American Axle & Manufacturing Holdings, Inc. (DCH) Earnings Call Transcript & Summary

Okay. We're going to get going with the next presentation. Once again, I'm Ryan Brinkman, U.S. automotive equity research analyst at JPMorgan. Very excited to have with us Chris May, Executive Vice President and Chief Financial Officer of American Axle and Manufacturing; and David Lim, Head of Investor Relations. I think Chris has got a few minutes of prepared remarks, a slide or 2, and then we'll engage in a fireside chat. Thank you.

All right. Well, good morning, everybody. Happy Tuesday. Hopefully, everyone's having a great day so far. Ryan, thank you for hosting this. Of course, thank you to JPMorgan as well. This is always a great event to come to and talk about American Axle and the current goings on inside the industry. So before we begin, I do direct your attention to all our forward-looking statements and disclaimers. You can find those on our investor web page at www.aam.com. So with that said, Look, we're coming off a very exciting time here for American Axle. We're coming off a very strong second quarter. You continue to see the underpinnings of our company's operational performance from our driveline business unit and our metal forming business unit continuing to have sequential and year-over-year margin growth. We continue to have strong free cash flow generation. And I'm sure you'll have some questions associated with that as we go along. But equally exciting inside of 2025 for us, of course, is our acquisition in combination with Dowlais. This has been an outstanding transaction for us here, which we announced in early January. It continues to come together. Most recently hit another significant mile zone where both shareholders of both companies approved the transaction. We continue down the regulatory front, making great progress. We've got a few more to go to clear through that, and we are tracking towards a fourth quarter close here this year. So again, I'm sure you'll have some questions on that as we go along the way, but we are absolutely excited about this transaction. It's going to transform the company, and you're going to see an outstanding driveline and metal forming supplier, the best in the world, in my opinion. But in addition to Dowlais, in addition to our second quarter, we continue to build the base of our business. We continue to grow our company as a stand-alone AAM, we announced in mid-June and talked a little bit about this on our earnings call last week, we won a business award with Scout Motors. As you know, that's a new foray into the North American truck industry with EV products and range-extending products. And that will feature our electric beam axles and electric drive units in the front. So another growth pool here for the company, but really putting on display our strength inside of North America, our strength inside of that great niche of beam axle products but really, our technology on full display in terms of the EV application and growth sectors which is on inside the industry. So look, excited to talk about our company here today. A lot of great things going on. So maybe, Ryan, I'll turn it over to you, and we'll go from there.

Great. Thanks so much. We're asking each of the companies at the conference a few standard questions. One is on the impact of tariffs for the industry overall for their company in particular. So how have you managed so far, the direct impact on American Axle? And then how are you thinking about the indirect impact going forward in terms of the potential for demand destruction as automakers raise prices? If they will. And have you changed your estimate of normalized demand in the U.S. or North America production as a result of tariffs?

Yes. Maybe we'll kind of break that question down to a few parts. We'll start with a little bit as it relates to tariffs that impact our company. Our goal as a company is to mitigate the majority of the impact in terms of tariffs to our business, especially from a direct standpoint. We are leveraging our installed base. We're working with our supply base to where we can either move product or reconfigure some of the logistics of our products to either avoid some of those tariffs. And in case where we are unable to do so, we're working closely with our customers in terms of our end products and then ultimately reach commercial resolution with our customers to offset any, I would call it, residual tariff costs to the company. I think some of the good elements inside of our product structure. As you know, we're leveraged very heavily inside of North America. Over 90% of our finished good products are USMCA compliance. So that makes it very attractive for our customers and easier for them to sort of navigate our products through their supply chain. And just as a reminder, our customers typically take delivery from our docs of our finished good products but the bulk of our other products that we source inside of North America, most are also USMCA compliance. So mitigation is key to us also then ultimately customer recovery, which we're working through with our customers now, which I would expect to receive final resolution in the back half of this year.

And my second question is to ask what your very latest outlook is for vehicle electrification including in light of the recent changes to the regulatory backdrop such as the elimination of the $7,500 U.S. federal consumer tax credit and the relaxed enforcement of greenhouse gas and corporate average fuel economy standards. How has your outlook evolved? And what ways might you be running the business or allocating capital any differently?

