Greetings and welcome to the Q4 2020 Results and 2021 Outlook Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Friday, February 19, 2021. I would now like to turn the conference over to Mr. Louis Tonelli, VP, Investor Relations. Please go ahead, sir.

Thanks, Maria. Hello, everyone and welcome to our conference call covering our 2020 results as well as our ‘21 outlook. Joining me today are Swamy Kotagiri and Vince Galifi. Yesterday, our Board of Directors met and approved our financial results for 2020 as well as our financial outlook. We issued a press release this morning outlining each of these. You will find the press release, today’s conference call webcast, the slide presentation to go along with the call and our updated quarterly financial review all in the Investor Relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions and uncertainties, which may cause the company’s actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today’s press release for a complete description of our Safe Harbor disclaimer. Please also refer to today’s reminder slide included in the deck related to our commentary today. This morning, we will cover our 2020 highlights and our Q4 results. We will then provide our ‘21 outlook and lastly, run through our go-forward financial strategy. And with that, I will pass it over to Swamy.

Thank you, Louis and good morning everyone. I am excited to be speaking with all of you again, especially in my new role as CEO. Before I start, I would like to thank Don, who has been a great leader and mentor to me, helping me prepare for this succession for a number of years and the result has been a smooth transition. Today, I will recap 2020, comment on our results and briefly cover our positioning in the industry. When we think about 2020, the first few things that naturally come to mind are COVID-19, difficult year and life changing year, each of which I know we can all relate to. Having said that, I am extremely proud of the way we have navigated through the pandemic and the outstanding rebound our operations had in the second half of the year. You are going to hear a lot of information today. But bottom line, we are able to recover quickly. No one has been immune to the impacts of COVID, including the severe declines in industry production experienced in the first half of the year. However, production volumes started to recover at the end of the second quarter and the recovery acceleration in Q4 across our key markets, leading to very strong operating performance for the quarter. Relative to Q4 2019, sales increased by 12%, and our adjusted EBIT margin expanded by 410 basis points. Our adjusted EPS more than doubled to a record $2.83 and we generated $1.7 billion of free cash flow. We also grew our dividend for the 11th straight year. Vince will share more details around our performance, but I wanted to highlight that these positive results are a testament to our employees, who have executed in the midst of challenging circumstances throughout the year.…

Thank you, Swamy and good morning. I hope everyone is staying safe and healthy. I am going to do a shorter version of our quarterly review, including on our segments to allow more time for our outlook. More detail is included in our appendix. 2020 of course was significantly impacted by COVID-19. Sales declined 17% for the year. However, on a Magna weighted basis, our sales performed 4% better than production for the year. This continues the trend that we have seen at Magna for many years. And considering the dramatic decline in sales for the year, we posted an impressive 5.1% adjusted EBIT margin. 2020 was in many ways a tale of two halves. The first half was severely impacted by the pandemic. Sales were down 37% and in the second quarter, we posted our first operating loss since The Great Recession of 2009. However, across the company, we took steps to reduce discretionary and structural costs as well as capital, which helped us set – which helped set us up for a return to strong performance when the industry began to recover in the second half of the year. Let me briefly cover off the fourth quarter. Total sales were $10.6 billion, an increase of $1.2 billion over the fourth quarter of 2019. This represents 6% weighted growth over market for the quarter. Our sales were positively impacted by new program launches, the negative impact of the labor strike at GM in 2019, currency translation, which was about a $285 million tailwind higher vehicle production and increased assembly sales. Adjusted EBITDA increased 86% to $1.1 billion. Our adjusted EBIT margin also increased by over 400 basis points to 10.4% in Q4. The increase in margin mainly reflects pull-through on higher sales, improved operational performance, the labor strike of…

Before we look ahead to 2021 and beyond, I wanted to take a step back and share some thoughts on what makes Magna unique and why we are well positioned for the industry changes. I will keep this brief for today, because we will go further into this at our April investor event. Our story really starts with our business model. While our business pans individual product areas, all the way to complete vehicles, we are one company that is a top three player in most of the areas where we compete, takes a system-level approach that allows us to think like an automaker and optimize solutions and our building block technology strategy meets the different customer needs with scalable, modular and easy-to-integrate configurations. Additionally, we are deliberate and disciplined in our actions. We enhanced cash generation through our world class manufacturing initiative. We continue to invest and drive innovation, in particular, in high growth areas as you have heard in our past calls. Magna’s performance is made possible by the DNA of the company, which comprises our people, the entrepreneurial culture and the deep expertise in manufacturing that allows us to consistently exceed customer expectations. Our capabilities and disciplined execution together enable a unique competitive position in mobility for Magna. Linking our unique approach with our alignment to the secular trends is what gives me confidence in Magna’s future. We continue to advance mobility with a sharp eye on the needs of people while also doing the right things for the planet. On electrification, we continue to enhance our portfolio of e-Powertrain products. Our joint venture with LG adds important building blocks to further strengthen our position, while also allowing us to participate in the fast growing global market for electrified powertrain components. Beyond this JV, our core business…

