Good day, and welcome to the Aptiv Q1 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.

Thank you, Jess. Good morning, and thank you for joining Aptiv's First 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 aptiv.com. Today's review of our financials exclude amortization, restructuring and other special items and will address the continuing operations of Aptiv. The reconciliations between GAAP and non-GAAP measures for our first quarter results as well as our 2024 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, Aptiv's Chairman and CEO; and Joe Massaro, Vice Chairman of Business Operations and Chief Financial Officer. Kevin will provide a strategic update on the business, and Joe will cover the financial results in more detail before we open the call to Q&A. And with that, I'd like to turn the call over to Kevin Clark.

Thank you, Jane, and thanks, everyone, for joining us this morning. Let's begin on Slide 3. Operationally, we had a strong start to the year, demonstrating our ability to execute despite some headwinds. Touching on a few highlights. New business bookings reached almost $13 billion, reflecting the continued demand for our industry-leading product portfolio. First quarter revenue was just under $5 billion, representing adjusted year-over-year growth of 2%, impacted by continued slowing of electric vehicle production in North America and Europe production and increased labor inflation and earnings per share increased 27% to $1.16. Lastly, we repurchased $600 million of stock during the quarter... Hello. Apologies we seem to have had a technical difficulty. So if it's okay, I'll start from the beginning. So again, thanks, Jane, and thanks, everyone, for joining us this morning. Let's begin on Slide 3. Operationally, we had a strong start to the year, demonstrating our ability to execute despite some headwinds. Starting on a few highlights. New business bookings reached almost $13 billion, reflecting the continued demand for our industry-leading product portfolio. First quarter revenue was just under $5 billion, representing adjusted year-over-year growth of 2%, impacted by continued slowing of electrical vehicle production in both North America and Europe. EBITDA and operating income totaled $720 million and $544 million, respectively, representing more than 20% growth and roughly 200 basis points of margin expansion, reflecting benefits from productivity initiatives and cost actions, which offset lower vehicle production and increased labor inflation. And earnings per share increased 27% to $1.16. Lastly, we repurchased $600 million of stock during the quarter, bringing the total amount of shares repurchased to $900 million over the last 2 quarters. In summary, the team did an exceptional job delivering solutions to our customers, while at the same time, increasing operating…

Thanks, Kevin, and good morning, everyone. Starting with the first quarter on Slide 11. Aptiv delivered strong financial results in the quarter, reflecting robust execution across both segments and continued progress on our cost savings and margin improvement actions, resulting in operating margin improvement of 200 basis points over the prior year. Revenues were $4.9 billion, up 2% or 3% above underlying global vehicle production, which was down 1% in the quarter. Growth was negatively impacted by the continued slowing of battery electrical platforms in the quarter, particularly in North America and Europe, where we saw our high-voltage revenue down 2% and 6%, respectively. Revenues on ICE platforms and high-voltage solutions on hybrids were up 2% and 26%, respectively. As I will discuss shortly, given the continued weakness in electric vehicle production, including significant customer schedule reductions over the past few weeks, we are revising downward our 2024 outlook for the year. Adjusted EBITDA and operating income were $720 million and $544 million, respectively. Operating income margin expanded 200 basis points versus prior year, in part driven by cost reduction and recovery programs put in place in 2023, as well as continued achievement of our operating performance initiatives, including the continued rotation of our engineering footprint to best cost locations. The year-over-year FX and commodity impacts were negligible. Earnings per share in the quarter were $1.16 and increased 27% from the prior year, including year-over-year earnings growth of 24%, partially offset by higher tax expense. And share repurchases completed in 2023 in the first quarter of 2024 added approximately $0.03 to EPS in the quarter. Operating cash flow was strong, totaling $244 million. Capital expenditures were $265 million, and share repurchases totaled $600 million. Looking at first quarter revenues on Slide 12. As noted, revenue of $4.9 billion was up…

Thanks, Joe. I'll wrap up on Slide 21 before opening the line up for questions. Overall, our strategy remains unchanged, while the industry navigates the near-term headwinds. We'll continue to provide flexible, high-performance, cost-effective solutions to our customers that enable the transition to the electrified software-defined vehicle. We remain focused on thought execution and operational excellence, which enables us to delight our customers while optimizing our cost structure to expand margins and deliver value to our shareholders. We executed well in the first quarter and are laser focus on continuing to execute, which will position us well for the remainder of the year. Operator, let's now open the line for questions.