Yes. No, that's a great question. And as you know, that's always a tricky one to answer, especially over the last few years. But if you follow our commentary, you follow our product set, we have been believers in electrification. We've invested into this space to design products. As I mentioned in my opening remarks, we've continued to win in the Scout marketplace. But holistically, the segments we participated in, especially the full-size truck segment in general, our view has been this would be one of the last to electrify. We were probably using my words a little skeptical the pace of adoption over the last couple of years. I think that pace now with some of the recent updates has mitigated some. I think some of the changes that you've seen now in regulation and potential removal of EV credits will continue to slow that pace of that adoption down in terms of EV, which plays perfectly I think, right into our core product set as a company. We do think this is a growth shoot for us, but we do think it will be a slower adoption, especially inside of North America for the foreseeable future. Mixed probably inside of Europe. And I think our view for the China marketplace, it continues to remain strong and will continue to remain strong, and we're also launching a lot of our new EV product in the China marketplace as well. So hopefully, that addresses your question.

Absolutely. Next question relates to your approach to adapting to the rapid growth of domestic Chinese automakers. At the conference last year we asked all of the suppliers to please update us on their current exposure to domestic Chinese automakers and to outline their plans to increase that going forward. The only answer that was acceptable is they were doing anything and everything to say, attach their wagon, hit their bag into that star. I wanted to check in a year later, I mean, they've grown even arguably faster, taking even more share. But now there's all these headlines about -- and this existed a year ago, too, but more so now that they command very favorable pricing terms and even payment terms with suppliers, I think because everybody wants to align with them or they know that. And there was even a headline recently about the government asking automakers to sign a pledge to please pay their suppliers on a more standard basis, et cetera. So what's your sense of the dynamic there? And then what's your approach to balancing the opportunity for growth with, at the same time, maintaining commercial discipline?

Yes. No, great question. I'll start that in reverse. From a commercial discipline standpoint, it doesn't really matter what region of the world we're in, whether it's in the Asia markets, the North American markets or the European markets. We are very focused on certain financial hurdles that we make capital investments for. We intend to keep that discipline in all regions of the world and all products, whether it be ICE, Hybrid or EV. But I think maybe back a little bit on your question as it relates to the China marketplace. If I think about maybe to dimensionalize, is a stand-alone wholly owned entity we have inside of our China marketplace today, it was effectively started and launched on the back of Western OEM customers and products. And really since then, now we are close to about 60% where we supply into the local China market. We've grown relationships with Chery and other companies inside that marketplace. As I mentioned in some of the EV commentary, we are now launching into several local OEMs for our e-beam axle application. So that book of business and our wholly stand-alone entity in China continues to grow, recognizing this is a growth market inside of China, but also potentially they could be exporting around the world and staying financially disciplined in those awards continues to be top of mind. But I think another interesting element, especially as it relates to our company, as you know, China, in terms of our overall revenues today are about 5%. That's going to grow substantially with the combination with Dowlais. We are leveraged now into a very large joint venture in the China marketplace. It will serve many different customers that has also been transitioning from Western OEMs to now wholly owned local Chinese OEMs. So that book of business will continue to grow. Our own wholly owned will continue to grow in the China marketplace. We see that as a growth pool for us. They're going to export around the world. They're going to grow internally in their own markets, and I think it's going to be an exciting time. We've got the right products for them, and they're obviously interested because we're winning awards in that space.

To follow up on that, because we have the quality NVH and the design engineering and they have aspirations to export, we feel like we're in an excellent position in order to provide the level of products that they seek.

And turning now to Dowlais, which you referenced in your introduction. Maybe you could take a moment to share from your perspective what you feel are the biggest strategic and financial benefits of the combination, what does it do for you from a geographic customer product portfolio standpoint and from a synergies perspective.