Thanks again Swamy. Our outlook reflects increased vehicle production in each of our key regions from the lows of 2020. In North America and Europe, our two largest markets, volumes in 2023 remain at or below levels experienced in 2019. With respect to the semiconductor shortage, we see near-term disruptions to OEM production. However, at this point, any shortage is expected to be made up by the end of 2021. We assume exchange rates in our outlook will approximate recent rates. This reflects a weaker average U.S. dollar relative to 2020, which positively hits our reported sales going forward. As I review our outlook, I will provide insight into some of the drivers of sales growth going forward for margins given the unusual nature of 2020, I will roll from 2019, which we believe is a more comparable full year starting point. I am going to start with our consolidated outlook. Before I do, let me briefly comment on our actions to simplify the legal structure of our three GETRAG joint ventures. In China, before the end of 2020, we disposed of our interest in its Dongfeng GETRAG joint venture, which had unconsolidated sales of less than $100 million last year and we obtained a financial controlling interest in our joint venture with Jiangling, which we call GJT. We also entered into an agreement with Ford to dissolve our GETRAG for transmissions joint venture based in Europe. As part of this transaction, we will assume one division of the joint venture located in Bordeaux, France. As a result, in 2021, we will begin to consolidate the results of the GJT business and their Bordeaux facility. This impacts both our sales and margins as we gain sales at a lower than average margin and we lose equity income. We expect consolidated…

[Operator Instructions] The first question comes from the line of John Murphy from Bank of America. Please go ahead.

Good morning, guys and congrats Swamy on doing this call all along. It’s a great call. As we look at Slide 28, there is a lot of moving parts, Vince as you have kind of alluded with the shifts in the GETRAG JVs. But it looks like this 10% to 12% CAGR would indicate sort of at the midpoint about 7.5% growth above market just doing some simple math. But with the sort of the other moving parts around the JVs that might not be quite correct, but I am just trying to understand if that is correct and what we should be thinking about growth above market, Vince?

Yes. Well, we have been talking about continued growth over market. I am just trying to find one page that kind of stripped out organic – or sorry, acquisitions and FX to give you what organic growth is. So if you have got that number handy.

Yes. Yes, I do. Yes, if you look at our expectations in the ‘20 to ‘23 timeframe, it would imply 1% to 3% outgrowth – weighted outgrowth over that period. And I would say that some of that – some of what’s being impacted there is complete vehicles, which is impacting us by about 1%.

Okay, that’s helpful. Yes, this must be some new parts that are – that make it a little bit different to follow-up on that. Second question on Slide 33, when you are talking about capital allocation and there is this 35% to 40% that is for incremental investments and share repurchases. I am just curious, Vince, as you think about this a lot of the auto tech have smaller companies have become very expensive. Obviously, with the SPAC boom, there is a tremendous amount of interest here. I am just curious as you go out there and you are doing your due diligence on trying to find good investments, are you running into much higher valuations and does this kind of preclude you maybe from making external investments and really more focusing on organic and share buybacks?

Well, John, that’s kind of interesting question certainly over the last little while, we have seen some valuation, especially for some of these startups increase in a pretty significant way. Our strategy hasn’t changed at all, obviously, invest organically. We got a really good business. And when I say invest organically, that’s more than just brick-and-mortar. It’s investing in engineering and building that core capability, developing – Swamy would always talk about the building blocks that we can provide a complete system solution to a customer. And given our unique position across the company, like we have shown with Fisker, I think we have got a real advantage. But having said all that, John, we still look at some of the newer technologies out there to always complement and add to our capabilities. And when you are looking at technology, some of the things you are always weighing out is if I wanted to try to do this on my own, what’s the cost, what’s the time to get this completed, what’s the risk associated with that? There maybe something else there that’s already 30% or 40% completed and you can look at that and say, well, that makes so much sense financially. So we are – we continue to look to continue to focus on, as Swamy talked about in his comments, some of the megatrend areas, which is a big focus for our organization. I expect, John, as time goes on we are going to continue to look at transactions – M&A transactions that help build our capabilities.

Yes. Good morning, John. This is Swamy. And just to add to Vince’s comments, in the past, we have talked about as a part of our technology mining process, we identify what we believe are important going forward for the car of the future. And through our scanning process, we have been able to work through universities, research institutions and startups at a very early phase it’s kind of a symbiotic goes both ways. We are able to bring, call it, the discipline, design for manufacturing and scale as they work through SPACs with some of these startups. And in the process, we have a very early viewpoint on where the tech is going. So that has also helped us to kind of address call it the necessities of the future for the car. That’s one way of how we are looking at tech, not wait for it to become already proliferated, right.

Okay. That’s helpful. And then just lastly, on the complete vehicle segment discussion, you said you mentioned higher earnings on engineering sales. I am just curious over time in spite of complete vehicle, however you want to classify it, there seems like there is a growing opportunity as you are getting more of these startups, in the Fisker that you are going to have engineering sales that might carry much higher margins. I am just curious how big a part of the product can become in your complete vehicle segment and what kind of opportunities do you see there?

