Aptiv Q4 2025 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
February 6, 2025
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Operator

Good day and welcome to the Aptiv Q4 2024 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jane Wu, Vice-President of Investor Relations and Corporate Development. Please go-ahead.

Jane Wu
VP of Investor Relations at Aptiv

Thank you, Jess. Good morning, and thank you for joining 4th-quarter 2024 earnings conference call. The press release and related tables, along with the slide presentation can be found on the Investor Relations portion of our website at aptivs.com. Today's review of our financials exclude amortization, restructuring and other special items, and we'll address the continuing operations of Aptiv. The reconciliations between GAAP and non-GAAP measures for our 4th-quarter and full-year 2024 results as well as our first-quarter and full-year 2025 outlook are included at the back of the slide presentation and the earnings press release.

During today's call, we will be providing certain forward-looking information that reflects Aptiv's current view of future financial performance and may be materially different for reasons that we cite in our Form 10-K and other SEC filings. Joining us today will be Kevin Clark, Activ's Chair and CEO; and Veru, Executive Vice-President and Chief Financial Officer. Kevin will provide a strategic update on the business and Varon will cover the financial results in more detail before we open the call to Q&A. With that, I'd like to turn the call over to Kevin Clark.

Kevin P. Clark
President, Chairman at Aptiv

Thanks, Jane, and thanks everyone for joining us this morning. Let's begin on Slide 3. Aptiv ended the year-on a solid note with 4th-quarter results in-line with our expectations, demonstrating our ability to execute in today's dynamic market environment. Touching on a few of the highlights, new business bookings reached a 4th-quarter record of $10.1 billion, reflecting the strength of our portfolio of industry-leading advanced technologies. Revenue totaled $4.9 billion, that's down 1%, the result of strong revenue growth from new program launches across key product lines, offset by continued weakness in-production schedules at select OEMs, primarily in Europe and with multinational joint-ventures in China.

Quarterly operating income reached $623 million, reflecting strong operating performance and ongoing cost-reduction initiatives, which also along with share repurchases and the restructuring of ownership interest in the Motional joint-venture, drove earnings per share growth of 25%. Lastly, operating cash-flow totaled a record $1.1 billion, allowing us to accelerate our deleveraging, which Ron will discuss shortly. In summary, our team is doing an exceptional job addressing the evolving needs of our customers, while also operating efficiently and further optimizing our cost structure. Thank you. Turning to the next slide to cover our major achievements during 2024.

Has continued to capitalize on the safe, green and connected megatrends, reaching numerous technology milestones during the year, including two awards for full system Gen6 ADAS platforms, one of which is from an EMEA-based OEM that also includes in-cabin sensing and our full suite of Wind River embedded and studio developer software. Multiple program launches with Mahindra that utilize our integrated cockpit controller, which consolidates multiple ECUs into a single compute platform capable of supporting higher levels of performance and scalability and the expansion of our portfolio of 48-volt connectors to meet the increasing demand from OEMs.

We're also capitalizing on strong commercial traction with the local Chinese OEMs leading the transition to software-defined vehicles, reflected in 16% revenue growth with the domestic OEMs and our recent SVA zonal Controller award from Cherry that includes both Wind River and Aptiv software. And lastly, Wind River's launch of Elixir Pro, which has generated significant interest from the broader enterprise Linux ecosystem with launch partners including AWS, Capgemma, Gemini, Intel, SEIC and Super Micro. You, these notable achievements during 2024 validate the strength of our industry-leading portfolio and have resulted in new business bookings of $31 billion, including record bookings for Signal Power Solutions, record operating income and earnings per share, reflecting our strong operating performance and optimized cost structure and record operating cash-flow, positioning us to continue to invest in the business, while also accelerating the return of a significant amount of capital to shareholders, which will result in more than a 20% reduction in outstanding shares.

We continued executing on our long-term strategy while also launching a record number of new vehicle programs and increasing the resiliency of our supply-chain. We're extremely proud of our accomplishments in 2024 and the performance of the Aptiv team. Moving to Slide 5 to review new business awards. As I mentioned on the previous slide, our industry-leading portfolio of advanced technologies enabled us to reach just under $31 billion of new business awards during the year. Advanced safety and user experience bookings totaled $4.4 billion, driven by active safety bookings of $2.7 billion, including the two Gen6 ADAS platform awards I mentioned earlier, as well as Gen6 Radar Awards with a German luxury OEM and two large Japanese OEMs. Signal and PowerPower Solutions bookings reached $26.4 billion, including $8 billion in the Engineered Components Group across the full product portfolio in multiple end-markets and a record $18.4 billion in the Electrical distribution systems business.

And lastly, across all product lines, a record $7 billion of new business in China, of which over $5 billion was with top local Chinese OEMs and a US-based global electric vehicle OEM. With a broad portfolio of advanced technologies that provides OEMs with increased flexibility at a competitive cost. We have clear line-of-sight to over $31 billion of new business awards in 2025. Turning to Slide 6 to review the highlights for our Advanced Safety and User Experience segment, which achieved record revenue and earnings in 2024, underscoring the competitiveness of our product portfolio and the strength of our operating capabilities. Revenues increased 2%, driven by double-digit growth in North-America with local OEMs in China, partially offset by low single-digit declines in Europe and Asia-Pacific.