Yes. No, look, this is a fantastic transaction for us as a company. As you know, as a stand-alone company, we're about $6 billion of revenues. We're going to double in size. We're going to have that size and scale to continue to compete in the global industry. We'll continue to compete as it pivots towards more electrification and hybrid application, but size and scale in the auto industry is incredibly important. This will continue to bolster our journey from a few years back when we doubled up with MPG. We're doubling up again with the Dowlais acquisition. So that puts us in a solid footing from a global footprint, from a global product perspective. But we'll also continue to diversify our business. We are a driveline and metal forming supplier today. We will couple on with the sideshaft business with Dowlais, which is the global leader in sideshafts, which is agnostic to EV vehicles, hybrid vehicles and ICE vehicles and they command #1 market share in the world so really bolstering our driveline business is critical to our success and also bringing in some component businesses as well on their powdered metal side. So diversification globally, diversification product and diversification in addition will be with the customer base as well. We'll now gain exposure into deeper into Volkswagen, into Toyota to really nameplates of stand-alone American Axle doesn't really enjoy here today. So that's an exciting piece of it. A strong financial profile. You look at both companies, very profitable for both sides, we'll be cash flow generative and really couple that up with the huge synergy potential in this transaction. We've announced a synergy number of $300 million, you put that together, and we're one of the top margin performing in the business. We'll be one of the top cash flow performing in the business, and we'll continue to have great growth pools going forward. So a lot of great elements to this transaction. Those are some of the key highlights I shared with you.

Maybe to follow up on the $300 million of cost synergies you mentioned. Can you talk kind of across the 3 different buckets, purchasing, SG&A, operations, how would you rate your relative confidence in the ability or visibility to achieving the targeted savings? And maybe looking back on the Metaldyne transaction, are there any lessons there that can be gleaned in terms of what might be harder or easier to achieve. I recall you increased the amount of targeted savings from Metaldyne several times. Is that something that could happen here, too?

Yes. No, great question. Maybe we start with breaking down the $300 million and really what it comprises of. About half of that $300 million is associated with purchasing. So again, leveraging that size and scale of the business to attain purchasing savings through our supply chain but it's not just direct purchase buys in that purchasing number. We also have the opportunity to leverage that global footprint for logistics and savings and also significant in-sourcing potential for the company. And what do I mean by that? Stand-alone American Axle is the largest automotive steel forger in the world, Dowlais today purchases from the outside, an incredible amount of steel forgings. So we have the opportunity for vertical integration and in-sourcing with that. In addition, we are a powdered manufacturer in terms of components in American Axle. Dowlais is one of the largest powder manufacturers and also manufactures the raw powder, which we buy from today. So we have further vertical integration from the pure powder purchasing side inside of a combined company. So purchasing is about half of it, about 30% of it is associated with SG&A and public company costs and product engineering. I would put this maybe a little bit more in the classical bucket of pure synergy type of savings when we optimize the 2 businesses as we come together, leveraging a great installed engineering talent base, but also being able to optimize the spend in the engineering area will be critical to that success. And then lastly, we have 20% associated with the operational side of the business. So think about operational efficiencies, think about fixed cost optimization in terms of factory rationalization and other footprint type of elements there. And quite frankly, that is one of the ones, while we're excited about it all, but that one, in particular, we're extremely excited about. We had very little opportunity prior to the announcement of the transaction to get into Dowlais factories and really assess how a common operating system across our $12 billion enterprise can drive optimization in our business, drive cost reduction. We are now starting to gain some access into their facilities and see this incredible opportunity. So we think, in front of us leveraging a common operating system across the enterprise is going to yield some fantastic savings. That's the bucket we're most interested in terms of potential upside and driving that going forward. I know you referenced a few comments that we did some uplift through the MPG side. Look, our focus right now is getting to $300 million. Let's continue to get our head under the hood in terms of the operations side and then we'll see where we go from there. But we're excited.

Encouraging to hear. Thank you. And when the Dowlais acquisition was first announced, you characterized it as being roughly leverage neutral with leverage roughly both 2.8x at the time of the announcement and at the date of closure. Of course, that comment was made in January with last reported 3Q '24 financials. This was before all the saber-rattling in February around tariffs before the first Section 232 automotive sectoral tariffs announcement and on March 26. And so the industry having changed somewhat since then, right, with tariffs, the impact of tariff-related price increases on light vehicle production. What is the latest thinking in terms of leverage as of the combination date?

