluidity. I think it is a little unchanged. To me, it still remains very uncertain. Yes, there is visibility on things that we can control for sure, but a lot of other macroeconomic variables are still very fluid, so the uncertainty still prevails. With that said, we continue to look at the entire portfolio all the time, but volatility and uncertainty add a further complexity now to make any decisions.

[Tom Narayan, Lead Equity Analyst at RBC Capital Markets]

Got it. Thank you.

[Operator]

Your next question comes from the line of James Picariello with BNP Paribas. You may go ahead.

[James Picariello, Senior Automotive Analyst at BNP Paribas Exane]

Hey, good morning, everybody.

[James Picariello, Senior Automotive Analyst at BNP Paribas Exane]

Just wondering on your North America production outlook.

[James Picariello, Senior Automotive Analyst at BNP Paribas Exane]

Right.

[James Picariello, Senior Automotive Analyst at BNP Paribas Exane]

If you could speak to the visibility into the third quarter, if for North America LVP to be down 5% this year, there's a rather dramatic fall off likely in the fourth quarter if we just use IHS as a blueprint there. Is there anything you're seeing cautionary wise in the third quarter, or is it just embedded conservatism for the fourth quarter?

[Swamy Kotagiri, CEO and Director at Magna International]

Good morning, James. I think as we look at it, if you go back into the last quarter when IHS was trying to model the impact of tariffs, I think they decreased the North American volume significantly and we kind of used what we knew from the releases and customer discussions and so on. I think at that point we were higher than what IHS was looking at and that has kind of narrowed down or is converging now. If you look at H1 to H2, I would say H2 is a little bit softer than H1 and compared to our anticipated numbers, H1 became a little bit higher. I don't think H2 is significantly off. We have taken a little bit of a pull forward effect.

[Swamy Kotagiri, CEO and Director at Magna International]

Beyond that, obviously we are not taking any secondary impacts or tariffs or other where sales of the vehicles might not be there or the OEMs might decide to pass on or increase. Those effects are not in place. Otherwise, I think H2 is a little softer than H1 but we don't see a precipitous fall.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

To put data to Swamy's statements, James, the first half of the year we had just under 7.5 million units, which leaves with our guidance about just over 7.2 million for the back half of the year. That's down slightly from what we expected in May when we gave the guidance. The 7.2 is roughly in line with IHS. It is then.

[James Picariello, Senior Automotive Analyst at BNP Paribas Exane]

Understood. Okay, thank you.

[James Picariello, Senior Automotive Analyst at BNP Paribas Exane]

My follow up on capital allocation: How are you thinking about buybacks in the second half if the year does progress toward your updated outlook here? On the reduction to this year's CapEx, now at 4% of sales, I believe your 2026 targets had captured the idea of lower year over year CapEx. Can this still be the case or are certain investments getting pushed from this year to next? Thanks.

[Swamy Kotagiri, CEO and Director at Magna International]

James, I think on the CapEx question we typically talked about getting back to the low fours. I would say, over collective years in terms of CapEx to sales ratio, given all the discussions that are on, like I said, we are being very deliberate and looking at every dollar of investment that's going in. As a result of that, we've been able to reduce the range by $100 million and we continue to look at it going forward. I think overall going into 2026 the focus on capital investment will stay and we are still focusing, I would say, in the 4 to low 4 CapEx to sales ratio on the capital allocation strategy. No change. I think our current focus is completely on capital discipline and Free Cash Flow generation so we can return value to the shareholders.

[Swamy Kotagiri, CEO and Director at Magna International]

As we talked about, we bought about 5.7 million shares. We have a normal course issuer bid in place. Last time when we spoke, we talked about uncertainty being the reason for pause. Those conditions haven't changed yet. If we see better visibility, we can act on the existing normal course issuer bid and we still have time left.

[James Picariello, Senior Automotive Analyst at BNP Paribas Exane]

Thanks.

[Operator]

Your next question comes from the line of Emmanuel Rosner with Wolfe Research. You may go ahead.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

Great.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

Thanks so much.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

Just wanted to come back again.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

The first half to second half margin improvements.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

I guess that's midpoint

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

of your full year guidance.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

You know, the revenue is probably not

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

all that different. In the first half

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

to second half, obviously the margin

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

would take a fairly meaningful step up. You mentioned commercial recovery, lower engineering spend, the tariff fees, warranty, and then operational excellence.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

Some of the pieces you quantified on.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

The tariff, for example, the $55 million

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

in the first half.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

Can you just give us a sense?

