Aptiv PLC (APTV) Earnings Call Transcript & Summary

Great. Well, thanks, everybody, for coming back. Next up, we have Aptiv, an industry leader in electrical architecture, connectors, active safety and early-stage autonomous, actually advanced stage autonomous technology as well through Motional and its JV with Hyundai. I think it's pretty well known that Aptiv has one of the best technology product portfolios in the business lever to all of the sort of mega trends in the industry around safe green and connected a tagline that they've trademark, so I hope we don't get charged for that, but appreciate you all being able to use it. And I think the really important thing as you think about Aptiv is there's a constant rework of the portfolio to really fine tune it and stay at the leading edge of the curve. It actually sometimes really define the leading edge of the curve. And I think some of the recent acquisitions as well as internal investments really lead to this leading edge of technology and push them way out in the front and help the industry move forward. Today, we're very happy to have Joe Massaro, Aptiv's Senior Vice President and CFO; and Glen De Vos, SVP of Transformation and Special Programs. I think you used to be simply CTO, but actually, this is a new title over time, it is probably even more apropos to your role. So Glen, thank you so much for joining us and Joe, thank you so much for joining us today.

Maybe to kick off, there's been a lot of sort of change in the industry in the last 3 or 4 years. active safety was sort of the cat's meow or Level 4, 5, autonomous sort of the cat's meow 4 or 5 years ago, that's kind of died down. Electrification has kind of come back to the forefront, and that's kind of leading the charge. ADAS is still around, and there's a lot of other things that are changing. But maybe you could just kind of more broadly talk about how the Aptiv portfolio has changed and stayed the same as we've kind of gone through this ebb and flow and change in focus and it might be more around the hype that we're looking at on Wall Street that we're missing stuff, and you've stayed -- exactly stayed the course. But maybe you can kind of talk about how the strategy has changed a little bit.

Let me start off and then Glen can jump in because he's been in the middle of this for a long time now. I think if you take a step back and think about our technology and what we've provided, we've really been at the forefront of centralization of compute of technology in the vehicle or content aggregation, right? And it started with single domains where we started to provide larger active safety domain controllers and start to consolidate the various computes within the active safety domain or the various computes with the infotainment domain. What we're now seeing -- what we're seeing now is a big push on a much larger scale for content aggregation, moving in the direction of smart vehicle architecture. And I think to some extent, that has been accelerated by the push into high voltage, where there is a -- we have our large legacy OE customers who have rounded the corner. They are going to have a significant percentage of their production be electrified vehicles. And there's now a portion to rush to get those architectures optimized so they can make money on those vehicles. And I think that's really where we find ourselves today, particularly with SVA. Over the last 1.5 years, we booked over $5 billion of SVA bookings. Those will start to convert to revenues in 2025, but do you want to maybe expand on just how we see content aggregation and where it's going?

Yes. I think as Joe was saying, they're -- really since the [ mid-2018s ], we were involved with domain centralization. And that whole move is to simplify the vehicle architecture. And as more content has come into that vehicle, the need for that simplification has only accelerated. And so what we're seeing now is really the vehicle being broken into zonal controllers. So the embedded portion of the vehicle being aggregated into zonal controllers that simplifies the centralized compute that allows us to serverize that compute. And so with this next phase of the physical architecture that further up integration centralized compute is happening and really is accelerating. And that whole move towards electrification, that's what gives the OEMs, the carmakers, the opportunity to kind of start with a clean sheet. So they're not dragging in all the legacy ICE architectural elements. They're able to start with a clean sheet, use zonal, use centralize compute, and so for Aptiv, what that means is we're right at that point of content aggregation. And so we're seeing, as we talked about back in '17 and '19, we expected that to really the bookings to start happening in '22. That's happened, as Joe mentioned, the $5 billion in bookings. And now what we're seeing as well is the software part of that. So we've talked about the physical architecture of the vehicle changing. Well, now you're seeing the software content in the vehicle, the software architecture changing as well. And so you have the physical architecture to support that software-defined vehicle. You're now seeing that same type of change, bringing together that software, taking it from all those different boxes, moving into much more advanced software architectures. And that's -- again, that's part of that next chapter on SVA. And so we think from Aptiv's perspective, we've really positioned ourselves nicely on the physical architecture and now making that move on the software architecture so that our customers are able to really manage that content effectively.