Active safety revenues increased mid-teens, partially offset by a decline in user experience revenues due to the roll-off of legacy programs. Operating margins were over 12%. The benefit of the continued rotation of our engineering footprint to India and our ongoing adoption of Wind River's DevSec ops tools, which have improved the productivity of our software developers by over 20%.

Wind River revenues increased 14% in the 4th-quarter, primarily driven by studio operator awards and telco, but full-year revenues were down slightly, the result of the continued slowdown in investment in 5G infrastructure and telco, impacting closure rates on commercial opportunities and a longer selling cycle for studio developer in the automotive and industrial markets. We increased investment in Wind River's commercial and product organization during the year to enhance our existing portfolio of products, including VX Works, operator and developer and also build new products such as Elixir Pro, which we're confident will drive strong revenue growth in 2025.

In addition, the advancements in AI is providing with -- providing Wind River with incremental growth opportunities as customers look to reduce costs by moving AI workloads to the edge. Overall, advanced safety and user experience provides solutions that increase flexibility while lower-cost, making us a partner of choice for our customers. This is reflected in our recent awards, including a central computer award for active safety and user experience applications across multiple Geely brands, an award for an integrated cockpit controller from a major global truck manufacturer, additional awards with leading Japanese OEMs for Gen6 radar solution and an award with Boost Mobile to provide core to edge cloud infrastructure for the world's largest open-rand deployment, which demonstrates Wind River's leadership position in the telco industry.

Turning to the Signal and Power Solutions segment on Slide 7. Revenues declined 3% during the year with electrical distribution systems impacted by lower vehicle production schedules with select OEMs in North-America and Europe and two multinational JVs in China and Engineered Components Group benefiting from growth in non-auto markets, offset by lower high voltage revenue. To drive further margin expansion in electrical distribution systems, we're accelerating the rotation of our manufacturing footprint to Central America and North Africa, while also increasing the automation of select manufacturing processes, targeting automation levels of 30% by 2026 and over 50% in 2030, as we've discussed previously.

We've also demonstrated strong commercial momentum across all regions as reflected in 4th-quarter bookings, including a significant electrical architecture award with a major North American OEM for their light and heavy-duty truck platforms, over $1 billion of new business awards with leading local OEMs in China and several customer awards for interconnect solutions in the aerospace and defense, space and industrial markets.

Moving to Slide 8, I wanted to touch on our recent announcement to separate the electrical distribution systems business from Aptiv, creating two optimally positioned independent companies, each with its own unique product portfolio and financial profile and with greater flexibility to pursue their own individual market opportunities and capital allocation strategies. First, by enhancing strategic and operational focus, we're positioning both Aptiv and EDS to more effectively address the evolving needs of our customers and to further capitalize on-market opportunities, which we believe will drive even greater success and value-creation for both companies.

We're targeting the completion of the separation by, 31, 2026, subject to final approval by Aptiv's Board of Directors and customary conditions. In the meantime, we'll continue to keep investors updated as the separation progresses and we'll host Investor Days for both Aptiv and EDS in the fall of this year. Moving to Slide 9 and our outlook for 2025. We remain confident that the trend towards greater levels of electrification, automation, digitalization and connectivity will continue. With our portfolio of advanced technologies, Aptiv is well-positioned to address the evolving needs of our customers and to further capitalize on-market opportunities across multiple industries.

The market remains dynamic and the recent announcements regarding trade policy has created incremental uncertainty, which could impact supply chains and vehicle production., as a result, as Raul will discuss shortly, we believe it's prudent to include additional conservatism for North American vehicle production in our current outlook for 2025. But to be clear, our outlook -- our outlook has not factored in changes in tax, trade or tariff policy by the new administration. We'll monitor the situation closely and take actions as necessary while continuing to capitalize on growth opportunities, including the continued growth in electric vehicles and ongoing adoption of advanced ADAS solutions globally and improved customer mix by new vehicle program launches and continued penetration and accelerated growth with the leading local Chinese OEMs.

And we'll continue to optimize our cost structure, pursue strategic capital deployment opportunities, including further debt paydown, bolt-on M&A and the opportunistic return of cash to shareholders and flawlessly execute EDS separation targeted for the first-quarter of 2026. I'll now turn the call over to Varun to go through the numbers in more detail.

Varun Laroyia
Chief Financial Officer at Aptiv

Thanks, Kevin, and good morning, everyone. Kevin shared an overview of the quarter and I'll share further details, including insight into segment performance. Additionally, in connection with the previously-announced planned spin-off of our Electrical distribution systems business effective first-quarter 2025, we are realigning our business into three reportable segments, EDS, ECG and ASUX. To reflect this change, we are furnishing supplemental recast quarterly financial information for 2024 and 2023.

Starting with Slide 10, Aptiv delivered strong earnings growth in the quarter despite revenues down 1% as we continue to drive operating performance improvements across the business. Consistent with the 3rd-quarter, revenue growth was impacted by lower vehicle production at select customers. 4th-quarter adjusted EBITDA and operating income were $811 million and $623 million respectively, with performance more than offsetting labor economics, which contributed to an increase in operating margin by 50 basis-points over the prior year.

FX and commodities were a $26 million tailwind in the quarter, primarily the favorable impact of the Mexican peso. We delivered quarterly adjusted earnings per share of $1.75, an increase of 25% from the prior year, which primarily reflects the benefits of share repurchases and the restructuring of the Motional joint-venture. Operating cash-flow for the quarter totaled a record $1.1 billion and capital expenditures were $166 million. And finally, during the quarter, we paid down $1.1 billion of outstanding debt, including the 1.5% euro notes that were due in 2025, as well as $350 million or over half of the term-loan A due in 2027.