Yes, yes. Certainly, as a lot has happened in 6 months, it's for sure true. Look, when we announced the transaction back in January, our objective was to be approximately leverage neutral for the close, which we are projecting to happen at the end of this year. Since that time, we closed the year last year as a stand-alone company, about 2.8x. We were 2.9x in the first quarter. We're continuing to drive the business. Both companies have sort of modified their full year guide in light of some of the elements that you have. But we're still driving that towards our goal. Could we be a little tick or 2 higher than that potentially. But that's still our goal is to get into that ZIP code of approximately leverage neutral. But obviously, with a little bit of the, I'll call it, lower EBITDA due to the tariffs and some of the sales reductions that you've seen throughout the industry. There's a little bit of pressure on that, but we'll be pretty close.

And sticking with leverage, but looking beyond the period right, on the call announcing the transaction, you touched on naturally being focused on, obviously, paying down debt post transaction. But it's said too that once you do get down to 2.5x or below 2.5x, I should say, that's a larger and more diversified company could at that point, maybe pursue a more balanced approach to capital allocation, whereas the stand-alone would have maybe continued to preference debt paydown. By what time do you think that American Axle might be in such a position at 2.5x or so? And then what would be your preferred method of returning capital to shareholders. We haven't done a lot of them in recent years, started to do a little repurchase before Metaldyne. You go back further, though, used to pay a dividend. And I feel like the free cash flow is just so large as a percentage of the equity cap that you could just put a little bit of a floor on that like -- and then how would you look to balance return of capital post 2.5x with the inorganic opportunities that you just can't seem to resist.

Fair enough. Maybe start with sort of where we sit today as a stand-alone company and our philosophy on capital allocation has been very much continuing to focus on strengthening the balance sheet. Of course, that's after you make investments into the organic side of the business, funding CapEx and R&D, which as you see has turned into new business awards with a variety of different customers. But we are very much overweight on our capital allocation to paying down our outstanding debt. I think we paid down over $1.6 billion of debt since our acquisition of MPG. And we articulated we are driving towards at least a 2x net leverage ratio before we sort of reprioritized, if you will, our capital allocation approach. And now with the combination with Dowlais and some of the benefits of the transaction that we've talked about here, the strengthening of the size and scale and resiliency of the company in totality, not only from just its operational profile, but also from its balance sheet. We felt it was prudent at this point in time to rethink about our capital allocation priorities. And while continuing to strengthen the balance sheet is still our #1 priority in the near term, as you mentioned, we've articulated, we'll continue to overweight that priority to we're about 2.5x levered and then it brings a much more balanced capital allocation methodology would be from that point to lower. So what does that mean? It can come in a variety of different forms, you've asked, would we have dividends or buybacks? I think it would be too early at this point to specifically call out a method, but it won't be exclusively on debt pay down as we've been over the last, call it, 6 to 8 years. So I think we'll have some flexibility there. We're excited to get to that 2.5x levered. You asked how long before you get to that, think about it this way, when we -- and if you look at some of our IR materials, we have a pro forma leverage on the company at a fully synergized basis at 2.5x. So that gives a great indication that those synergies will drive deleveraging of the company. Obviously, that will translate into cash flow as well. And we talk about the synergy attainment looking to get full run rate of synergies by the end of the third year. So why do I mention that? That's giving you sort of that time dimension when we believe we can generate that full synergy benefits, you'll generate cash flow through that period of time. But through that period of time, you're going to start to get very close into that 2.5x leverage ratio based upon those specific facts.

Great. I know you've been frustrated by the multiple at which Axle shares up the other week, have traded at over time. And I do not currently have an investment recommendation or rating on Axle shares. But when I did, I would often note about the very differentiated EBITDA multiple and especially the free cash flow yield to equity versus peers, various different reasons were offered for that over time probably primarily the overlapping customer, geographic, platform concentration, which you've addressed organically and particularly inorganically with GM full-size trucks in North America going from 98% of revenue in 1994. It's less than 1/3 today, maybe less than 1/5 after Dowlais. Then there were the worries over how the portfolio was positioned for electrification. You made tons of strides there. And then there was always to the financial leverage. And how are you thinking about the relative pressure from on the multiple historically, currently and going forward, how much has come from the customer and the geographic profile, questions about the leverage to secular growth themes versus financial leverage because it seems like as you back down these various concerns that investors have about geography, customer, platform, electrification and the stock continues to trade at a low multiple that leverage is the one that remains. And I don't know if you sort of sensed that too, and you think, well, that leverage can be fixed. That can be changed. Whereas we got to focus on the strategic stuff first. What are you thinking about the leverage at the company longer term? And the multiple at which investors might recognize the new company before and after delevering.