[Operator Instructions] And we will take our first question from John Murphy with Bank of America.

Just wanted to ask first on the customer side and then second on automation. Just first on the customer side, Kevin, the wins with the Japanese OEMs and the radar and to the high voltage on the hybrid side, sounds like a real positive. I was just curious if you can comment about where you stand with the Japanese because as I understand, they're very small in the book of business right now, but are they growing? And then also just on the Chinese OEMs, you mentioned that they were looking for locally sourced semiconductors, which I guess makes kind of sense. But it just kind of, I think, makes people nervous that they might be looking for more locally supplied everything. And I'm just curious how they view you, Aptiv, as a supplier as being sort of a local or maybe a U.S. kind of a supplier to Japanese and Chinese potentials?

John, I guess we had your second half of the question. The first half, you broke up a little bit with respect to, I think, it was a mix of electrification bookings or revenues.

No. On the first part of the question is the potential with the Japanese, right? I mean it sounds like you're making more headway there than you have in the past on the radar and then the high voltage just on the hybrid side. So it sounds like there's a real opportunity there that's beginning to grow.

Listen, let me start with the second part of the question or the second question, and I'll come back to the first. As it relates to the Chinese OEMs, especially the Chinese local OEMs, the reality is they are looking for local sources. And it's one of their objectives to localize the supply chain. As you know, we've had this conversation. We've been in China for close to 30 years and have operated in China to serve the China market. So I think it's best as possible that you view us as a local supplier given the fact that we have fully localized capability for that particular market. Our customers have come to us asking us to make sure that we focus on developing the, call it, Tier 2, Tier 3 supply chain to provide them with solutions. As you can imagine, given some of the geopolitics, they are especially focused on the semiconductor space. So that is an area just again, given the strength of our supply chain and our historical presence in the market we had some capabilities over the last 2 years especially post the semiconductor crisis in 2021 and 2022. We doubled down on enhancing our capabilities in that particular market. I think I've mentioned previously, we're partnering with over a dozen semiconductor manufacturers in China to deliver their solutions to the automotive market in China. And that's from SoC down to the peripheral sort of semiconductor chips, so that' an area of focus. Alternatively, we have a number of non-Chinese OEMs who are very focused on cost reduction and material savings. We're presenting these opportunity to several of them are interested in the options, and we'll report out when we actually have commercial OEMs [indiscernible]. As it relates to the Japanese -- recent Japanese awards, especially on the ADAS side as well as on the plug-in hybrid and BEV side, listen, over the last couple of years, we've been increasingly focused on Japanese OEMs, especially Japanese OEMs and the Japanese market. So I think it's the net result of the progress we've made. And quite frankly, the momentum we've built with several of the players like Honda, like Nissan. And now we're starting to make progress with the largest Japanese OEM. So...

And just one quick follow-up on the automation comment. I mean you said 30% by 2026, 50% by 2030. I mean what's the baseline that we're starting from now? And what would that mean as far as labor as a percent of total sales? I'm just trying to understand if this is a cost savings program, cost mitigation program or just what you're going to have to do going forward?

It's really -- it's all of the above. So it solves the problem related to availability of labor. It solves a problem as it relates to cost of labor and quite frankly, it solves a problem of complexity of overall vehicle architecture in the past to more of a software-defined vehicle smart vehicle architecture. Those savings are as a percent of labor hours. So I don't have off hand the average number of labor hours on an average wire harness, but it's a 30% reduction in those labor hours. So it would be a significant cost savings, as you can imagine.

And baseline on automation right now that we should think about?

Baseline right now, we're running at roughly 15%.

Our next question comes from Itay Michaeli with Citi.