Moving to Slide 11. As previously-stated, revenue was negatively impacted by lower vehicle production, which was down 4% in the quarter, driven by revenue on electrified vehicle platforms down 20% globally. Net price and commodities were positive in the quarter and partially offset by foreign-exchange. Revenue performance was mixed across regions with North-America up 3% driven by strong active safety growth. Europe was down 8%, impacted by slower-growth in electrified vehicle platforms, partially offset by active safety. And China grew 4% with sales to local OEMs up 25%. Bringing full-year 2024 revenue mix in China to 53% with local OEMs, 34% with multinational joint-ventures and the balance with a large global EV manufacturer.

Moving to the ASUX segment on the next slide. 4th-quarter year-over-year revenues were up 2%. The active safety product-line grew 15% in the quarter, driven by North-America, which grew over 50% as a result of proliferation across platforms. And the smart vehicle compute and software product-line grew 13% in-line with expectations, offset by the user experience product-line, down 12% in the quarter, reflecting roll-offs of legacy programs as well as lower multinational JV vehicle production in China. 4th-quarter adjusted operating income and margin were $193 million and 14% respectively, resulting from significant year-over-year improvement in operating performance and our continued focus on cost-improvement initiatives.

For the full-year, revenue grew 2% with strong active safety growth of 16%, offset by user experience down 12%. Full-year operating income and margins were up 58% to $714 million with 440 basis-points of margin expansion. Turning to Signal and Power on Slide 13. Revenue in the 4th-quarter was $3.5 billion, down 2% due to lower volumes, partially offset by 5% growth in non-auto end-markets.

4th-quarter adjusted operating income was $430 million or 12.1%, impacted by the lower-volume flow-through. For the full-year, revenue growth was down 3% as weakness in North-America and Europe was partially offset by 16% growth with local China OEMs, while low voltage and high voltage revenue on electrified platforms was down 16%. Full-year segment adjusted operating income was $1.7 billion or 11.8%, up 20 basis-points, reflecting improved operating performance as well as net benefit from price and commodities, while the year-over-year FX impact was not significant.

Thank you. Turning now to Slide 14 and macro expectations for 2025. As Kevin mentioned, we remain cautious about the impact of geopolitical factors, including uncertainty around tariffs. While our outlook does not reflect the direct impacts of potential trade policy changes, we have included additional conservatism in our expectations for North-America production. We are forecasting active weighted global vehicle production to be down 3% for the year, reflecting approximately 92 million units. Regionally, we expect strong full-year revenue growth in North-America despite production down 5%, driven by content growth with key customers, including the D3, which represent over half our revenue in the region.

Europe production down as major European OEMs transition from ICE to electrified vehicle platforms, which are expected to grow approximately 20% year-over-year. Year-over-year and China production flat with local China OEMs continuing to win share from multinational joint-ventures. Given the dynamics as well as our accelerating traction with local players, we are on-track to exit the year approaching market parity on China revenue. Moving to Slide 15 and our full-year 2025 full-year outlook. While we expect a lower vehicle production environment, we remain confident that our continuous improvement initiatives will drive strong operating performance and cash-flow generation going-forward.

Given the volatility in-production schedules last year, we also want to provide guidance on our expectations for the first-quarter. Our first-quarter revenue is expected to be in the range of $4.6 billion to $4.8 billion, down 3% at the midpoint. Operating income and adjusted EPS are expected to be $520 million and $1.50 at the midpoint of the range, respectively. Our full-year outlook for revenue is in the range of $19.6 billion to $20.4 billion, up 2% at the midpoint year-over-year, reflecting ASUX up mid-single digit with ECG up low-single digits and EDS flat.

EBITDA and operating income are expected to be approximately $3.19 billion and $2.42 billion at the midpoint, reflecting flow-through on-sales growth and performance and cost-reduction initiatives offsetting labor headwinds. Adjusted earnings per share is estimated to be in the range of $7 and $7.60, up 17% at the midpoint, with operating cash-flow of $2.1 billion and capital expenditures at approximately 4.5% of revenue. On Slide 16, we provide a bridge of 2025 revenue and operating income guidance as compared to 2024. Starting with revenue, sales growth of over $500 million is expected to be driven by active safety, up high-single-digits year-over-year and low voltage at high voltage on electrified platforms up low-double-digits.

We expect annual price declines within the historical range of down 1.5% to 2%, offset by commodities and recoveries. And FX is estimated to be a headwind of $200 million. Turning to adjusted operating income, we expect margin expansion of 10 basis-points at the midpoint of our guide, driven by flow-through on incremental sales, partially offset by net price, commodities and FX, while performance initiatives are expected to offset incremental labor inflation.

Slide 17 provides further detail on adjusted EPS, building on our strong performance last year and year-over-year adjusted EPS growth of 17% is driven by volume flow-through, partially offset by higher tax expense due to the OECD Pillar 2 implementation and our proactive capital allocation actions, including share repurchases and our reduced equity holdings in Motional. Before handing the call-back to Kevin, I would like to touch upon our cash-flow outlook.

While we generated a record $2.4 billion in operating cash-flow into in 2024, we expect 2025 to be impacted by a return to growth and a strategic inventory build of semiconductors in anticipation of possible shortages in late 2025 and early 2026, which we will calibrate based on availability and demand forecasts. We will also continue to maintain a balanced approach to capital allocation, including investing in the business to drive innovation that will deliver sustainable profitable growth. And while we increased leverage last year to return capital to shareholders, including the $3 billion GSR. We are ahead of our commitment to delever our balance sheet.