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

Either specifically for this year or maybe.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

Based on history, how should we think

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

about the magnitude of improvement of some of the other stuff, maybe based on what you've historically been able to achieve or anything that you're

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

able to quantify for this year. Just curious how impactful, you know, some

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

of these pockets could actually be because

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

obviously, tariffs only get you, you know, a small part of the way.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

We're not going to quantify. I mean, the items that we talked about are all impactful, otherwise we wouldn't

[Louis Tonelli, Vice President of Investor Relations at Magna International]

have talked about them.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

We're not going to get into dissecting

[Louis Tonelli, Vice President of Investor Relations at Magna International]

how much is in each

[Louis Tonelli, Vice President of Investor Relations at Magna International]

give me the tariff amount. The rest are, and it's implied in our guidance, but we're not going to break down the details.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

Okay, is it different than the, is there something that is more pronounced

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

this year than historically?

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

I understand the tariff is new

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

dynamic, but is there any, are there any drivers this year where commercial recovery

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

should be so much more back.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

Loaded than in the second half than historically or the engineering span or

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

just anything compared to history would be helpful.

[Swamy Kotagiri, CEO and Director at Magna International]

I think. Emmanuel, short answer. There is no outlier or nothing that stands out in terms of the key buckets that Louis talked about that would stand out this year compared to the previous history other than tariffs like the engineering spend CapEx. A few of those things are controllable and very visible for us. That's the reason why we are saying the others are discussions based on many other variables. All in all, nothing significantly different than historical trend.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

If you look at the segments that we disclosed, you know, what we had last year for our various segments and you look at the

[Louis Tonelli, Vice President of Investor Relations at Magna International]

back half, and then you look at

[Louis Tonelli, Vice President of Investor Relations at Magna International]

where we are given the range that we provided for the back half this year, they're not really that far out, or they're pretty much the same kind of ranges at the midpoint anyway. It gives you some comfort that we've been there, we've been in this, we've been able to do this recently.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

Got it. Okay, understood.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

It's just a clarification.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

I think you were trying to give a quantification of some of the operational excellence piece of the opportunity. Can you just go back over that

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

maps around that, the extra 40 basis point that you mentioned for this year and then into next year?

[Swamy Kotagiri, CEO and Director at Magna International]

Yeah, I mean there are a mix of many things as we talk through. It is material savings, it is purchasing initiatives with our own supply base, it is pre shoring, there is some vertical integration activities. Over the past few quarters, or actually maybe a year and a half, I talked about specific initiatives on digitization and automation. We have started seeing the results yield, you know, with incremental volumes coming, the flow through is much better, which is what we expect. Emmanuel. All of this continues. It's difficult to say specifically each one. That's what we mean by operational excellence activities. Some of this is normal course, some of this is, you know, additive. To sum it up, that was the 40 basis points and we feel pretty comfortable hitting that in 2025. We also see a roadmap for a similar magnitude again in 2026.

[Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research]

Got it, thank you.

[Operator]

Your next question comes from the line of Colin Langan with Wells Fargo, you may go ahead.

[Colin Langan, Managing Director and Senior Equity Research Analyst at Wells Fargo Securities]

Yeah. Thanks for taking my question. Not to keep asking the same point, but you've commented that margins first half to second half are seasonally stronger. I think that might be true in recent history, but is that referring to just post Covid? Because I look at pre Covid and it looks like margins historically actually fall. Normally that's because production's weaker. Just making sure I'm understanding the comments.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

You're 100% accurate, Colin. If you go back pre Covid, the seasonality would be you’d have strong Q1, Q2 would be your strongest quarter, Q3 would be your weakest quarter, and Q4 would be right in the middle. What's changed since COVID and the chip crisis primarily has been the inflation in the system.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

Now we layer on BEV volatility and production volumes, and now the tariffs, and that's driving costs being incurred on January 1 of each year and recovery negotiations happening throughout the year. Our history is showing that most of those are closed in the second half of the year. That's the biggest change.

[Colin Langan, Managing Director and Senior Equity Research Analyst at Wells Fargo Securities]

Okay, got it.