Just 2 questions on my end. First, on the Gen 6 award, can you maybe share kind of what the CPV on that award is, maybe what the rest of the pipeline looks like? Could this award now catalyze additional wins. And second, maybe just -- it looks like you're sticking with the long-term 6- to 8-point GOM framework. Maybe talk a little bit about that? Is there maybe now a bias more towards the lower end of the range? Or could GOM potentially even accelerate next year?

I'll answer the first question, maybe Joe can answer the second. As it relates to the Gen 6 ADS award, I don't want to give specifics because from, as you can imagine, from a pricing standpoint and somewhat sensitive commercially and competitively. We've talked in the past about L2+ sort of L3 content per vehicle -- this particular program in addition to our ADAS platform has our in-cabin sensing solution as well as the full suite of Wind River both embedded and studio solutions. So as you think about that, you should think about it being roughly in that traditional range that we've talked about, given what we're doing from an AI/ML standpoint with our radar solution, given our overall approach to sensor fusion. I guess we've talked in the past, our overall Gen6 ADAS platform can deliver anywhere between 15% to 30% savings to our customers, depending upon the configuration of the platform. So it's a very competitive solution.

And Itay, it's Joe on growth over market, yes, since with the prepared remarks, I think we're closer to the 6% of that range based on how we see 2024 today. Obviously, too early to rack up 2025, particularly with just some of the dynamics we've seen in customer schedules over the past -- really, over the past month. But I would think it's within that 6% to 8% range. I certainly wouldn't go up above that at this point.

Our next question comes from Joe Spak with UBS.

Joe, maybe to start, just AS and UX margins in the quarter, really strong, I think, a large surprise versus Street expectations. Anything going on there specifically in the quarter we should think about? And how should we think about the margins in that business over the balance of the year?

Yes, Joe, I would say nothing stands out in the quarter from a sort of a one-off perspective, certainly nothing material. I would say we've been working very hard on those margins for a long period of time, as you know, with both the supplier side of things and then taking cost out of the business. We have some cost actions that we put in place last year. This engineering rotation has been going on for a period of time. So you'll -- I think you're talking about sort of seeing the high 10%, call it, 10.5% to 11% margin in that business being maintained certainly for the full year. It's going to be -- it's a little lumpy. Q3 is obviously a little lower for us at times. But I think that's where we're starting to see this business and should come out of the year, call it, in the mid-10%.

Okay. And Kevin, I just want to go back to the China conversation and a couple of things here because, obviously, there's a lot of volatility. There's a lot of new players. You see emerging players like Xiaomi and Huawei. So maybe you could sort of give us a sense of how you think your positioning is with some of even the new emerging players? And we all saw the news about VW and Xpeng on the electrical architecture. What does that mean for your prospects going forward in China back to John's question about one competitiveness, I guess, of vehicles in China, but also a desire for Chinese supply chain.

Yes. Listen, as you know, as I said, we've been in the China market for a long period of time and clearly, the market has rotated from dominance by the multinational joint ventures to a much stronger localized Chinese -- only local Chinese OEMs. Over the past 3 or 4 years, we've talked about the rotation of our bookings and the mix of our bookings significantly rotating from the multinationals to the locals. I think over the last couple of years or so, our bookings -- dollar value of our bookings is lawfully matched, the mix change between the Chinese locals and the multinational JVs. We're still a little bit behind that from a revenue standpoint, but it's well over 50% that now is with the local Chinese OEMs. A significant portion of our bookings last year and this year, we'll be with the Chinese locals. So that's an area where we think we'll continue to close that gap over the next 12 to 24 months from a revenue standpoint. There are several of those the leading Chinese local OEMs who are very focused on export to Europe and possibly to North America as well as manufacturing in Europe and North America. I would say we are working now with virtually all of those who are entertaining that who are looking for supply solutions that meet the requirements of the European and the U.S. markets, which tend to be a little bit different from what's in the China market. So we feel like we're well positioned for both growth in China as well as very well positioned as they decide to either export or move production outside of China, Joe.