Yes. Look, clearly, our trading multiple over the last several years has been very frustrating to us. There's no question about it. And if our CEO is here. I think he would double down on that statement. But look, we are where we are today. And our focus is we thought about this combination with Dowlais, we think about what makes a great Tier 1 supplier, which should, in theory, translate into great shareholder value and multiple type expansion. So leveraging size and scale and resiliency is key for us. We're doing that through the combination with Dowlais, continuing to diversify and derisk the business from a top line perspective, I mean customer and product but also geography, we'll continue to down that journey as well with the Dowlais acquisition. A strong balance sheet so we talked about a little bit of our leverage profile, but the free cash flow generating power of this company. Look, we have some pro forma materials in our IR deck rate approaching 5% plus of sales. That cash flow generating power will strengthen the balance sheet but also then give us that flexibility to implement those capital allocation elements. Obviously, good earnings, great cash flow are a key recipe to this, which ultimately should translate into a very balanced capital allocation that we just spoke about. You put all these pieces together. We're focused on them. We're thinking that this transaction also brings and elevates our game and each one of these pieces should translate into good opportunity for shareholder value going forward.

So to follow up on that for so there's a lot of seeds that have been laid down. I mean from the time this closes to the glide path of when we get to this $300 million run rate, right? And what you're going to see is these seeds starting to germinate and it's going to come through our results. And in my personal view is once these green shoots start sprouting then the Street has to come back and say, okay, is this half a turn? Is this a full turn? What is it on the valuation front? For us, it's a time for us to prove to the Wall Street that we're going to deliver on all these aspects that we promised or what we put out as our goal with this combination.

Wanted to ask about the EV slowdown from a big picture perspective, its impact on American Axle because I feel like for most of the companies we cover, that EV slowdown is a bad thing. They've invested all this money, they're not going to see the growth that they thought and the content per vehicle uplift is not as great. And then I think for a small subset of companies and Dana has come right out and said that we're one of them, and I haven't heard you exactly say, but is this not just a silver lining to the EV slowdown that ICE is around longer, but actually you're a net beneficiary. When you think about the paring back on R&D that you might be able to do with the paring back on CapEx and then especially, I was thinking when we saw with The Big Beautiful Bill with the CAFE and the greenhouse. And then if you look at GM's onshoring announcement, the $4 billion, they never said that they're putting the pickups in Orient township. They never said they're taking them out of [ Silao ]. The never said they are taking them out Oshawa truck and maybe the tariffs go away and they just left with all these more capacities or like how Ford is increasing Super Duty capacity. That would be a great thing for you guys. What do you think? Is this actually a net positive?

Yes. Clearly, in the near term, it's absolutely a net positive for us. We have -- we made a decision a couple of years ago to be very selective in how we participated in the EV marketplace. So we consciously did not overextend into large capital investments and massive amounts of R&D that we ultimately had to peel back. We were selected on certain targeted customers. I think we were successful in winning with some of those customers, whether it was JLR or Mercedes, now most recently, Scout and some others. So in terms of some of the near-term benefits associated with that, yes, we were able to take some of our spend down. For example, when we walked into this year, you look at our public guidance back that we issued in February, our R&D spend was going to go down $20 million. So that is a direct beneficiary of sort of the current environment as it relates to the slowdown in EV. But then you look at our truck franchise, which is about half of our book of business. And as you know, we are a large supplier to Stellantis, to General Motors and then more on a component basis even to the Ford full-size truck franchise as well. That's going to be solidified for a very long period of time to come. These will be the last to electrify some of the things we're talking about here, just bolters in terms of production and consumer interest for these vehicles. So it's a great franchise to be on, and will be around for decades. So we think in the near term, absolutely. Though we do see growth shoots in some of the EV business as well as Scouts a great example of that. But clearly, we'll leverage that installed asset base as it sits here today for a very long period of time. We had a strong cash flow profile the last 5 years going through this, we'll continue to have a very strong cash profile going forward.

I wanted to check in on the competitive environment. If there are any potential implications from Dana sale of its off-highway business just because feel like in recent years, they were much more interested in allocating capital towards the higher margin off-highway business and all of their M&A was in that area and electrification side. And now they've got a bunch of cash and return a lot of it. But they also talked about investing more organically and to support customers and just curious if they may be a little bit more focused on your wheelhouse.