So from a full vehicle capability perspective, John, I think we kind of look at it as going together, because the new entrants or anybody even the current customers when they come to us, they look at the overall capability that we bring, which is understanding the system interface is bringing all the systems together, looking at design for manufacturing. So, that part of engineering is, call it, the initial step towards the conversations, most of the time. And then it leads to the systems of Magna being supplied or the assembly of the full vehicles or sometimes both as in the case of Fisker. So, we think of our engineering capability as an enabler. In some cases, it is just engineering. In some cases, it’s both. So we see it going hand-in-hand.

Okay, thank you very much.

Our next question comes from the line of Itay Michaeli from Citigroup. Please go ahead.

Great, thanks. Good morning everyone and congrats. Just a question, obviously, strong 10.4% margin in the fourth quarter, it looks like on just over $42 billion of annualized revenue. As we think ahead, just want to maybe go through a bridge of what would prevent you from repeating that type of margin performance at that comparable level of revenue in the future? Maybe just talk about the puts and takes of the bridge going forward, maybe investments you are making and so forth?

Yes, hey, I talked about in my comments that 2020 is really not a good basis of comparison for the other years. I will tell you what I kind of looked at inside the organization, I look at the kind of margin run-rate in the second half of 2020 and kind of try to wrap my head around how does that relate to 2021. And if you kind of you look at the second half, our margins were – EBIT margins were 2%. Just two things you got to just knock off the 9.5% to kind of normalize that to what the run-rate was in 2020 – the second half of 2020. There is about 30 basis points of government support programs that impacted positively our margins in the second half. When I look at the full year, the impact wasn’t significant because we had sort of a bunch of costs in first half and then I guess recovery in the second half. The second half, the positive impact is about 30 basis points. I did talk to you about what we are doing with joint ventures and the consolidation of GDP and the Bordeaux facility and that’s adding sales. It’s adding margins at less than the Magna average and it’s reducing our equity income kind of when you run through the math and you were to look at that, that’s about 30 basis points. So we are below 9% kind of run-rate for 2021. And you look at our guidance, 71% to 75%, there is still a big gap from my perspective, but just a couple of things to keep in the back of your mind. You look at kind of there is a bunch of year-end small items, there is a favorable settlement here, something over there, an…

That’s very helpful, Vince. Appreciate all that color. Maybe a quick follow-up on the slide, I think it’s 54 on the ADAS CAGR of 19% to 23%. Is that still consistent with the roughly $900 million of revenue you are expecting for 2023, I think last year at the Investor Day or is that an improvement? Maybe you can just talk a little bit about what you are seeing on the ADAS sourcing and booking side?

So Itay, we ended the year again the references to 2019. So we talked about 2019, about $550 odd million in the kind of run whatever 20% CAGR range there. That takes us out to just under $1 billion in ‘23. So it is ahead of where we thought we were going to be. I look at our bookings this year, we had kind of business planning here, if you kind of look at opportunity figures, what I think we are going to get. We hit all of that plus. So we have been pretty pleased with the progress that we have been making in that one area of the business.

Yes. I think, Itay, just as I said in the comments before, we believe the building block strategy that we have been working on has helped a leadership position in cameras, the leapfrog technology and radar and bringing the first solid-state LIDAR system to production. We booked a lot of business in 2020. And as I said in my comments, we expect to grow about a 20% CAGR over the outlook period. And it’s good to also see that almost 80% of our 2023 expected sales is booked here. And the focus of us saying that we are going to stay focused on the L2, L2+ programs is also an advantage to keep the organization focused.

Perfect. That’s great to hear. Thanks again everybody.

The next question comes from the line of Chris McNally from Evercore ISI. Your line is open.

Thanks, Vince. I am sure there will be some questions on the strength in margins. So, we could pass over those. And maybe just twp questions, Swamy, on auto tech. The first is on light weighting and body it doesn’t get a lot of attention, but typical body content per vehicle, maybe $1,000 per car, but we are kind of curious next-gen body solutions for electric vehicles for light weighting to save money with battery costs, could you go through maybe some of the potential content per vehicle, if someone was really to take all the options that Magna body was able to provide?

Yes, good morning Chris. Great questions. When we talk about the light weighting, it was primarily driven in the past by some key reasons, right. One like you said, increase the battery range and that’s obviously going to be a balancing act as the trajectory of the battery cost continues to go down, right. So they start putting value on how much premium they want to spend on light weighting. The second part of it was the front to rear rate split of a vehicle when we had that engine in the front to have the 50-50 or close to 50-50 weight split, you would focus on light weighting some components in the front like the shock towers and rails and so on and so forth with different materials and also to reduce the CG of the vehicle from top to bottom. But if you start looking at the battery put on the other side of the vehicle, all those variables change a little bit, right. But looking at the process that we have, our ability to look at any of the variants of steel or aluminum or other materials and including different processes, whether it is stamping, roll-forming, hydroforming or hot stamping, casting and so on and so forth, we have the tools in the toolbox for sure. The design impacts that I would see as the floor would look different, the rail structures that we integrate the safety and the battery trays that are coming, which is actually a new addressable market for us from a BES viewpoint. We are able to do the battery trays. We already have two significant awards from customers. That is important for us. So that will be a content growth opportunity for us in total. If you look at our exteriors, we are looking at a lot of call it sensor integration piece. So, there is a lot of process and material advantages there coming through. So, these are, I would say, some of the aspects that I think will govern light weighting and the amount of light weighting and where it happens, but the important thing is to have the flexibility of different processes , so we can address without constraint whatever the vehicle architectures are from different OEMs.