[Colin Langan, Managing Director and Senior Equity Research Analyst at Wells Fargo Securities]

That makes sense. The guide does imply sales down about 1%. He said it's not too different than S&P on your forecast, but complete vehicles down. If I look at North America and Europe, which are the largest of your markets, S&P has those down almost 9%. Are you expecting similar half over half declines? If that's the case, how are you only down 1% if some of your largest markets are down that much? Are there big launches hitting? Is there a mix impact that's helping in the second half?

[Louis Tonelli, Vice President of Investor Relations at Magna International]

There's also foreign exchange. I think the other thing you have to consider is if you look at our volume projections for the first half of the year and compare those to S&P, there is a difference between what we have. We have just under 7.5 million units of production. They're showing a higher number.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

That's going to factor into the math as well. There's foreign exchange positive, there's mix, there's launch, and then there's just some math going on between us and S&P.

[Colin Langan, Managing Director and Senior Equity Research Analyst at Wells Fargo Securities]

Got it. Just lastly, any update on the leverage target? I think you're 1.87. The target has been to get below 1.5. When is the timeline for that?

[Swamy Kotagiri, CEO and Director at Magna International]

Yeah, we talked about getting back into the range that we've always talked about in 2026. We are on track, you know, as we looked at in February and looked at it for the year going into 2026, and we are very much on track to that.

[Colin Langan, Managing Director and Senior Equity Research Analyst at Wells Fargo Securities]

Got it. All right, thanks for taking my questions.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

Thank you.

[Operator]

Your next question comes from the line of Brian Morrison with TD Cowen. You may go ahead.

[Brian Morrison, Managing Director and Equity Research Analyst at TD Cowen]

Thanks very much. I appreciate the details on the flight plan to 2026 margins and confirming that you can get to the high sixes, maybe low 7%. If I look back at the 2026 disclosure previously, the progress seems reasonable in each segment except for Power and Vision. It seems to need the most acceleration to approach higher single digits. I know tariffs are weighing on in the first half of this year, but what needs to jumpstart that segment. Margin, performance, and high level, how is Veoneer now performing versus expectations?

[Swamy Kotagiri, CEO and Director at Magna International]

I think, from a PNV perspective, you touched on the tariffs. That is a significant piece. I think from launch cadence, in terms of engineering spending, in terms of operational performance, all are on track going, not just from first half to second half, but looking forward again. Volumes need to hold and other assumptions need to be there. From a Veoneer perspective, we are not looking at as much as Veoneer itself. We are looking at the consolidated entity and we hit the synergies that we talked about maybe slightly ahead. We continue to do the optimization in terms of resources and so on and so forth. All in all, pretty good. The take rates and what's happening in the markets and architecture always will have an impact on it, but I would say the rationale is holding.

[Brian Morrison, Managing Director and Equity Research Analyst at TD Cowen]

Thank you.

[Operator]

Your next question comes from the line of Jonathan Goldman with Scotiabank. You may go ahead.

[Jonathan Goldman, Senior Equity Research Analyst at Scotiabank]

Hi, good morning team. Thanks for taking my questions. Swamy, if we sit here today like

[Jonathan Goldman, Senior Equity Research Analyst at Scotiabank]

what's the confidence level in hitting North

[Jonathan Goldman, Senior Equity Research Analyst at Scotiabank]

American production assumptions of 14.7, do you think that's a reasonable level looking out to the rest of the year? I know you don't have a crystal ball, but just given all the tariff headlines out there and potential downside risks, how confident are you hitting that 14.7 number?

[Swamy Kotagiri, CEO and Director at Magna International]

Yeah. Jonathan, good morning. You talked about the crystal ball, so that's what you're asking me to look into. Again, looking at releases, taking into consideration our discussions with the customers, I would say we are pretty comfortable. Unless there is a complete dynamic change in the pricing of the vehicles and what happens in the market, you look at the inventory levels, look at the data that's out there and the production today, I would say I'm pretty confident with the numbers that we're talking about. Again, this is a little bit of crystal ball.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

We've also, last couple of quarters, taken our numbers down in North America in each last two quarters. The numbers have exceeded what we expected. We continue to kind of look at it and say this may be some pull forward, but the numbers have been pretty good in sales, seem to be pretty resilient even in July.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

That gives us some confidence.