Building on our debt paydown in the 4th-quarter, as I mentioned earlier, and stronger performance in cash, we have retired an additional $250 million year-to-date, thereby extinguishing the term-loan A in its entirety and bringing our total debt paydown in the last two months-to $1.4 billion. We also plan to accelerate further debt paydown into the first-half of 2025. We will consider utilizing excess cash to explore bolt-on M&A opportunities and opportunistically return capital to shareholders, all within the parameters of investment-grade ratings. With that, I'd now like to hand the call-back to Kevin for his closing remarks.

Kevin P. Clark
President, Chairman at Aptiv

Thanks, Run. I'll wrap-up on Slide 19 before opening the line for questions. As the management team reflects on 2024, we expect the market to remain dynamic and the pace of innovation to continue to accelerate and drive ongoing transformation across industries. Looking-forward, while our 2025 guidance does not include the impact of future policy changes, including tariffs, we believe that we've taken an appropriately conservative approach to our outlook.

We've purpose-built our technology portfolio to deliver flexible, high-performance and cost-effective solutions that address our customers' needs all on a global scale and at the same time, we remain committed to flawlessly executing and delivering a strong operational performance, enabling us to unlock incremental profitability and deliver long-term value to our shareholders. In closing, I'm proud of what the Optiv team accomplished during 2024 and I'm excited about what we'll deliver in the years ahead. Operator, let's now open the line for questions.

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Operator

Thank you. [Operator Instructions] We will now take our first question from John Murphy at Bank of America.

John Murphy
Analyst at BofA Securities

Good morning, guys. Yeah, Kevin, just a first question on your -- on your -- your statement that you're taking somewhat of a conservative outlook, which is totally understandable given what's going on in the world and the country in the US right now. But -- but when you look at that down 5% in North-America, if we said that was closer to flat, it seems like you would add, I don't know, $360 million, $370 million more of sales roughly. If that were to occur, what kind of incremental margin and I'm saying if, right? I mean it's a big if. What kind of incremental margin do you think you would get on those incremental sales that were to occur?

Kevin P. Clark
President, Chairman at Aptiv

Yeah. So, John, let me start with just a process on it. Just in light of a couple of things, one, just the dynamics from a geopolitical standpoint, the dynamics as it relates to policy, whether that be trade, whether it be tariff, whether it be taxed. We think it's very, very important at this point in time to be be more conservative, quite frankly. And then when you overlay on-top of that, the fact that inventories in North-America are still relatively high, especially for the D3, where we have a fair amount of exposure, that's something that we're watching closely as well.

As we look at the first-quarter in the early part of this year, a lot of progress has been made reducing that during the 4th-quarter of last year, but inventories still remain relatively high. So as we came into the year and we thought about the first-quarter, that was the context or the lens that we were we were viewing it through. As it relates to our vehicle production in North-America being stronger in the first-quarter, it's a possibility. It's -- again, it's not in our guidance. We would expect volumes to flow-in the range that we've traditionally talked about in that 18% to 22% sort of flow-through range on volume. But again, we've not included that in our guidance and we've done that very intentionally just given the environment right now.

John Murphy
Analyst at BofA Securities

Okay. And then just a second follow-up on Slide 5 of $31 billion of gross bookings is another big, big year for you. As you kind of walk forward two to three years out, has anything changed in sort of the mix of customers in China? And are you shifting more quickly towards the domestics than you were previously. Just curious how -- if there are any updated thoughts there?

Kevin P. Clark
President, Chairman at Aptiv

Well, I'm not sure if it's more rapid. It's been rapid the last 12 or 24 months. I think we picked-up roughly 10 points of share with of mix with local Chinese OEMs during 2024, maybe a little bit less than that. I think our outlook for 2025 is a full 10 point increase. So at the end of 2025, early 2026, we should be at parity with market mix in terms of vehicle production of locals versus the multinationals. So we've made a lot of progress and that's what accounts for as you look at our outlook for the full-year relative to where we are guiding in the first-quarter. That's some of the pickup in revenue that we're seeing now and we expect to continue through the balance of 2025.

John Murphy
Analyst at BofA Securities

Great. Very helpful. Thank you very much.

Operator

Thank you. We'll move next to Joe Spack with UBS. Please go-ahead.

Joseph Spak
Analyst at UBS Group

Good morning, everyone. Kevin, maybe just going back to sort of the conservatism comment, are there any other areas of the outlook that you'd highlight besides that sort of adjustment to North American production. And somewhat related, I mean, just the growth over market, which I know is not sort of an official metric anymore, but implied in North-America, maybe, maybe just some commentary on what's driving that for the year.

Kevin P. Clark
President, Chairman at Aptiv

Yeah. And again, as it relates to conservatism overall, the bulk of it sits in North-America. I would say Europe and US, we have a more conservative outlook for EV growth on-market right now, I believe IHS is forecasting roughly 20% growth. In EV production, our outlook from a revenue standpoint is roughly 10% plus, so mid-single digits. So we've taken a more conservative approach from a revenue outlook given you know, our experience last year. As you look at growth over market in North-America, I would say it's really a couple of things. It's a case of launch cadence back-half of this year and into the start of next year. So new program launches were up roughly 10% last year versus the prior year. A lot of that was really starting in Q2 through Q3 and Q4, and we'll benefit from that. And then I would say, Joe, there's a little bit of a normalization as it relates to a couple of the OEMs where we saw significant -- significant corrections or reductions in their vehicle production schedules in 2024, especially in the third and fourth quarters, we expect that to effectively normalize and not see the same level of decline. So I'd refer to it as stability basically in schedules.