Okay. Maybe just one quick follow-up. I know you mentioned that the mix of business within China is sort of moving, and it sounds like it's now over 50-50. But what about like if we just think about your overall bookings, like what percent of that is domestic China? Do you have a sense?

Yes. In China, we're running the exact number or probably close to 70% local bookings versus the multinational JVs. Last year, we were up over -- well over 60%. So it's been certainly moving in that direction. And it should I guess a year to 2 years.

Sorry, like of the $34 billion, $35 billion or whatever, like how much of that is China is local Chinese players?

Take 70% of $6 billion. So...

We'll go next to Chris McNally with Evercore.

Two questions, one pretty simple. Just Joe, you mentioned new margin for [ AS ] at 10.5%. Does that sort of imply we think SPS is probably on the lower end of something more like 12% to 13%. That's probably where you have more of the pace of exposure.

Yes, 1 second. Chris. Let me make sure I give you the right number. SPS 11.2% in Q1, yes, I would say you're in the, call it, 12% to 12.5% for coming out of the year.

And then the same, the growth over market split, ASUX probably high single digit and SPS because of the high voltage now at 5%. Is that closer to 3% or 3% to 4%? What's the split on growth over market...

I'd say low to mid-single digits on SPS, yes.

Perfect. And then the second question is a bigger question. When I think about capital allocation, obviously, $1.5 billion for the buyback this year, use words like opportunistic. Obviously, your stock at a very low multiple. But when I look at the free cash flow generation over the next couple of years, anywhere from $1.2 billion this year to $2 billion in the next couple of years, could this sort of level of buyback or sort of this new priority be something that stays for a multiyear basis? Traditionally, you've been a lot more acquisitive or bolt-on the large acquisitions. So I'm just curious if this could be something that's more sustainable higher level buyback for a multiyear basis, at least until the stock rerates.

Yes, Chris, I think at current levels, it's fair to assume we continue to buy back stock at fairly healthy levels. The reality is we view our stock is undervalued. Obviously, we'd like to see stock price appreciation and important part of what we're trying to do is to build out our capabilities in and around the software stack as we've talked about, and quite frankly, diversify our revenues further in the industrial markets as well. So we would like to assume that there's a fair amount of acquisition activity that happens during 2024, 2025 and beyond.

We'll move next to Shreyas Patil with Wolfe Research.

Maybe just thinking about where the underlying growth rate is for the business today. So you're pointing to 6 points of growth over market for this year. I know there are a lot of puts and takes, but I think in the bridge that you had provided last quarter, it implied about maybe 2 points of tailwinds from price recoveries, for example, that were tied to semiconductor inflation last year. But there are also mix headwinds in China, where it sounds like you're mitigating with new launches. So just trying to get a sense of where the underlying rate of growth is today as you see it.

Yes, sure. I'm not sure I get the pricing comment or the recovery comment. But listen, I think our long-term view, the framework is 6% to 8% in a flat market, right? So that growth over market is generally consistent with the adjusted growth rate. Obviously, we move a bit with vehicle production. We're obviously working through the high voltage headwind at the moment. We've seen those schedules come down. But as I talked about in my prepared remarks, we're seeing good hybrid growth. We're seeing the internal combustion volumes come back up. So -- and Kevin talked about, from a portfolio perspective, sort of fully capable of servicing all powertrains. There's really no capability or product line that we lack from that perspective.

Okay. I guess then from thinking about the incremental performance savings that you're expecting this year, are those tied to the automation initiatives you're talking about? Or is that more of the footprint actions like in SPS?

Automation will be longer term, as Kevin talked about. We've -- at the end of last year, second half of last year, really started to focus on -- and again, right, the business has changed a bit. So if it shouldn't surprise folks. We've looked at the cost structure. We've had a salaried overhead reduction, took out some overhead. We always do that. We've been pretty vigilant over the past 10 years at least of managing that cost structure. And really, what you're seeing now is the benefits of that as well as what we talked about at Investor Day. I mean, I appreciate the high-voltage revenues come off. But a lot of other things we talked about at our Investor Day are on track, right? We talked about that engineering rotation. We talked about getting engineering down as a percent of sales. We talked about, as you'll recall, that performance bucket with a few hundred million dollars of performance initiatives every year between '23, '24 and '25. And we are ticking the boxes on those, and that's where you're seeing that margin improvement.