[Jonathan Goldman, Senior Equity Research Analyst at Scotiabank]

No, that's a fair point. Got it. I guess another one, maybe looking out a bit longer term. Swamy, has the outlook for EVs changed? With all the rhetoric about renewables energy and the new legislation passed in the U.S. and some things we're thinking about in terms of adoption of EVs, and if it's changed, how do you see that impact on your business, whether it's on the top line, margins, or maybe on the capital piece?

[Swamy Kotagiri, CEO and Director at Magna International]

Yeah, you know, Jonathan, we talked about EV take rates going back again five years. I just want to remind we've been, I would say, conservative compared to the general outlook. As we stand and look at the market today, it's even softer than that. We still believe BEV is a long-term, you know, trend. As I talked about in my prepared comments, the product portfolio is flexible to address the hybrid uptick that we are seeing and the continuing guide platforms. I also want to point out that the investment for our BEVs in terms of opportunities is behind us. I talked about platform technologies on our PNV also significantly behind us.

[Swamy Kotagiri, CEO and Director at Magna International]

Right.

[Swamy Kotagiri, CEO and Director at Magna International]

If the BEVs come forward even at the current rate or a little bit higher, I would say it would be a tailwind, right, because all the heavy lift is behind us.

[Jonathan Goldman, Senior Equity Research Analyst at Scotiabank]

Interesting.

[Jonathan Goldman, Senior Equity Research Analyst at Scotiabank]

That's good color.

[Jonathan Goldman, Senior Equity Research Analyst at Scotiabank]

I'll get back in queue. Thanks for taking my questions.

[Operator]

Your next question comes from the line of Mark Delaney with Goldman Sachs. You may go ahead.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

Good morning. Thank you very much for taking my questions.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

First is on the industry environment.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

To better understand what Magna is seeing

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

in terms of award activity year-to-

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

date and how you characterize your expectation about the bookings environment going into 2H.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

I ask in part because some

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

of the tier ones have talked about strength in areas like hybrid powertrains, digital cockpit.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

You mentioned some hybrid awards this morning.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

We have also heard other tier one say that the booking environment has been a bit difficult given some of the policy changes and tariff environment.

[Swamy Kotagiri, CEO and Director at Magna International]

Good morning, Mark. Short answer. We are seeing good cadence in terms of our overall expected bookings for 2025. Yes, there is program dynamics in terms of push out, cancellations, and so on and so forth. If I step back and look where we stand as of now compared to the past years, we are seeing not a whole lot of change. We are in a good place in terms of hitting our numbers that we had put in our plan.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

Thanks so much, Swamy. Second question and kind of following up on some of the prior questions around some of the changing policy dynamics, especially for U.S. emissions policy, and just better

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

understanding the net effect to Magna.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

We think about the potential for more ICE vehicles, increased hybrid mix, but lower BEVs. As you think the net of those effects, do you envision those being a

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

net tailwind for Magna and your ability

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

to outgrow the market or more offsetting?

[Swamy Kotagiri, CEO and Director at Magna International]

I think most of the policy impacts are secondary impacts. Right. Like the EV credits going away and therefore the consumers may be not buying as many EVs. As an example, I think that might soften the BEV. On the other hand, if it increases hybrid and ICE vehicle sales, then you know we are part of the equation there. Right. That's what we are seeing currently. As that continues, all our cost initiatives, all the work that we've done in terms of footprint consolidation and cost optimization, it'll show through in the margins if the bears come back. Like I said before, a couple of questions before, the investment is behind us and we would see that as a tailwind going forward.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

Okay, one last one for me.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

Just trying to understand the bridge of your revenue outlook from the last earnings call until today.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

I think the midpoint of the revenue outlook is now $400 million higher.

[Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs]

You spoke about North America production being lower, China a bit higher. You also said FX is a tailwind. If you just talk a little bit more on the puts and takes, maybe I missed it. How much of an incremental tailwind is FX and maybe just other key puts and takes around your customer exposure, growth over market, etc. Thanks so much.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

I'd say roughly half of it is currency. Roughly half of it is a net of pretty strong, a better mix than we'd anticipated, offset by lower volumes in North America.

[Louis Tonelli, Vice President of Investor Relations at Magna International]

I think that would be the best

[Louis Tonelli, Vice President of Investor Relations at Magna International]

way to break down that bridge.