Swamy, I mean, if I could just push for maybe some numbers. I mean, is it sort of a 20% to 30% uptick opportunity or is there almost an order of magnitude where spending that extra $1,000 on body and light weighting composites, you can get the payback in longer range or lower battery cost, just order of magnitude, because I know it’s across such various products, but I am just trying to think of the most next-gen EVs?

Yes. If you look at the – the way I usually look at it, Chris, is what is the trend in some of the processes in the next vehicle structure site, whether it’s hot stamping and casting. And we have a good visibility on what’s happening in ‘23 to ‘25 timeframe already. If I look at that, I would say, it’s in the 15% range, will continue going forward. But if the battery costs come down to 100 or sub-100 then that equation will change.

Perfect. And then just one question on Steyr, I mean we have seen this big uptick in margins and just to follow-on sort of [indiscernible]. As you start to press forward, lots of discussion around new companies that you are working with in the press, is this new level of margin, call it, the 4%, 5% plus? Is that sort of a where the negotiations are happening mid-teens ROIC or are you willing to work with new customers at lower margins for a much larger book of business?

Chris, I guess the first thing on overall margins is you got to figure out how you calculate margins, is it a value-added contract or is it a full vehicle that we are selling back to the customer. In the case of Fisker assumption, at this point, it’s going to be a value-added contract. So, that all has to be taken into account in the mix. From my perspective, I would focus on return on capital and return on investment kind of putting out whether it’s capital or whether it’s engineering dollars kind of look at the risk profile of the revenue stream coming in. We are looking for an appropriate return be back into margins, but we are not kind of using margin to set the price, but we are actually looking at making sure we are getting the appropriate return on our investments and the value we bring to the customer. I think where you look at margins, Magna Steyr and they have been moving up and if you go back a few years, a little lower, I think the margin numbers right now are more representative subject to mix changes of the business going forward rather than what we were a couple of years ago. One thing that I have got to emphasize, we talked about the world class manufacturing, right and we have talked a lot about it and we talked about that the restructuring that we took in 2020 and some of the benefits going forward. But on Magna Steyr, there has been a real focus on what they view from a standpoint, whether it’s engineering or manufacturing and we have seen the benefits of that in our margin numbers and we expect that to continue going forward.

That’s great. And then just one more if I could. I mean any update and I apologize, I know we asked this quite often, but any update on what it would take to pull the trigger sort of proactively to build the Northern American facility for Steyr? It clearly seems like the demand the customer set is there, I imagine it takes a couple of contracts of size. I am just curious if there is any updated thoughts?

Yes. Chris, nothing is really – no update there. We are certainly, in our mind, ready to make the right investment in North America like we did in China, for example and we’ve got some capacity there. We grew our capacity in Europe, not that long ago, but it’s got to be – it’s kind of the right business mix for us I know there will be risk coming into North America with any new plant to do startup, but we have to be able to measure that risk, quantify it and be comfortable with the risk we are taking and the returns we are going to generate.

Yes. And I think just to add, like we have roughly about 180,000 units per year in capacity in our JV in China, depending on the type of the mix of about 180,000 to 200,000 in our Gran Coupe facility there, if we if you look at it, we have a pipeline of business and the road map, we could start with a lower number of units, given the flexibility we have in manufacturing and what our team has done there. So as long as there is a path to get to an appropriate level of business, Chris, I think we would be open to that. Obviously, there is a bunch of variables, whether it’s painted or non-painted and so on and so forth that will add to the decision process.

That’s really encouraging. Thanks guys.

The next question comes from the line of Ryan Brinkman from JPMorgan. Your line is open.

Great, thanks. Could you discuss in a bit more detail your joint venture with LG Electronics? How would you compare your integrated e-drive system capabilities following closing of the JV relative to the competition? Would you say that your planned suite of electrification offerings is now pretty much complete or does it also make sense to, I don’t know, offer batteries or have some sort of more formal tie up with battery manufacturer as we’ve seen with one of your e-drive competitors, at least, on the commercial side or would you consider that to be more non-core?

Yes, good morning, Ryan. I think as we talked about, and you mentioned the building block strategy was the key thought process, which we started a few years ago of addressing the overall system we have the two awarded e-drive systems, one just being launched and the other one following in China in our HASCO JV. As we looked at the overall value stream, we figured that it was important to look at the e-motors and the inverters part of it. And we are really excited to have LG as a partner there. With that in place of the two important blocks in the technology, with our software and the overall integration capability that we have, we believe it’s going to increase the pace. We are already having some very good conversations with customers. As you know, some of the customers – as the field is evolving or looking at doing some of the systems in-house, but with LG, we have the opportunity to address the component side of motors and inverters with them. And the overall TAM actually, as it progresses towards EVs, increases for us, right? Because we are in the all-wheel drive – four wheel drive systems today as it is moving forward, our overall addressable market increases. So we believe we’re in a really good position. We’ll always continue to look for specific technologies that might leapfrog going forward as this field is fast changing. From a sale perspective, I think it’s a pretty significant area that’s been there for a long time. At this point, we believe we will monitor, but our focus is on the e-drive systems and how we start getting our fair share with the customers.