Joseph Spak
Analyst at UBS Group

Okay. Thank you for that. I guess just as a second question, this is, I know bigger-picture because there's obviously a lot going on. But it sounds like the automakers as they I guess, should be at least have some contingency planning scenarios if they have to react to tariffs even if my impression is that still might be a lower -- a lower probability. But I guess, I'm sure you're doing something similar from a contingency plan perspective. I am curious though if any of those OEM conversations have cascaded down to you because if anything like this were to need to occur, there would obviously need to be some pretty meaningful coordination and time and validation and ramp-up. So I guess I just want to understand how you guys are internally planning for this and the level of coordination across the value chain.

Kevin P. Clark
President, Chairman at Aptiv

Yeah. I would say the level of coordination is pretty good. I think the magnitude of what was initially proposed regarding tariffs within North-America from an industry standpoint was a bit surprising. But I would say we've been working with our OEM customers of late last year, early this year as it relates to where possible for deploying inventory. As we've talked about a lot last year in terms of supply-chain and supply-chain visibility, that's something that we're very closely connected with our OEMs globally on. We spent a lot of time with our North American OEMs, making sure they understand our supply chains well. So we've developed, I would say, at least near-term plans on in terms of addressing some of the challenges that if there was a flip of a switch on how we would deal with that, including investments in inventory, including areas where we have duplicate manufacturing in North-America and other regions.

And then some discussion on -- I wouldn't call them firm plans at this point in time, but some discussions about alignment of their production schedules and importantly, product mix to simplify the situation so that we can pre-produce products in certain areas where it's a little bit more complicated to do. For example, wire harnesses, products like that. So I would say we're reasonably coordinated to the extent this gets implemented, but ultimately, obviously, it would be -- it would be somewhat disruptive.

Joseph Spak
Analyst at UBS Group

Yeah. Okay. Appreciate that.

Operator

Thank you. We'll move to Chris McNally with Evercore.

Chris McNally
Analyst at Evercore ISI

Thanks team. And just you can see the tone of everyone's questions is around the conservatism in the guide in Q1, Kevin, particularly around the volatility we've seen in mix over the last two years. And I think one of the things that we will struggle with is the discussion of production that you give for Q1 and for you, you look below IHS minus 5%, minus 3%. But that's probably on an active regionally adjusted basis. Have you looked at those numbers for top customers, where your top customers are for Q1 and full-year just so we can have a sense of how much the conservatism is built-in.

Kevin P. Clark
President, Chairman at Aptiv

Yeah, listen, we're not going to provide kind of specific customer -- customer sort of production schedules, right, Christen, you understand that. Our -- is our estimate for production lower than what customer schedules currently show? Yes, they are. They are. And in our forecasting process and guidance process and planning process, we've gone through customer-by-customer, platform by platform, region by -- by region. So we've gone through it in detail. Have those been haircut? Yes. Have they been haircut more than they typically are for the first-quarter.

Yes. Last year was volatile though is as you said, we don't want to go through that again. But then overlaid on-top of that, what we -- what we do worry about is just given some of the announcements regarding trade policy and tariffs that does introduce a certain amount of uncertainty into the system, which, in our view, will affect supply chains and when it affects supply chains, it will affect production. It's tough to predict exactly how much but it will. So we've gone through that process and to the best as we can as we could estimated what we thought Q1 could look like in light of some element of that uncertainty. I know that's not a detailed answer, but we try to be very responsible.

Chris McNally
Analyst at Evercore ISI

And Kevin, I would say, I mean, look, I think trying to figure out March depending upon how tariffs play-out is sort of across the street, no one has really done. So that's actually super helpful. And you did call-out North-America. I think which is where the concern lies, particularly when we've seen two of the three OEMs who had -- who had good years sort of last year already being cautious on-Q1, and you mentioned the third who is going to rebound. Just a simple one for me. I don't know if this has been answered yet. I apologize if it has. Just sort of peso benefit year-over-year. We've been sort of waiting for it. We got a little bit of help in the second-half, but with peso at '21, should this be a tailwind of material form to margin in '25. Thanks so much.

Varun Laroyia
Chief Financial Officer at Aptiv

Thanks hey, Chris, it's Varun out here. Listen, it's all about managing risk, right? And so we tend to take-out hedges and that basically is what it is. So no, we don't really expect it to -- we've kind of covered that risk for 2025.

Kevin P. Clark
President, Chairman at Aptiv

Yes. So no big tailwind as it as it relates to peso weakening if that -- if that if that continues to happen.

Operator

Thanks so much. We'll move next to Dan Levy with Barclays.

Dan Levy
Analyst at Barclays Bank

Hi, good morning. Thanks for taking the questions. I wanted to ask about the China commentary, which shows that you're expecting some underperformance versus the China market. And is this just a continuation of what we saw in 2025 -- or 2024 where it was just a couple of key customers that were dragging down results, but you're still growing with the domestics. Maybe you could just provide a little more color on the expectations within China and the domestic versus multinational split.