Okay. And then maybe just a quick last one is just on FX. You didn't see much of an impact in the quarter, but it looks like the headwind's going to be for the rest of the year. I mean last year, when we saw the peso strengthening was kind of the opposite effect where it was largely impacting you in Q1. So maybe just trying to think about how much of that FX impact is peso versus RMB? Just trying to get a sense of that.

RMB's in there. The peso is the more significant. Listen, I think you got to distinguish between the actuals year-over-year and the guide, right? The actual -- the peso, unfortunately, in Q1 is pretty consistent with where it was in Q1 of last year between the 16 and low 17s. So that's why there's not a significant impact on a year-over-year basis, comparing actuals to prior year actuals. The guide we had at MXN 18.25, as I said in my prepared remarks, we expect that peso to strengthen over time. It is obviously not happening. And I think our view, as we do with most macro headwinds, once it's clear, they're not abating, is we put it into the guide and we take out cost to offset it. And that's effectively what we've done. We also, as I said, have a benefit of a hedge we put in place where 90% of our peso exposure is protected below MXN 17, which is why we pegged to the MXN 17 rate.

We'll go next to Mark Delaney with Goldman Sachs.

You took your view for high-voltage revenue for '24 to 5% from 20%. Beyond this year, does have to think a 20% CAGR in high-voltage revenue still achievable? And does the composition between BEVs and PHEVs changed at all as you think about the longer-term high voltage outlook?

Yes, I'll start with our customers and knowledge with our customers, our customers are still pushing forward with the introduction of battery electric vehicles. So you can hear from their public statements that they're still standing behind them and certainly pushing in that direction. In addition to that, they're talking about launching incremental plug-in hybrid or hybrid programs as well to augment their overall product portfolio. So likely near-term. Our general view is you'll see a richer mix of plug-in hybrid relative to what we've had historically. On a go-forward basis, from an overall growth rate of electrification, we'll see. Obviously, it's been a couple of challenging quarters as it relates to our high-voltage revenue growth. As Joe and I have mentioned, over back end of the quarter and in April, we saw a significant reduction in schedules. They seem to have stabilized. But as we get closer maybe the middle of the year, we'll be able to give more visibility as to what we think that growth rate looks like. But I think it's fair to assume you're going to see more plug-in hybrid mix relative to battery electric vehicle mix.

Second question I had was on margins. You had your best 1Q EBIT margin, I think, since 2018. Can you talk a little bit more on what led to the margin strength in the first quarter? And specifically, how much of the footprint actions may have contributed? And typically, 1Q is the seasonal low point for the year, but can you talk about how 1Q may compare to the normal seasonality with EBIT margin is? Is it more of a typical year or something more unusual in 1Q from 2024?

Yes. Maybe I'll start. Listen, I think you go back to 2018, we went through COVID 2020, 2021, and then we went through semiconductor challenges. So we had 3 years there that were extremely choppy from an overall operational standpoint and margin standpoint. We feel like the macro environment is largely at least stabilized from an availability of products to keep the supply chain full. So we're able to operate much more efficiently and effectively as are our customers, as are our suppliers. So it gives us greater ability to plan. As Joe mentioned in his prepared comments, we're always focused on reducing costs, but we did spend a year or so really focused on keeping our customers connected. And since 2023, when things stabilize, we've been really, really hyper-focused on how do we significantly reduce our cost structure that through operational initiatives within the four walls of our plants as well as initiatives in our engineering factory as well as continuing to reduce our overall overhead. So I think I mentioned, we reduced payroll -- salary payroll last year over 10% by delayering, by consolidating, by making the organization operate more efficiently, that's something we'll continue to do. Typically, this is a business where you see margin expansion from first half to back half because back half tends to have more production than the first half than the first half does. We'll see how this year plays out. There's a little less clarity right now as we sit here based on what we've seen over the last month, but we'd expect to see continued operating improvements, including continued performance improvement really across all aspects of our cost structure. So it's everything. It's really everything.