Yes. So I just want to add to – when I think about the joint venture as well, we’re not starting from zero. The joint venture does have an established revenue base in ‘19, about $150 million of revenue and it’s expected to grow over 50% CAGR over the next number of years. So as we look at combining our forces with the book of business, the joint venture already high, and we should be able to drive opportunities for the joint venture, ourselves and as well as LG.

Exactly.

Very helpful. Thank you. And just lastly, there might have been some illusion earlier to speculation regarding any potential Apple car. I just wanted to check in with you with regard to your ability to manufacture battery electric vehicles or newer start-up manufacturers. Of course, you’ve discussed Fisker on this call and others, are there any other start-ups that have shown interest, including any non-BJEV companies in China? Can you remind us of your capacity and your spare capacity in China? I think the original press release in 2018 mentioned 180,000 vehicles. I just wanted to check if – when automakers oftentimes first announced a plant, they’ll also sometimes buy up some of the land around that plant, give them optionality to expand in the future. Just curious if that might be the case here, too.

Yes. I think, Chris, we have said in the past, we continue to have conversations with various new entrants. And even with our established customers on various platforms. And I believe that is a unique position for Magna. In terms of our capacity, as I said, we are in the 150,000 capacity range in our JV in China. Obviously, we cannot talk specifics about the volume, but we have the flexibility with the agreements that we can look at non-BJEV related opportunities that can come in China. And Vince and I just spoke about our openness to do a footprint in North America, if it is the right business case, so really exciting discussions, but nothing specific that we can talk about.

Great, thank you.

Our next question comes from the line of Mark Neville from Scotia Capital. Your line is open.

Hey, good morning guys. Congrats on the quarter. Maybe just first on, just to square away the conversation on the margin. So I understand, you’re sort of telling us the starting point is, call it, 8.9%, the guide for next year is 7.3%, or sort of a bunch of sort of discrete items that sort of explain away the difference, JVs, mix, stuff like that. Is that sort of what you’re doing?

Yes. Sorry, the 8%, 9% getting – sorry, good morning, Mark. So just getting at on the 8%, 9%, I would say, two items that I think you should take into account. One is the government employee support programs and just the consolidation of the track entities. And there are both each of that 0.3. So we’re 8.9%. And when I kind of look through the pluses and minuses, there be some cost escalation as we move into ‘21 compared to 2020. I think part of it, a big picture is, when you look at the run rate of volumes in the second half and you kind of think about 2021 in certain regions, I mean, we’re running really, really high volumes, which are not expected in ‘21 so that have an impact on incremental and decremental margin. Tooling was – we had some more tooling revenue in the second half. A bunch of other kind of small things, one of the pauses, I would say, sorry, is just kind of continued restructuring benefits, right? That’s going to continue to benefit us in ‘21, a little more than it did in 2020, and it will be incremental again in ‘22. By the time to kind of get to the end of ‘22, we pretty well got to the benefits we’re expecting from a restructuring program that we started in 2020.

And would you have seen much benefit in the second half of that restructuring?

We saw some benefits of it. We did. I mean, we talked about kind of about a $200 million benefit from the restructuring [indiscernible] north of $150 million, $160 million and that we booked in Q2. We probably got about, I’d say, a quarter of that in – throughout 2020, would have been some of that in Q2. Probably about 25% of it is ‘22 and kind of the balance of it is in ‘21, kind of order of magnitude.

Okay. On the CapEx discussion and, I guess, the complete vehicle discussion, just to be clear, the guidance for the next few years of $1.6 billion in CapEx roughly, does that sort of contemplate any capacity build for complete vehicle?

Yes. I’m not going to specifically talk of it a part of our business. I can tell you that there’s capital being invested in all our business units. And it really depends on program launches and so on. Mark, I just want to remind you, too, that when we talk about capital and historically, we’ve always talked about capital, but just a couple of other big chunks of investment spending that we kind of just mention the odd time. But one is investment in other assets, and you can – and that’s all tied to production. You can see that, that has been growing over time in engineering, right? We’ve been talking about engineering Swamy talked about the $600 million roughly in the megatrend areas. But those are pretty significant investments we’re making in our business to position ourselves for the future.

Okay. Can I just ask one – just one last question, just on buyback, I’m just curious when you might get back in the market?