Okay. I was just going to say, to put it in a context for folks we worked through an RFI from a global OE in the fourth quarter around their next-generation architecture, what we call smart vehicle architecture. And one of their minimum technical requirements for their new architecture was elimination of 75% of the computes in the vehicle and consolidating those into the larger box. So as we've said, we started off consolidating within an active safety domain within an infotainment domain. This is now multi-domains and really eliminating 75% of the computes, the small computes, the discrete controllers, into these large boxes. And that's for what start of production in 2027.

Yes. '26, '27.

'26, '27. So it's coming now and it's coming fast. And that RFI was all about the EV platforms. It was designed for that particular OE's battery electric platforms.

So maybe we could stay on sort of the physical architecture, if you will, electric architecture for a second, and then I definitely want to get into sort of the operating system or the software side as well. But I mean we think about SVA, there's a lot of things going on, right? It's simplification, zonal controllers and the like. But there's also things going on with sort of the connectors and the wires themselves. I mean Intercable, you guys just purchased recently. What does this mean for the somewhat more physical side of it and the advancement of it before we even get into the compute side and how much of an opportunity is there? I mean you just made the Intercable acquisition -- it seems like even in a dumb guy's way of me thinking about it, there's actually still physical advancements even as we're going along with this simplification of the compute in electrical architecture.

Maybe -- if you think about the vehicle, there's a high-voltage component to it. There's a low-voltage component to it. And so what we've been talking about with SVA is largely speaking, kind of the low voltage side of it. ADAS compute, it's all the discrete controllers and all of that. So as we think about the next generation of BEV architectures, it is what we're working on now, couple of things are happening. One is, there's an opportunity really to optimize the electrical, the high-voltage side of that vehicles architecture. In fact, a lot of the first generation of BEVs for produce like Tesla and the NEVs, first generation of BEVs was, well, how do you pack electrification into kind of an existing vehicle platform? How do I electrify something that has ICE and I want to replace that. Well, now you're starting, as I mentioned earlier, with a clean sheet and you're able to really optimize that electrical or the high voltage side of the vehicle architecture. So that's doing things like up integrating the power electronics, the inverter, converter or the inboard chargers. It's simplifying the battery assembly and optimizing the interconnects and the power management, the high-power, high-current conductors that go with that. That's where Intercable can play such an important role because you now can not just simplify that design in the vehicle, you can design those components the way that allows the OEM to insert and assemble that in an automated fashion as opposed to having operators on the line having to put that together, again, lowering total system cost. And then along with that, you have the further, as I mentioned, the further consolidation of compute and simplification on the low voltage side. The next step really is those come together. There are -- those aren't separate domains. There's a portion in terms of the controls for high voltage that can be integrated with low voltage as well. So there's a significant opportunity for further advancement on both the high-voltage piece of BEV architectures as well as that kind of the SVA low-voltage piece of it.

And it sounds like in some ways, like, oh my God, this is going to be really expensive and difficult for the automakers to make the change. And that may be the case to some degree on a direct dollar content per vehicle basis. We -- correct me if I'm wrong. But if you think about sort of the benefits of other cost saves and things that get dropped out and maybe simplicity of assembly. How do you go to market and sell this? I mean, because it does sound like -- it's a huge opportunity for you, but it may ultimately also be a great opportunity holistically for the automakers.