[Swamy Kotagiri, CEO and Director at Magna International]

Thanks, Louis.

[Operator]

Your final question comes from the line of Michael Glen with Raymond James. You may go ahead.

[Michael Glen, Managing Director and Equity Research Analyst at Raymond James]

Good morning. I just want to visit something we talked about more than three plus years ago with this idea of North American reshoring. How has the business case for a Magna Steyr facility in North America evolved? Is this something that could happen at this point in time? Is it something that Magna's considering?

[Swamy Kotagiri, CEO and Director at Magna International]

Good morning, Michael. We've always said in terms of looking at complete vehicle assembly in North America, it is a decision based on a customer, multiple programs, multiple life cycles for it to make sense. Those required assumptions remain the same. Given production capacities and how things are going, we don't see anything active right now. Our criteria for looking at that hasn't changed. It is the same. It has to be multiple customers, multiple life cycles before we look at it. There is nothing on the table as I speak today.

[Michael Glen, Managing Director and Equity Research Analyst at Raymond James]

Okay. When I sit here and look at your production, your North American production outlook at 14.7 million, which for me is like a very low number considering what we used to see, you have very low inventory levels in the background. There seems to be this creeping dynamic where the Detroit 3 are shifting towards or would like to shift towards a made to order type model. How do we think about all of this, especially this dynamic with D3 moving to made to order? How does that impact Magna? Is it something that you're increasingly seeing?

[Swamy Kotagiri, CEO and Director at Magna International]

Yeah, I think from a volume perspective, right, we have to look at the data that we have in terms of programs and platforms, have to base it on customer discussions and releases. That's how we come up with a number in terms of the 14.7 as we stand today. If the dynamics change there and if that number increases, I hope you're right, it's going to be a tailwind for all of us. We are just basing it on the facts and the same method of calculation every time that we look at it. There is some amount of judgment, but again, it's based on a lot of data. I think the word you used was made to buy, made to order. I don't know, I haven't seen a whole lot of that

[Swamy Kotagiri, CEO and Director at Magna International]

there is a complexity and variant reduction that the OEMs continue to talk about to simplify the complexity of manufacturing, sequencing, and so on. I think that's good for everyone. Even if it does go that way, I don't think from a product portfolio perspective that we have as Magna would mean a lot of change here.

[Michael Glen, Managing Director and Equity Research Analyst at Raymond James]

Okay, thank you for taking the questions.

[Swamy Kotagiri, CEO and Director at Magna International]

I guess that was the last question. Thanks everyone for listening in today.

[Operator]

At this time I would like to turn it back over to Swamy Kotagiri for closing remarks.

[Swamy Kotagiri, CEO and Director at Magna International]

Thank you, operator. I jumped the gun, but thanks for listening to everyone today. We continue to execute despite the high degree of uncertainty in the industry. I have to reiterate that we remain focused on the many initiatives that are driving cost launch and capital discipline, and with it, solid Free Cash Flow generation. We plan to both get back within our target leverage ratio and are committed to our capital allocation strategy. We remain highly confident in Magna's future. Thank you and have a great day.

[Operator]

This concludes today's call. You may disconnect.

Participants

Executives

• Louis Tonelli, Vice President of Investor Relations
• Swamy Kotagiri, CEO and Director
• Patrick McCann, CFO

Analysts

• Tamy Chen, Director and Equity Research Analyst at BMO Capital Markets
• Dan Levy, Senior Equity Research Analyst at Barclays
• Chris McNally, Senior Managing Director at Evercore ISI
• Joe Spak, Executive Director and Equity Research Analyst at UBS
• Joe Spak, Analyst at UBS
• Tom Narayan, Lead Equity Analyst at RBC Capital Markets
• James Picariello, Senior Automotive Analyst at BNP Paribas Exane
• Emmanuel Rosner, Managing Director and Senior Equity Research Analyst at Wolfe Research
• Colin Langan, Managing Director and Senior Equity Research Analyst at Wells Fargo Securities
• Brian Morrison, Managing Director and Equity Research Analyst at TD Cowen
• Jonathan Goldman, Senior Equity Research Analyst at Scotiabank
• Mark Delaney, Managing Director and Senior Equity Research Analyst at Goldman Sachs
• Michael Glen, Managing Director and Equity Research Analyst at Raymond James