Yes. It’s a really good question, Mark. So you kind of look at the balance sheet at the end of the year, we did end up with a lot of cash, if you – in our presentation there, it kind of runs to the math and you look at adjusted debt to adjusted EBITDA at the end of Q4 of 1.6. From my perspective, we’ve got more cash than what I would have liked to have or shouldn’t like to pay down some debt and I can’t it’s all mix. I think if you back of surplus cash, in my mind, not all of the cash that surplus cash, we’re probably running 1.2x turn at the end of the year, that’s kind of our sweet spot, 1 to 1.5. So we’re kind of in the position at this point to look at the starting to buy back some stock in 2021, subject to, obviously, what we see from an opportunity standpoint on an inorganic basis.

Alright. Thanks. Appreciate it.

Our next question comes from the line of Dan Levy from Credit Suisse. Please go ahead.

Hey, good morning and thank you for taking the question. Wanted to start a question on the outlook, specifically revenue for complete vehicles and you are effectively forecasting revenue flat over the next few years and actually down slightly at the midpoint versus 2019. We’ve heard about this or – and presumably, you’re having discussions with others. So can you help us understand to what extent upside may materialize in complete vehicles? I just – it seems like this business is really hitting its stride, there’s appeal to customers as a way to get their asset-light exposure and to address EV manufacturing. So why aren’t we seeing more of that in the revenue outlook for complete vehicle?

Well, Dan, I think you got to take into account a couple of things. We’ve talked about Fisker coming on board and the plans are to launch that business at the end of 2022. So I think you start to see more of a normal impact as you get into 2023 on the revenue line. And our assumption that we’ve built in to our outlook is that that’s going to be a value-added contract, not a fully priced contract. So our assumption is that the materials or a big chunk of the materials are going to be on a pass-through basis. So that has no impact at all on EBIT, bottom line, but certainly on the revenue line. I think when you also look at the programs that we have today in Magna Steyr and as programs come closer to end of life, volumes tend to drop off. So that will have a negative impact on overall sales. And when we look at our kind of ‘23 revenue across the organization, 90% of the business is booked that we have contracts in place. So the extent we went to new business question whether we’re going to be starting that in ‘22 or ‘23 or sometime thereafter. So that’s what kind of – when you think about our complete vehicle business, that’s what’s kind of impacting the numbers. I mean you look at our range in ‘21 and ‘23, it’s kind of roughly the same top, I think, the lower end in ‘23, a couple of hundred million lower than our low-end of ‘21. But for all intents and purposes, the range is about the same. But there are a bunch of moving pieces in there.

Keep in mind, Dan, we’re also ramping up in China, but you’re not going to see that in our consolidated sales. So volume is going to rise, sales are going to rise is just it’s not consolidated.

Okay. So yes, to the extent that you’re having other discussions, we would see that beyond 2023, like. It’s okay. And then – sorry.

That’s fine, Dan. Go ahead.

And then second question, obviously, the theme of the market is really to understand how much each company’s exposure benefits from EV. I think we’ve heard about complete vehicles as a play on EV. We heard about your battery trade exposure, dried units, light weighting. Can you just help us understand as we add everything up by 2023 or 2025, what’s the net mix of the portfolio that’s ultimately EV positive?

Good morning, Dan. If you just look at it, I think the way you explained it, we can look at the sector of the full vehicles, that’s one piece. The PNB, I would say, is the one that would be most impacted, not just purely by EV, but EV, along with the EV architecture that goes along with it. Are going to start or will have an impact on the product and how the products are designed and where the compute systems are sitting and so on and so forth. But some of the interesting things that you mentioned are also on our – we see the new product, as I would like to call it, the battery tray. Light weighting will continue. Again, as I mentioned before, it will be dependent on the drop in the battery prices and so on. If you step back and look at it, I think it will have an impact on how some of the components in the body and the chassis systems will change over time. If you take just the powertrain piece of Magna business and look at the others, it is about 80% of the business, right? But one interesting fact, for example, a lot of the EVs has become forward, we’ll have most of the systems going forward. We kind of looked at as one data point, the bold, where we had, I think, $3,400 worth of content has increased to $3,700. So as most OEMs migrate from the current to the EVs, the 78% of our business will continue to be sourced, right. And on the powertrain, like we said, we are moving towards the e-drives. We are looking at the electrical architecture, which I think is an enabler for the new entrants and possibly for some variance in the established customer base. So that’s how we have to look at it. I can’t put a specific number on it, but hopefully, it gives some color.

Yes, maybe I can just add Swamy, you look at kind of just the electrified part of our business, so we are seeing quite a bit of growth. If you just look at pure EVs in some of the joint ventures, so we’ve talked about LG, we talked about HASCO and we’ve launched an e-drive system and the second one is coming along. And with the completion of the joint venture with LG, that’s going to help to accelerate our capabilities and our presence with the customers. And we are seeing it today [indiscernible] sitting across from me here. And I know he has been in a lot more discussions about our capabilities, their complete capabilities right now with EVs with our customers. So I think you’re going to see a lot more of that growth beyond the ‘23 time frame, but we’re starting to see the impact of that, also, in our business plan period from here until the end of ‘23.

Yes. So I think we can say the greatest exposure is powertrain, but we added LG. So the rest continues. And the content opportunity, we believe, will go from about 1,900 in ICE vehicles to about $2,300 in EV.

Great, thank you very much.

The next question comes from the line of Peter Sklar from BMO Capital Markets. Your line is open.