Well, look, they've been one of our prime competitors really for the history of our company in the light truck space. They've got great product, great talent, I think, as we do as well. We'll continue to be very competitive. We're not worried about it. I mean we'll continue to earn our fair share and deliver great products to our customers, not concerned.

Wanted to ask on bidding activity, your own awards and what -- and I know you really only kind of quantify that once per year, but in terms of what you have announced, what is the kind of look ahead to next January, February when you report. And then also about the industry overall, what you're seeing there because a lot of companies have reported there's been a slowdown in a request for proposals. First is automakers were grappling with what the consumer is thinking about powertrain choices. And then as there was all the uncertainty leading up to what was going to happen with the regulation on EV subsidy and tariffs. But now we kind of know more. And curious if the result of that could be a flurry of bidding activity and how you might be positioned to compete there.

Yes. I think our positioning will continue to remain strong holistically. But if you think over the last really 2 years, all those elements that you described, whether it's the uncertainty on the EV most recently on tariffs, really put for like we're a little bit of an air pocket or a pause and some of the, call it, new vehicle launches, the OEMs were pushing into the marketplace. It was very clear to us that they were assessing their product portfolios and how they wanted to compete and how they wanted to position themselves. At the same time, they were extending current programs, which, as you know, allows us then to leverage our installed asset base, become very profitable and cash flow generative on that, which ties a little bit into your prior question. At some point here, we're still working through the tariff place. It's not done yet. I think the OEMs, our view is they're continuing to assess their final positioning. But at some point, this will open back up in terms of new products, new segments from the OEMs, and you'll start to see this sort of rebirth in our view of this activity. I don't think you're there just yet. There's still quotation activity, but there's still a lot of focus on extensions and pivoting with the macro, whether it be tariff impacts or even to same degree the EV impacts here. But we continue to win business. Like I said, Scout, we continue to actively quote on $1 billion worth of new business. About 75% of that is ICE and Hybrid-related. So I think you'll see a little more activity in the hybrid space. But holistically, it will gain some traction, but at some point, this will open back up as they launch new vehicles starting into probably 2030 and beyond.

Okay. And I wanted to ask about the potential for dispositions. You had that interesting move last year to sell your India commercial vehicle operators. It wasn't a huge transaction, but it was just interesting in that it was able to be sold for a multiple higher than what you trade at, which probably isn't too hard because you trade at a low multiple and I remember asking you on an earnings call at the time, whether there might be more things out there within the portfolio of business and you're like we're always open to it, but we don't -- we don't know of any that are obvious. But now that you're bringing in all these other operations. And I think you did get disposed of some of what came with Metaldyne. I just thought to ask as the portfolio broadens, if there's anything that isn't totally core just because it seems like it might not be too difficult to sell off a part of it to -- in a value-accretive way that could also accelerate deleverage or lead to shareholder returns or something?

Yes. Evaluating our product portfolio is, I would say, continuous event inside of our company. I think we were successful here over the last year. We took a couple of actions. We exited a joint venture out of China. We exited and sold our India commercial vehicle operations as we kind of doubled down our focus on light vehicle only. And alone, those combined brought in nearly $100 million of cash proceeds into the company in the last 12 months. So we continue that process on the stand-alone American Axle. There's probably some small things here or there. We continue to evaluate and keep a close eye on. I would say nothing significant. Once we combine with Dowlais, obviously, we'll continue that same exercise and thought process as it relates to our longer-term product portfolio interest. And if there's something to take action on. I don't think we'd be shy about it. But at the moment, we obviously need to combine, get in, assess, look at our product portfolio, think about the growth pools inside of those individual elements in both businesses and then make some decisions from there.

I've got more questions for these guys, but I thought I'd stop and see if there might be any in the audience. I'll come back to the audience after my next question, which is -- we talked briefly about the GM in-sourcing decision, and there are not as large of a customer as they used to be, but still very important, and that's a very important program. Your margin on it tends to be disproportionately high. And so I just thought to ask if there's any risk or opportunity around, I mentioned one of the opportunities is that when all is said and done, they're going to have more capacity for those vehicles. But is there any implication about where you might need to supply those facilities from because it's expensive to transport your heavy products? And does that entail maybe you might have to invest more or someone else or that you might have excess capacity in Mexico or something, what's the thought process there?