We'll go next to Dan Levy with Barclays.

Wondering if you could just address a couple of points on active safety. Any voice over on the solid results in the quarter, I think it was up 25% or so? And then is the expectation to still see 20% plus growth in ADAS for the year? Are you still seeing launches content growth intact?

Yes. Yes. So as Joe mentioned, we're launching across -- we're launching both new programs as well as launching existing programs across a broader set of models within OEMs. There continues to be increasing significant consumer demand for active safety solutions. It's something that our customers are clearly looking for. So it continues to be an area that we believe we'll see strong revenue growth.

Dan, it's Joe. We'll be -- we're forecasting 20% plus a little bit over 20% for the year. So we'll have a -- like things as we go back to just the old way the business is historically run. It won't show perfectly straight every quarter, but we go into some very heavy launch activity, as I said in my prepared remarks in the back half of the year -- launches run up and then ebb a bit. But no, that business is strong, and we see that continuing. As Kevin mentioned, we had close to $2 billion of bookings in this quarter alone on active safety. So we continue to see very strong traction on active safety.

Great. And then as a follow-up, wondering if you could just provide some comments on the price versus inflation dynamics. Inflation, and you talked to some incremental inflation coming into the cost structure this year. Is that coming in as planned? And then how much pricing did you get in 1Q? And what's the pricing outlook for the year? Are we back to sort of typical 1.5%, 2% price down? Is there any offset that you're getting in your commercial discussion?

Yes. Dan, I would say the dynamics move from direct material inflation to very much labor inflation. But we're obviously in discussions with customers around issues, around labor inflation. Some of that's recovery. Some of that, as Kevin mentioned, is going to be leaving places like Mexico that are becoming too expensive, and reducing labor in those places to Kevin's point on automation. So I would say we've seen significant slowdown in sort of those direct material costs that needed to be passed through with customers, and it's more of an inflation discussion around labor and those -- there's a couple of levers we have to pull on those. And like we talked about, we've started to take cost actions to deal with it, and I think there'll be a number of things that you see. I think long-term, and we've said this for a while, we'll return to that net price was right around 1.7% before all the material inflation. We expect that to continue long-term. I'd have that in the outlook. But I think labor inflation is something we'll deal with both at the customer level to the extent customers don't want to relocate facilities or get serviced out of other countries will have increases. And in other cases, we will move the plants.

Got it. And then just within the quarter, what was the pricing? Because I said price commodities was one bucket.

Price commodities, because you got the copper inflation in there as well was -- it was about $35 million positive on the revenue line.

We'll go our next question from Adam Jonas with Morgan Stanley.

So Kevin and Joe, nobody knows electrical vehicle architecture and active safety, combined, better than you. I mean nobody. So I'd be curious, in your opinion, from a user experience and from a capability perspective, do you see an advantage of Level 2+ systems fitted to a software-defined electric vehicle versus the capability and experience of the same system attached to an internal combustion nonsoftware-defined vehicle system?

Yes, that's an interesting question. I'm not sure -- and if the consumer experience ultimately would be better on an electric vehicle with a BEV vehicle architecture versus this architecture around an internal combustion engine. I think what we would say ultimately is the BEV architecture would be more optimized and ultimately would allow for savings both from an architecture standpoint and from an ADAS system standpoint, right, and would enable a much more optimized vehicle architecture, hardware architecture as well software architecture. So it would provide more flexibility as it relates to upgrades, enhancements, things like that, it would make it easier. And maybe the way I would translate easier is into more cost effective. So that's one of the kind of our views as we take a step back, we can't perfectly predict the timing of all aspects of the future, but we still believe there's a significant momentum towards electrification, towards smart vehicle architecture, towards a software-defined vehicle. And it all comes down to performance and cost, and there's an element of gravity there.