Thanks. Good morning. First, Vince, I just wanted to go back on your comment on the chip shortage and how you incorporated that into the forecast. So I think what you’re saying, and correct me if I’m wrong, is that any loss volume that you’re seeing globally as a result of the chip shortage, you anticipate it will be made up in the latter part of the year? So net-net, the chip shortage has had no impact on your guidance for full year 2021, although it does move the quarterly timing around, is that the right way to think about it?

Yes. Peter, that’s the right way to think about it. I mean, we have already seen – we haven’t disrupted our customers. So we have been able to – even with the month of January, meet our production. But we have had to shift things around within our [indiscernible] as a result of that, but so far, so good. But our customers have taken down some of their plants. So the units are going to – we are expecting this are going to come out in the first quarter, second quarter. And our assumption in our outlook is those units will be made out by the end of the year. So net neutral, but you are right, Peter, so you kind of – you are sealing from the first half to bring to the second half. So that’s the assumption on our outlook. What we haven’t kind of modeled out is the cost of some of those inefficiencies start and stop. My view is, Peter, that, that’s really not going to be significant to move kind of the guidance we’ve given you. But I do anticipate that there will be some inefficiencies as a result of kind of start and stopping things, but we’ll work through that. I don’t think, again, there is going to be any significant amount for us for the year.

I’d also point out, if there is a little bit of volume loss, if you look at where IHS is in their most recent expectations, they are at 16.2% in North America. We’re at 15.9%. There are 19% in Europe, we’re at 18.5% they are 24% in China, we are at 24%. So we’re running right now below the IHS, the most current look. So it gives us a little bit of protection in case volumes are off a little bit.

Okay, thanks. My second question is, like when you look at the segmented reporting, the bodies and exteriors group was particularly strong, both in revenue and had like a very unusually high margin. I’m just wondering is there anything in particular you can point to in that segment, GM light-truck volumes were strong. So I think that would be some of it. But is there anything else that you would want to call out in that segment?

Yes. There are a couple of things. I’m happy to call it, Peter, in a segment, you are looking Q4 to Q4, I’m assuming, right, your reference?

Yes. I know there’s the GM strike last year.

Yes. Yes, but the GM strike, when we talked about it last year, it was 1.2% on that segment. So take your 7, we were 7.4 in last year, you had 1.2. So we are 8.6 versus 12.4, still a lot in there. We’ve been talking some time about focusing on some of the underperformers that we had in this group, and we’ve been chipping away and making progress, and we continue to make progress. And we don’t expect that to go away. That progress has been made and we are just going to continue to move forward from there. That was a pretty big contributor year-over-year. We had commodity costs for a little bit of a benefit for us this quarter versus last quarter, little bit less launch cost. And they got some as positive adjustments. I talked about that in my comments overall at Magna. I think the other thing too is, Peter, with the higher volumes. They just had a better pull-through. And just the – you think of it as the incremental margin on higher volumes and that’s certainly helps the overall margin. Kind of you start adding it all up and all the pieces it’s a pretty significant improvement year-over-year.

Yes. Our top programs – on the sales side, our top programs in BES were really strong. Some of them were related to launch, including like the SUVs, as you mentioned, but a few others, including some Daimler business, but volume, just strong volumes in our top programs there and the impact of launch.

Okay, thanks. And then I just had one last question, if I may, for Swamy. Swamy, as you know, with the Ford and GM announcements that we’ve had over the course of the last week or so, the movement to vehicle electrification appears to gone to a sprint now with everybody trying to outdo themselves for a shorter time frame for the termination of making ice powertrain vehicles. So I’m just wondering if you thought there was any substance to those announcements or is it just more noise and perception on their part? And if this is more accelerated movement to battery electric vehicles, if that has caused you to pause and reassess your strategy at all in the investments you need to make?

Good morning, Peter, great question. I think if you’ve seen us over the last 3 to 5 years, we’ve always said, how do we develop the strategy of bringing power to the wheels, which is our portfolio today, being agnostic to the take rates, to the extent possible, obviously, right? And we always said, let’s look at what are the key building blocks and how can we scale as the market accelerates. I think the push towards electrification, like you said, I don’t know to characterize it, whether it’s a print or not, but definitely has accelerated compared to what we’ve seen based on the – where Europe is where China is and now lot more conversation in U.S. but I think overall, with the expertise and capabilities that we had at Magna, with the addition of LG and I just look portfolio overall, we actually see this as an opportunity going forward and not even talking about the new entrants and others that are able to contemplate entry into the market. We think it’s a think it’s a great opportunity for Magna.

Okay. Thanks for your comments.

The next question comes from the line of James Picariello from KeyBanc. Your line is open.

Hey, good morning guys.

Good morning, James.

Can you share the margin profile of the $650 million consolidated GETRAG piece and how much equity income was taken out from that?

Louis, you have any of that handy by any chance?

No, I will see if I can dig it out.