Yes, it's certainly a -- and you're referring to the GM full-size truck platform. It's certainly a fantastic book of business to be on. We're honored to be a part of it. It's a great product in the marketplace in high demand. I think in the near term, as they continue to bring on some additional capacity for reasons they've articulated. If you take another sort of layer down in their discussions, you hear them talk about putting on additional SUV capacity as part of this. Obviously, they've expanded the heavy-duty truck with Oshawa and Flint. These are, call it, subsegments inside of that truck platform that had very high demand and potentially unlocked some additional demand from their customers, which will drive, obviously, product from us to support growth in both of those segments themselves. But in terms of repositioning to support them, when they source us, they source the facility from which they want that supply. We'll work with them very closely as they build out their plans. They're still a couple of years out in terms of when they go to production for these products. But we'll work with them very closely and do what we need to do to support them.

Any questions for these guys? One in the back, please.

I wanted to touch on your people strategy going forward. I'm just wondering how you're thinking about sort of the mix of people costs versus other costs and kind of the trend lines there. I know, obviously, you're a huge employer and given the automation and investments you're talking about, how you're thinking about that in the future?

So I think your question is, are we going to enhance our automation inside of our factories? Is that sort of an underpinning of your question. Sure. Yes, it's a very -- it's an interesting balance. And some of the challenges. And if you follow some of our commentary over the last several years as well as some commentary from others in our space and other industries, frankly, labor availability has been a challenge for us, right? So we've been doing things to continue to attract labor. But at the same time, we are going down not a separate path and an additional path to increase automation in our factories and making investments there. It does a couple of things that allows you to continue to build. Obviously, it takes a little bit of the constraints of labor availability off of the company. But it also allows you to leverage efficiency inside of your factories as well. So our goal, I think, would be to find, I would articulate is a great balance between continuing to invest in our people, which we'll continue to do. That's the #1 asset of the company. But also continue to expand our investments in automation to create efficiencies, but also create capacity because of some of the labor availability challenges that we have. And labor availability channel, it's a global issue. It's not just for example. We've talked a lot about it in the U.S. context, but it's a global issue that we continue to invest in. So hopefully, that addresses your question.

I'll lob in a final one, which is about vertical integration, the trend and vertical integration at automakers and the impact on American Axle in both the ICE and the EV side, starting with ICE where GM in-sourced roughly 35% of their full-size truck driveline capacity some years back. I think where they put that was in Arlington, where they're like absolutely desperate for more assembly capacity. I don't know if that alters any of the dynamic. And then on the EV side, it just seems like when there was thought to be this big gold rush before the EV slowdown we talked about, there was this fear that if we don't have this anode capacity or this inverter capacity, this electric motor, we're not going to have supply. We need to ensure continuity of supply, we need to vertically integrate. And anything that automaker does going to be more expensive than what the supplier does, right? And now it kind of seems like they might be prioritizing cost more as opposed to vertical integration. Just curious if that opens up addressable markets for the e-propulsion driveline products that you do supply?

Yes. I mean in terms of the ICE products, I think we're in a pretty good position with ourselves and our customers in that marketplace. From an EV perspective, it's a very meaning, I guess, drive -- electric driving as we think about it from our driveline business. Our component business will continue to supply. They'll supply OEMs that want to do this in-house, they'll supply other Tier 1s, we supply ourselves. So I think from a component business, we're in really great shape. From an e-Drive perspective, we teased out a couple of years back, sort of our view when things were a little more EV oriented in terms of our market share, our type of products. But inside of that, obviously, it's a very competitive space. But inside of that marketplace for us is this great niche called e-Beam axles, where you do not see OEMs making investments, there's only limited competition. And if you think about all the EV wins that we've announced over the last couple of years, it's been -- primarily been inside of this space and I think we'll continue to leverage that strength. It goes with the core of the company, but it's also an area that appears OEMs don't want to make investments in, and we can leverage and partner with them very closely. So that's sort of been our approach to that market.

Interesting. Thank you. And we are over time. So please join me in thanking Chris and David for all the great color and insight.