Kevin P. Clark
President, Chairman at Aptiv

Yeah. We expect our China locals to continue to take significant share. Not to the extent that they did in 2024, but they'll continue to take significant share. We expect the multinationals -- global multinational traditional OEMs to continue to lose fairly significant share. That's factored into our outlook. I think the net -- the net impact for us is our revenue growth versus vehicle production in China is basically -- our growth over vehicle production is down 1% versus what it was in 2024. So we're closing that gap. We have internally a more, I'd say, aggressive outlook for China local share gain relative to what IHS has. I mean, we're north of 75% share gain in 2025. So we expect them to continue to take some share. And as I mentioned, we'll reduce the differential and growth versus market down to about roughly one point. And then in 2026, as I mentioned, we're at parity.

Dan Levy
Analyst at Barclays Bank

Okay. And the underlying domestic growth, that's in-line with sort of where the market is.

Kevin P. Clark
President, Chairman at Aptiv

But the underlying outlook for domestic growth, our outlook is slightly higher than what IHS would have for vehicle production growth. And our growth with those customers is over their market-share growth rate. So we're growing over market with the local OEMs in China.

Dan Levy
Analyst at Barclays Bank

Okay, great. Thank you. As a follow-up, wanted to ask about some of the cost actions, which you had talked about on the 3rd-quarter call. I think there are a number of things you talked about salaried reductions and flexing the workforce and material cost, manufacturing, pricing. I see in your bridge that you're assuming some positive performance, but maybe you could just double-click on the extent to which you're seeing benefits on the cost actions, what's low-hanging fruit versus what's going to take a little more effort to achieve on the cost side?

Kevin P. Clark
President, Chairman at Aptiv

Okay. Maybe I'll start at a high-level and Varun can answer in more detail, if that's okay. The last couple of years -- the last several years, we've been very focused on reducing overhead. You've heard us talk about that. Last year, we had roughly a 10% reduction in salaried workforce this year within our plan. We were targeting mid-single digits. And given what we're -- we're hearing regarding trade, trade policy, we'll be increasing.

We'll be increasing that to some extent just to provide additional room and offset any incremental risk that's out there. So those are our activities that we have a pretty good muscle for. I think as it relates to when you think about footprint rotation, that requires a bit more effort, but it's something that obviously we do. When you think about material cost-savings, there's two aspects to that. There's the leveraging price-to-price, which the team has done a great job. I think the mapping of our supply-chain, building our digital twin and significantly increasing visibility to BOM costs and where there's leverage that's paying dividends, although it requires negotiation, it requires effort and negotiating with both customer and supplier.

And then when you think about what's more permanent engineering in low-cost solutions or engineering out higher-cost components, that's something the group or the team has been doing for the last couple of years and a big portion of our year-over-year material performance in 2025 will be the result of that. It's important to note though that to do that, it requires support from our OEM customers. And at times, customers giving constraints on resources are less focused on it, but that's an area that we've made a lot of progress.

Varun Laroyia
Chief Financial Officer at Aptiv

No, Kevin, I think that's comprehensive.

Dan Levy
Analyst at Barclays Bank

Yeah. Great. Thank you. That's very helpful.

Operator

Thank you. We'll move next to Emmanuel with Wolfe Research. Thanks.

Emmanuel Rosner
Analyst at Wolfe Research

Good morning. My first question is around the outlook for EDS. I wanted to zoom in to it because it will obviously be its own stock soon enough and investors need to understand how to value it. So basically looks like revenues was down 6% in 2024 in your guidance for 2025, you assume stable revenue in EDS? And then obviously, when you announced the future spin-off, mid-single digit is sort of like the mid-term target in terms of growth for it. So can you maybe just give a little bit of color on what do you expect for this year? Why just stable if electrification accelerates a little bit maybe in Europe? And then what will drive this acceleration to mid-single digit through 2028.

Kevin P. Clark
President, Chairman at Aptiv

Yeah. Yeah, manual. So adjusted growth for EDS in 2024 was down 5%. A big driver of that were the customers we mentioned, but then an incremental overlay as it relates to-high voltage or EV exposure. So put it in perspective, high voltage revenues for that -- for the EDS business were down just shy of 20% in 2024. So significant impact from throughout the year. Our outlook for growth in 2025 is basically flat growth, so about 3 points over global vehicle production in terms of our outlook for average weighted market growth.

When you look at our view for EV penetration adoption and the impact on overall growth rate, we would expect roughly a mid-double-digit growth in EDS on -- in the EV space to be a driver as well as strong growth with commercial vehicle OEMs who -- we've had a concerted effort over the last couple of years to diversify revenues more broadly in transportation. So benefit there. So we would say as we look at the -- at 2025, those are the primary drivers. As we look at beyond 2025, it's the continued pace of EV adoption. It's continued market-share gains.

We talked about our bookings in EDS in 2024, how strong they were. They were actually strong in 2023 as well. So it's even -- it's low voltage as well as high voltage growth, market-share penetration and the rollout of those new programs that will drive growth in the out years beyond 2025.

Emmanuel Rosner
Analyst at Wolfe Research

Got it. Thanks for the color. And then I wanted to come back on the potential for cost reductions. So in the -- in this year's guidance, you have about $400 million of performance offsetting essential labor economics and increased depreciation. What is the potential for Aptiv to take further cost actions or the appetite for it beyond just sort of like performance and efficiencies. We've seen some other suppliers meaningfully scale back maybe RD&E based on maybe a slower pace of electrification than previously anticipated. Is there room to do something that is sort of like more structural or have those actions already been taken and now it's really about offsetting the economics?