I could ask – yes, I could just ask my next question if you find it in time that’s great, but otherwise, alright. Just staying in the Power & Vision segment, can you provide any color on what’s baked into the LG JV financials over the next few years, specifically? I mean you have the marker of the 50% revenue CAGR. You are more so interested in the equity income impact and kind of tying it to the – your total unconsolidated revenue growing more than $2 billion, right, from ‘21 to ‘23, curious what’s the breakout there?

So I think when you look at the margin side, on the Power & Vision side, that is going to be dilutive in ‘21 and ‘22. We’ve got some losses, some investments in there as the business starts to ramp up. As we get into ‘23, I think it’s a little too early still to tell. There is a number of opportunities that we expect to be working on. So it depends on where the cadence of that and what the associated engineering spend is going to be as well as the revenues start to ramp up, there will be some incremental or profit on all of that, but it’s really the mix of that. So, I think it’s still a little true to tell. As I look at kind of our consolidated numbers, I mean, it’s not going to move that much one way or the other. I think as you get past ‘23, the joint venture is going to have a more significant impact on the equity income line. And certainly, it will provide some opportunities for us on the Magna side as well as we look at completely e-drive systems.

So within the $2 billion in growth for your total unconsolidated revenue, right, just over a 2-year period, I mean is the majority of that driven by HASCO and BJEV or just kind of the breakout of the 3 BJEVs that are growing?

Yes. I just off the top of my head, the biggest contributors there are going to be HASCO, it’s going to be BJEV. And I talked about LGV in about $150 million in sales in 2019. So their sales are going to be more in ‘21. And I’ve been talking about the 50% CAGR. So there’s some of that built into the unconsolidated joint venture sales as well.

Got it. Okay. And just at a high level, if we just bridge this year’s guide to 2023 and you take the midpoint to get a sense for what 2022 looks like, I mean, even after adjusting for GETRAG, the entire implied 2022 framework is almost identical to the 2022 targets you laid out last year. So just curious at a high level, what are the major driving forces you’d attribute to that storyline in terms of the earnings resilience? Thanks.

So I – what is really three things that stand out in my mind. One is, I think you first got to look back and say, where are volumes. And where we thought we were going to be last year where we think we’re going to be this year in ‘22, volumes are less. So that’s a negative. We talked about the consolidation of the track, that’s negative than we would have anticipated last year. I think the biggest driver going the other way is really are focused on our overall cost structure. We – not only are we benefiting for some of the rightsizing and bringing down our structural costs, we commenced that in 2020. But I just think it’s the overall – it’s one type of volume stuff a lot about world class manufacturing, it’s just a world class manufacturing conquering down and looking at what we are doing to take cost out of the system. And there is a lot of kind of moving pieces, but I’d say that’s probably the biggest part of it. And you want to look at ‘22 to ‘22 from a year ago to now.

In terms of the equity income, it’s about $50 million for the two joint ventures in 2020.

Our next question comes from the line of Kevin Chiang from CIBC World Markets. Your line is open.

Thanks and thanks for squeezing me in here. It’s just been a long call. I appreciate all the color. Maybe just one for me, just circling back on the chip shortage, I appreciate the color you have provided and the uncertainty you faced. Just wondering, as it plays out, if you think of the downside risk, am I right to think that the segment that might be the most impacted might be a complete vehicle manufacturing segment or would you think another segment might be more – might base more downside risk in the event this chip shortage last longer than through 2021?

Good morning, Kevin, I think when you say full wake of manufacturing it, how the OEMs will manage their mix, I think, right, and which model or which are going to be prioritized versus the other, but that is something we have to kind of follow the lead. Like Vince said, we’ve been fortunate not to disrupt from our side of things on any of the product lines, but we’ve been monitoring it extremely closely over the last 2, 3 months. And I think it will continue going forward. But other than that, there’s a lot of – it’s a very dynamic situation right now. I don’t know how we can put a finger on it other than say, based on the facts today, we believe the first half is where we have to watch closely and we might see those start stops and managing different variance, but – and we still see with the capacities that are added and so on and so forth, it looks like there is a good possibility of making up in the second half. But like I said, it’s so dynamic, we have to still wait and watch.

No, I appreciate the situation. That’s it for me. Thank you very much.

Maria, are there any other calls? I know it’s been a pretty long meeting. It will – if there is one other call, we will take that, but we have got some other things we are committed to this morning that we need to get to as well.

Okay. No problem. So, this will be the last question coming from the line of Adam Jonas from Morgan Stanley. Please go ahead.

Guys, I am going to give you your time back. I just want to say I continue to underestimate you. Don’t bet against the Canadians, it’s a great presentation, really value-added disclosure. I might have to really sink my teeth into the transcript here. So Louis, let’s talk later, if that’s okay, you guys be well and stay safe.

Sounds good.

Thanks, Adam.

Thanks, Adam.

Take care.

Just to conclude the call. I appreciate everybody taking the time. I know it was a long call and we went through a lot of details. Like I said, our objective today was to focus on the outlook and the fourth quarter results, but I’m really hoping to I’m looking forward to meeting all of you in our April Investor Event, where we want to provide color a little bit more on the product portfolio and the strategy going forward. So until then, thank you very much, and stay safe and stay healthy. Thank you.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.