Yes. No. As we talked about at our Capital Markets Day in February, we go into this assuming the solution needs, the direct costs need to come down to ROEs. There's -- as I mentioned earlier in the comments, there is a big push to get to BEV at scale to get to BEV profitably. And we fully believe the next generation of systems have to have a lower cost. Now with that said, one of the opportunities, and I think Intercable is a great example of this. There is an opportunity for Aptiv to provide more content in a system that has overall less cost. And therefore, we continue with our growth over market and our additional content. And if you look at the system Glen was just talking about, this is a real project with a large European OE where we work through the system, a full-in Aptiv system, an SVA system for an electrified midsized vehicle actually cost from -- on a direct basis, about 10% less than that OEs current architecture. So they get a 10% direct reduction. That OE's estimate was another 10% to 15% savings on the manufacturing process because when you do something like when you move to flat bus bars for high-voltage architecture, you actually save on manual assembly in the vehicle assembly plants because you're able to fit those through automation into the vehicle, where rounded cable typically needs to be connected manually. So you're pulling labor out of the vehicle assembly process. So they're seeing anywhere from a potentially 20% to 25% savings on that system. Meanwhile, our contents increased 30%. And when we replace and it's a favorable margin mix from a content perspective because we're replacing round copper cable, which is effectively just a pass-through for us to our customers with more engineered components, more connection systems, things like modular bus bars that obviously enjoy a relatively strong interconnect type margins. So it's a way we've designed the portfolio, but we go in eyes wide open that systems need to say, particularly on the BEV side, we need to be able to show direct savings to the customer.

Can you expand the 10%? Do you think you could bring it to like a 15% savings?

Certainly, as generations go on historically within the industry, you improve upon savings, right? You improve upon the cost. So certainly, over time, I think that can be built upon, but I think a sort of 20-plus percent savings out of the gate for moving to a new architectures, I think a pretty compelling case for sort of the initial move.

Okay. Now maybe stepping to the -- stepping on to the software side of this. I mean Wind River is an acquisition, it seems like it almost gives you an operating system to start layering on to this SVA of thinking about sort of that as the architecture, can you talk about sort of Wind River. Explain to us sort of in layman's term and how that layering on to this electrical architecture almost [Indiscernible] as an operating system plays out? And how does that work?

Okay. I'll start. So it's been interesting because what you've seen over the past really 3 to 4 years as the OEMs have tried to bring together and all the software, a lot of it was, again, dragging legacy software architectures trying to stitch them all together. And our customers have had a really hard time doing that and managing that. And so -- and as -- so we went back, we've done about 85 of these programs over the last 5 years, large-scale systems, software integration programs during -- for demand consolidation, other types of ADAS platforms, these kind of things. So we look at that, we step back and identified the pain points associated with doing that and said, really similar to our conclusion around SVA, we realize you have to rethink software architecture in the vehicle. You can't just be using all of these legacy approaches but we really think differently. And that -- that's what really led us towards looking at Wind River because we noticed that for enterprise software, hyperscalers, aerospace and defense, med tech, telecom, they had already kind of gone through this embedded software distributed around a lot of different controllers into more centralized software and more modern software architectures. And what we found was, they're using cloud native software architectures, containerization to break the software into manageable elements and then also a really, really efficient DevOps, DevSecOps environment for the developers to develop, deploy it, maintain it. And when we looked at that, we said, that's what we need to do in auto. And so Wind River provides a couple of key things. One is it provides operating systems with VxWorks, which is a real-time operating system as well as Wind River Linux for infotainment or non-safety critical applications. It provides an operating system that can support containerization. So we said, look, we have to be able to containerize software, break it into modules with APIs and standard interfaces. So I now am managing software as a platform, not every vehicle, every box just as a one-off. The other thing Wind River does is it can support containerization for safety-critical applications. That's something that nobody else in the auto space can do. And that means I can containerize ADAS. I can containerize propulsion control, I can containerize those features, and that makes me much more efficient in terms of development and validation in support of that. And then the final thing is with the cloud-native DevOps environment, that means I can develop that much, much more efficiently. There's just not enough software engineers in the world to continue to develop software the way auto is doing it today. You can't get enough. You have to become much, much more productive, much more efficient about both developing that code as well as maintaining and deploying that code. And that's where that Wind River Studio, their DevOps environment brings that all together and allows us to get much, much more productivity and then managing that code once it's in the field. So for us, just like SVA was kind of that transformation of the physical architecture on the vehicle, what we're doing with Wind River in that software platform is the equivalent software architecture shift that has to occur in auto for us to really move to that next level.