Kevin P. Clark
President, Chairman at Aptiv

Yeah. Listen, there's always an upper opportunity, Emmanuel. So we're always focused on it. I mentioned to -- mentioned to you what we're doing from payroll reduction. So that will continue. On footprint rotation, especially within the EDS business has been accelerated. So we'll get benefits there as well. Material cost is a big piece of what we -- a big piece of our cost structure in the bomb for BOM as it relates to build material for OEMs. So that's an area that we're really focused. From an engineering standpoint, we had a lot of productivity out of engineering in 2024, I mean a lot. And we did that principally by it wasn't about reducing advanced engineering or R&D, it was more about operating engineering. So program launch, manufacturing engineering within our facilities, software development engineering within ASUX. So those were areas where we were able to get that productivity and we'd expect to continue to get productivity out of engineering in 2025. Transparently, it won't be as significant as it was in 2024, just given the size of the change in 2024.

Emmanuel Rosner
Analyst at Wolfe Research

Thank you. Great.

Operator

Thank you. We'll move to Adam Jonas with Morgan Stanley. Please go-ahead.

Adam Jonas
Analyst at Morgan Stanley

Hey, everybody. A bit longer-term question if I may. You mentioned aerospace and defense in the SPNS and also like diversifying your TAM within Wind River as well. I'm curious who are you winning business with? How significant is the aerospace and defense contribution today and I'm curious how big this could be. And any other -- any other TAM that you might describe here because your customers, I believe, especially post-spin, if you only anchor your revenue to the auto industry and the legacy auto industry, there are scenarios where those companies are going to be much, much smaller and many of them won't exist.

So if I even see kind of a gold standard of Western EV, Tesla, they're effectively -- they're pillaging resources, getting resources out-of-the traditional electric vehicle market into other markets, even humanoids and things. That gives you a very unique perspective, I think, of those next TAM. So I didn't know if you and the border are kind of actively tracking this and any messages that you had for investors today thinking longer-term of the surface area between what you do and other expressions of smart machines beyond just cars? Thanks.

Kevin P. Clark
President, Chairman at Aptiv

Yeah. No, Adam, it's a great -- it's it is a great question. And I would say it's one of the big pillars of our strategy that the Board has us focus on in terms of diversification into adjacent markets, accelerating that, making sure that's a priority from a business plan, a strategy and quite frankly, from a compensation standpoint. Aerospace and defense is one of those priority markets. There are applications as you mentioned, what we do now in those markets.

Today within the A&D space, when you consider, when you consider what we have within the SPS business and ASUX business, it's probably about $400 million in revenues growing fast. It's a higher-margin profile. It is a longer selling cycle, but we have strong relationships. With all of the primes in the -- in the A&D space as well as the various you know, parts of the armed Forces. So they're existing customers today and we're looking to leverage the position that Wind River has and that our portfolio of businesses within Winchester have to continue to penetrate that market.

And obviously, it's going to be a high-growth market. I'd say the second area outside of Aerospace and defense is in and around energy and energy distribution. There's a relationship that we have with a global EV OEM where that's one of the areas where we've been awarded business and we expect to continue to be awarded business and participate in that. So that is an exciting area. And then lastly, your point on robots, humanoids, others, whether it be on the edge software or it be from Wind River or it'd be the perception systems for ASUX or it be the vehicle architecture solutions or the wire harnesses and connectors from SPS. Those are all opportunities. And again with there are a couple of customers that we're actually working on that specific area now. Those revenues aren't quite as significant at this point, though, to be transparent.

Adam Jonas
Analyst at Morgan Stanley

Yeah. Thanks, Kevin. You guys made our humanoid 100, by the way. So congratulations, but look-forward to continuing the question. That's all I got. Thank you.

Operator

Thank you. We'll go to Colin Langan with Wells Fargo.

Colin Langan
Analyst at Wells Fargo & Company

Oh, great. Thanks for taking my questions. Just wanted to follow-up on -- if I go through the margin walk on Slide 16. You talked about the pace is not an issue this year. If I translate the FX, it would be smaller than $100 million drag. What is driving that headwind for FX on margin. And also what is the net price in commodity? Is there a commodity headwind we should be thinking about to?

Varun Laroyia
Chief Financial Officer at Aptiv

Yeah. It's Colin, it's far now. As I mentioned earlier, with regard to the Mexic -- the Mexican peso, we are largely hedged. So even a weakening of that currency really doesn't bring us any tailwinds. And then with regards to the other commodity where we actively participate from a hedging perspective is copper. And then that's the other area where we essentially are hedged also. So again, it's all about managing risk for us within the FX and the commodity side of it. Clearly, there are some elements with regards to what credit policy and stuff is coming through. And you know with the US dollar, we're still see some fluctuations out there. And while we are largely hedged for some of the major currencies, we do see some risk out there.

Kevin P. Clark
President, Chairman at Aptiv

Yeah, maybe if I can add to it, just so I think, think, Colin, the headwinds on FX are largely euro and RMB related, okay. When you think about '24 to 2025, so just that sort of walk. As Run said from a copper standpoint, that's largely indexed with our customers. So that hedge remains in-place. We hedge incremental amounts above what's not been what's not indexed, but that's not a huge amount. Those are -- those are the big pieces of that. As it relates to price and price recoveries, our expectation, I think we've talked about it is pricing to be somewhere between 1.5% and 2%. Historically, we've done a good job managing through that, as you know. We have some element of price recoveries in our plan, not remotely close to what we've had in historical periods. But there still is some element of labor recovery, especially as it relates to Mexico and still a few items related to material inflation from prior periods that we need to close out on.