I appreciate that, Kevin. And I'm also -- just as a follow-up, people in the robotics community are describing 2 years ago as the good old days and that there seems to be a revolution in the last couple of years with large language models and GenAI now rolled into multimodal models with visual learning models to help autonomous systems and robotics learn faster and better without as much of the rules based to really kind of attach to the flywheel of AI. I'm sorry if I'm speaking in platitudes here, but I think you know exactly what I'm talking about. I'd be curious if, a, you agree that there have been some profound changes in AI's role of on robots in a car form factor, which is something you enable, and how that might be changing the decisions that you make and how your capital is deployed?

Yes. It's -- that's a great question and a complex question. Listen, I agree that AI/ML is changing. it's changed a number of things. And you're right, it actually changed how we approach a number of the products that we develop like radar solutions, right, is a great example, any perception solutions. So I think it's a pretty easy argument to make today that the utilization of tools like AI/ML allows the advancement to move much faster at a much lower cost. And we're seeing that and we're benefiting from that. And that's one of the big benefits about this Gen 6 ADAS platform that we've talked about. Use of AI/ML allows us to drive down the cost of the perception system, which allows us to actually reduce the compute on this particular platform and reduce cost. I think one of the items that -- so we're using AI/ML. One of the items that we think is somewhat unique relative to the automotive industry, and I guess one could debate whether it's necessary or not, but the concept of safety and traceability and the complexity that things like AI/ML can introduce to that in terms of lack of traceability, makes that calculus a bit more complex. And when we sit down with our customers today and talk about how systems that are integrated operate, they want to know why things or how things fail or how they can determine things fail. Now we'll see if that changes at some point in time in the future. But now it needs to be a balance between an element of the traditional rules based and a full AI -- generative AI/ML based.

And we will take our final question from Tom Narayan with RBC.

I'll try to be real quick. On SPS, 3 powertrains, you talked about ICE, hybrid, plug-in hybrid. Europe seems to be growing more a lot of hybrid growth. China is more plug-in hybrid, let's say, maybe the U.S. is more ICE. Just curious, as these kind of dynamics change, how does that impact your guys S and PS business? Is it easy to pivot? Is there kind of retooling involved to try to change these different powertrains? Or is it just really just straightforward?

It's a different product line. So it's pure BEV product. So whether it's a bus bar or it's a connector for a battery electric vehicle or a harness, it tends to have a specific set of equipment with specific tools. A lot of those are within existing facilities that we had to produce products for both low voltage as well as high-voltage solutions. So there's some ability to pivot there. When you think plug-in hybrid and hybrid, there's some overlap between that product portfolio that goes on a BEV vehicle that would also go on a plug-in hybrid or hybrid vehicle. So there's some work that needs to be done, but it depends on the specific situation and oftentimes, it's not real significant to shift from one to the other.

Yes, it's not something outsized, Tom, that you'd see like pop up in CapEx or something. I think it could be managed within the existing business and financial framework.

Yes. The other thing that's come up, there's some pretty big legacy OEMs who reported results this past week, commenting on their efforts to like reduce their dealer inventory levels. We saw some big just general production cuts in the quarter. I mean they're all saying they're going to do big H2s. But I'm just curious if you're seeing or hearing any just overall high-level downside to overall global production, which would impact all powertrains?

Yes, that's -- we brought our outlook for vehicle production down a point. The biggest piece of that is that is BEV related, as Joe and I have talked about. There are some OEMs that we've seen an increase in production schedules for products that have internal combustion engines, but net-net, BEV production is down.

Yes. As I said in my prepared comments, Tom, April was a month of schedules coming down with a few exceptions. There are some ICE platforms that popped up. But I would say both legacy global OEMs and global EV-only OEMs, we saw schedules come down in the past 4 or 5 weeks and that's really what -- that's what is driving the takedown in the top line.

That will conclude the Q&A session. I'd like to turn the conference back to Kevin Clark for any additional or closing comments.

Thank you, everyone, for taking the time today to listen to our earnings call. I apologize for the technical problem at the start. Take care and have a good day.

Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.