So does Wind River need to be installed on an SVA architecture? I mean, how does Wind River actually make its way in very layman's terms into the vehicle? I mean, is it do you need SVA as the platform for which is to actually work?

You don't actually need SVA for Wind River products like the real-time operating system to work. That's deployed today. They've been around for, what, 30, 40 years that's deployed in a...

In first win is in an active safety system. So we've got a -- we've announced in February the 1 commercial win has joined Aptiv Wind River, and that was actually deploying that software on a single active safety system.

So you don't need that, but what we see is with that operating system, supporting containerization, supporting that modern DevOps environment, that's when you get the real benefit, when you have that put together. And so it's not required, you can deploy it in a component by component way or discretely, but we think the real benefit comes when you look at that holistically.

So I mean, there's a lot of ways you could think about, I mean, you're talking about DevOps, I mean, there's a lot of ways to think about it. It could be in the actual development of the vehicle from day 1 or it could be in the updating of the vehicle when it's 10 years old. Right? Can you kind of explain what kind of opportunities this opens up. And we're hearing from the automakers more and more, I mean, OTA updates, that's great, that's kind of fixing some things, but then there's also this potential to sell upgrades and all sorts of opportunities over time. It just sounds like -- so it sounds like it's development side, but then also revenue side down the line.

It's really a move from OTA, over-the-air updates of maybe discrete control or discrete functionality to full life cycle management of the software over the vehicle's life from development through the end of the vehicle, right? So enhancements, software fixes, if you think we're in an industry now, you push Tesla to the side, because they obviously have this functionality, but you think software accounts for well over half of the warranty expense in the industry, right? And part of what drives that cost is the need to pull those vehicles into the dealerships and actually put hands on them to update the software, plug the cars into the wall effectively. When you get to full life cycle management with a cloud-enabled operating system and development environment like Wind River has, like Wind River has done in teleco A&D, you then have the ability to upgrade software, correct bugs, those types of things through the cloud. And you've got a tremendous amount of savings and effectively a pay for, we think, from a warranty savings perspective. But then to your point, John, that then enables an OE to have a relationship with the second or third owner of a vehicle or later in the vehicle's life as they can offer new functionality, new features and derive some revenue from that.

As far as sort of the interest in Wind River, I mean, there are some folks that will say, "Hey, listen, the automakers don't want to outsource this. Nice try here, guys, really interesting, but they want to own their own operating system. This is theirs." I mean I know it's early days, but what kind of receptivity have you gotten to this that means Wind River acquisition. And how much of this do you think you can go out and win and be sort of the standard OS for a lot of automakers.

No, [Indiscernible] -- and Glen can go into details. Initial reception has been very positive. We did have a bit of a delay last year between sign and close, but fortunately, prior to the acquisition activity, we had a development agreement in place with Wind River to develop this automotive software stack, and we were targeting 8 OEs under that agreement. And the preexistence of that agreement allowed us to continue to work on it despite sort of being in that prolonged period of sort of gun jumping rules where you really can't go to market as a combined entity. So progress under that development agreement continued. And listen, there were certainly over the last couple of years, a lot of discussion around OEs trying to do more of the software themselves. That has come around to where I think OEs are much more focused on, and Glen can give examples, much more focused on the software that's important to the brand that maybe is directly interfacing with the vehicle operator if it's a case of a highway pilot or such. But really, when you talk about the stack itself, the enablement features, the deployment features, we don't see OEs developing those on their own. We don't think you get to a world in 2030, where there's 20 different vehicle operating systems out there. We think there's 2 or 3, and we think Wind River is very well positioned to be one of those.