Colin Langan
Analyst at Wells Fargo & Company

Yeah got it. And we talk a lot about trying to catch-up with the mix with locals in China. There is growing concern about the profitability on that business because the product cycle is so short, it's kind of hard to sort of get your costs back from all the upfront investment. Any color on how your margins with China locals look today and whether you're able to kind of get the added sort of tooling costs given the shorter life-cycle of products over there?

Kevin P. Clark
President, Chairman at Aptiv

Yeah. So first, we're very selective in terms of those programs and customers we're pursuing. As we mentioned -- you've heard us mention previously, we're really focused on those that want to either export or expand manufacturing outside of China. We feel like we can bring more value in those programs, quite frankly have less price pressure. On average, you do see a lower margins on those programs. We've been able to balance it to date or I should say lower pricing on those programs. We've been able to balance it to date with further cost reductions. So our China team is has been consolidating footprint as an example, to the extent we're investing in the development of new technologies, we're getting support from the Chinese government to the extent we're investing in engineering, we've used the opportunity to ship footprint out of, for instance, Shanghai into other locations west to lower our overall costs. And again, not only the hourly cost differential lower, but we've been able to get pretty good support from the Chinese government in terms of enabling that, both from setting up facility standpoint as well as subsidizing the employees. So.

Colin Langan
Analyst at Wells Fargo & Company

Got it. All right. Thanks for taking my questions.

Operator

We'll move to our final question from Tom with RBC Capital Markets.

Gautam Narayan
Analyst at RBC Capital Markets

Thanks for taking my question. The first question is on AFC WEX. We heard from one of the D3s last night that they are at a critical point in deciding on what to do with advanced autonomy, whether they work in-house or do more partnerships with others. And we've experienced here guys Level 2+ demo at CES, quite impressive, not overly costly. Just curious if in recent months, you've experienced an increase in interest for advanced autonomy and on the flip side, the UX side, it seems to be structural kind of impediments there. Just curious how you see that business playing out, if there's things you could do to reverse any structural issues there?

Kevin P. Clark
President, Chairman at Aptiv

Yeah. No, Tom, good questions on both. So I would -- we would say that we're in more discussions with more OEMs as it relates to advanced ADAS. They like our cost-effective solution. I think several of them are dealing with kind of vehicle architecture decisions, platform mix decisions, which is making that decision and that process play-out over a longer period of time. There's a lot of interest, lots of interest in our solution given its cost. I think fewer of the OEMs are now of the view that there are certain aspects of this that our religion and they need to own that there's a more cost-effective approach from a supplier standpoint, especially in our case where we've developed solutions that are open architected that gives them flexibility to contribute to the platform, to do more to do less on and even supplier alternatives, whether it be on the SOC or it be on the perception system.

So we're trying to present them with the flexibility -- that flexibility. So we're in the midst of negotiation/discussions with multiple OEMs across the globe now. I feel like that will translate into significant bookings during 2025. I'd say a few of the decisions dragged out of 2024 into 2025, but we keep working at it. As it relates to UX, we have some programs that we're working on now that we expect will translate into awards. You're right, the traditional infotainment model that operated within automotive five years ago. It's very different today.

Our real focus is in and around the software or the cockpit controller with end-user experience, especially given the trend to see the up integration of the user experience to domain controller into the ADAS controller. So that's a place that we continue to play. There's a couple of large pursuits that we're in the midst of at this point in time awards that will position that business for stronger growth. And listen, we continue to evaluate our entire product portfolio in terms of where it sits, what it's enabling for our customers, what the return is and how do we maximize value for shareholders. So that's one of the areas that we consistently, just given some of the changes we're consistently evaluating.

Gautam Narayan
Analyst at RBC Capital Markets

Okay. And a quick follow-up, Bob. On that semis topic, just the shortfall you see. Is that -- is this company-specific or is it like an industry-wide dynamic or something you were always expecting?

Kevin P. Clark
President, Chairman at Aptiv

Yeah. Yeah. Our concern is an industry-wide dynamic with the advancements in AI and the need for more compute, that you're going to see more pull into computers, into laptops into other areas. So a possibility that you see a shortage of semiconductors in areas that were similar to what we saw back a few years ago. So we're going to monitor the situation very closely for all over this and to the extent we start seeing extended kind of periods in terms of order and delivery of product, we'll start ramping-up investment in inventory. If we don't see it, we won't -- we won't make the investment, but we thought it prudent to include in our outlook for free-cash flow.

Gautam Narayan
Analyst at RBC Capital Markets

Thank you. Got it. Thank you.

Operator

Thank you. And that will wrap-up the Q&A portion of today's call. I will now turn the conference back to Mr Kevin Clark for any additional or closing response. Thank you.

Kevin P. Clark
President, Chairman at Aptiv

Thank you everyone for participating in our call. We appreciate you joining us and look-forward to seeing all of you in the upcoming NDRs and other conferences that we'll be attending. So thank you very much and have a great day.

Operator

[Operator Closing Remarks]

Corporate Executives
  • Jane Wu
    VP of Investor Relations
  • Kevin P. Clark
    President, Chairman
  • Varun Laroyia
    Chief Financial Officer
Analysts

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