Dauch (DCH) Deutsche Bank Global Auto Industry Conference summary

Industry and operational environment

• Production schedules have stabilized in 2024, reducing last-minute disruptions and improving operational efficiency compared to previous years.

• Pre-announced customer downtime in Q2 allowed for better planning, supporting a stable outlook for the remainder of the year.

• North American production is a key driver, with 70%-75% of business tied to this region and major launches planned for the second half of 2024.

• Labor shortages in 2023 led to operational challenges, but workforce stabilization and improved retention are now yielding efficiency gains.

• Inflation pressures, especially in labor, persist but are being mitigated through commercial recoveries and productivity improvements.

Launches, electrification, and business outlook

• Major U.S. launches in the second half include the next-generation Ram platform and GM’s new compact SUVs, both critical revenue drivers.

• Electrification launches are progressing, with significant activity in Asia and India, and recent awards for beam axles and components in global markets.

• EV business represented a low single-digit percentage of 2023 revenue, with a goal to exceed 10% of served market by 2030.

• The EV slowdown has extended the life and profitability of internal combustion and hybrid platforms, supporting strong cash flow.

• Segment expansion in electrification is opening new opportunities beyond traditional truck and SUV markets, including luxury and compact vehicles.

Financial performance and capital allocation

• Guidance for 2024 was reaffirmed after a strong Q1, with expectations of continued stability and successful major launches.

• Contribution margin on existing business is expected to remain in the 25%-30% range, with new business margins evaluated against strict financial hurdles.

• Free cash flow is primarily directed toward debt reduction, with over $1.4 billion paid down since 2017 and a target of 2x net debt leverage.

• M&A strategy focuses on powertrain-agnostic and synergistic acquisitions, such as the recent Tekfor deal, while supporting organic growth and R&D.

• Once leverage targets are met, broader capital allocation options may be considered, but current focus remains on debt and organic investment.