Yes. I think, as Jo mentioned, the interest has been really strong because it's coincident with kind of that realization on the OEM side that doing all the software internally is a lot more complicated than I think anybody really fully understood. And that it's best for the OEM to really focus on those brand differentiating or those product differentiating features and not on things that we've already been providing at scale and improving in the industry. And I'll give you an example of working with an OEM on an ADAS system -- Level 3 ADAS system, we're providing -- we're basically providing all the rear inside features, rear cross-traffic alert, adaptive cruise control, kind of the things that are more mature in the ADAS space, where we've got millions of miles of validation on them, and we don't have to redevelop that. We can sell that and just continuously improve it. They're working on more, hey, how do I do Level 3, how do I control that thing, which is going to be a really important brand differentiating feature for them. And so that gets us into a very good position of let us take care of the -- some of the nondifferentiating content that we can bring at a very cost-effective level at scale because we do it across the industry and operating systems middleware falls squarely into that. And that's where Wind River plays. And we think with kind of the reorientation or realignment that our industry is going through relative to OEMs doing all the software, the timing has really been perfect in terms of having that discussion.

I think you guys had a 2025 revenue target for software. I don't know if you can talk about that. And then ultimately, maybe where do you think that goes? I mean, it seems like this is going to be a bigger and bigger component of what you're delivering to the market?

Yes. We provided a couple of targets. The long-term target is for 2030 $3 billion of software revenues. And we believe about 60% of that would be what we call recurring licenses. And that's basically the growth of the Wind River business within its existing industries, within its existing verticals as well as growth of automotive. We've talked about Wind River hitting about $1 billion worth of revenue in that '27 time frame. Last year, they were a little over $400 million. This year, we believe they're a little over $0.5 billion of revenue. So they've got good growth, multi-industry growth, A&D, telecom, industrial automation, they've done a great job on 5G rollouts. They've got a couple of very large customers where they're effectively taking this, Wind River Studio, the DevOps, the deployment module and a 5G tower installation is a robust intelligent edge device. It handles a tremendous amount of signal traffic and processing, it doesn't move like a car or plane, but it's from a compute perspective is very similar. So we continue to see really strong growth there.

If we think about the 2 of these together, once again, now we've got the electrical architecture, right, advanced. Now we got sort of the software operating system on top of it. Once again, going to market, is this a combo product that you think a lot of automakers are going to purchase? Because it does seem like kind of what you're talking about, Glen is like you're taking care of all the fundamentals and they can differentiate on top of it, whatever way they want, maybe Level 3 tweak functionality here and there and make the car a little bit more aggressive, a little less aggressive. But like -- I mean this seems like you've got like architecture nailed, the software, the sort of the operating system, nailed for which the software can get layered on top of, do you envision over time as being sort of a real combo product that's really foundational to what a lot of automakers develop their old product around.

It will be, and it will be a complete system that we will offer. We also have the flexibility to do the components, right? It's not going to be a buy it or not. So certainly, from a hardware architecture perspective, we are really, at this point, if you just think about what we can deliver brain nervous system, the depth of capabilities within the signal and processing business of electrical architecture, but a very large interconnect business now, that engineered components business is well over $6 billion in revenue. We have capabilities that others don't, right? You need -- our customers need to bring multiple parties into the room to have an SVA discussion versus just Aptiv. And now particularly on top of that, to your point, John, the software addition. So we think we're very well positioned for full systems. We'll continue to provide customers flexibility to do other things, and we can continue to provide pieces of the system. And we think we're well positioned in both markets. I mean, clearly, one thing though, that we have seen, and you can see that in the bookings numbers last year in 2022, we booked over $32 billion of revenue that was up from $24 billion lifetime revenues in 2021. And part of what we see happening is these -- as these -- whether it's SVA or active safety, the awards are becoming much larger for a couple of reasons. One, the expense of the system on the OEs cost of deploying a new system of developing a new system is at the point where they've made decisions not to have multiple suppliers doing active safety systems in different parts of the world. So you're seeing larger global awards. And that was clearly the case last year with a couple of the larger active safety wins. The other thing that's driving the bookings numbers, if you think about how we've positioned the business, how Aptiv is positioned, we really don't have any decremental content, right? Where we no longer have internal combustion or ICE-only content. And we historically have not done the smaller domain controllers, right? These small computes that are getting taken out and getting aggregated into the larger compute, we don't do small chassis and body controllers, or power steering controllers, brake controllers. We typically do the large computes. So as content is being aggregated, these awards are getting larger because you're pulling the various computes into the larger compute. And we're not losing content on the other side because we historically haven't done that business. So you do have the benefits of, one, just more single awards, more system-level awards and high voltage or active safety, SVA, but also the fact that those awards are effectively sucking up content from other parts of the vehicle and showing up in the awards that we're able to bid on.

Can you talk a little bit about your Gen 6 ADAS product? I mean, it sounds like it's kind of a sort of a subset of this, but it's real, it's happening. You've had some -- I think you've had with it. I mean can you talk about that?

Yes. Fundamentally, what we looked at kind of the trend lines that were occurring with traditional ADAS. And with the work that we've been doing in particular with radar and over the last couple of years, using AI and machine learning for a training radar basically. And what that opened up was we can do a lot more with radar today than we could even 2 years ago. That's on the same hardware. And so for our Gen 6 platform, what we realized is we really need to accomplish 2 things. One is we need to take system costs down. ADAS systems, we've talked about democratization of ADAS. We've talked about how do we get that deployed more broadly? Well, the cost -- the on-cost of ADAS systems can't continue to grow and along with the number of sensors, the processing and everything else. So we said, look, we have to have drive costs down. The other thing we wanted to do is drive performance up, make it available more -- basically in more use cases, bad weather, sunshine, lighting conditions and doing that. And so what we found was by using AIML with our next-generation radar in just the 4 corners. So getting rid of the forward-looking radar component and then a relatively simple camera vision system, we're able to demonstrate and drive really an L2+ levels, and we did this at CES and to really validate, okay, this system has the perception capability because the radar is bringing so much more capability to do advanced driving activities, do it in inclement weather, do it in poor lighting conditions and direct sunlight, and it gives you the optionality around the vision system. So I could -- in that case, we use StradVision, We plugged that in and a relative newcomer into the vision space and we're able to get that system up and running really very, very quickly. And so -- but again, the whole thesis there is, let's make it much more efficient, fewer sensors, more capability in those sensors, much more capability. Vision agnostic essentially can work with whatever system the OEM would like to plug into it and then drive down that total system cost. And so that's been the goal for Gen 6. A ton of interest there because again, when you take out complexity, you take out costs, but you're able to drive performance, you're now really able to provide for the value -- especially for the value segment vehicles and mass market is needed to get to a Level 3, to get to a Level 3 low speed, Level 3 high speed. So that's the work that we're doing now as well for the '25, '26 time frame.

Two more questions I want to sneak in, but do we have any questions in the audience? Okay. Great. So there's 2 I want to get to. So if you think about SVA, think about what's going on with Wind River in the operating system, if you think about what you're doing on complete ADAS systems. Can you talk about competition in maybe each of those 3 arenas or competition in general? Because it seems like you're out running a lot of folks, including what some of the automakers are doing themselves. Maybe just on the SVA side and then the operating system side and then ADAS?

Yes. I think, listen, on SVA, as I mentioned earlier, we're the only ones uniquely positioned with the brain nervous system, so the complete vehicle system. I think we're really positioned as the only provider of that entire system. Certainly, as it relates to high-end compute in the vehicle, much like our active safety business today with the Level 2, Level 2+ systems, we would expect to continue to bump up against Bosch. That tends to be our main competitor for large compute domains going into a vehicle. On purely just the architecture side, there's obviously -- if you look at pieces of the SPS business, the interconnect business competes with somebody like a TE Connectivity or an Amphenol, well-run businesses, obviously, good competitors, but we've competed effectively against them on the low-voltage side for years and wouldn't expect that to change on sort of high voltage or SVA architectures. As it relates to Wind River and we've evaluated as part of the Wind River first the collaboration effort and then the -- ultimately the M&A decision, we talk to everybody in the software space that could potentially -- could potentially provide to automotive, right? So if you look, there's the existing players, QNX, AUTOSAR, those types of folks. Clearly, competitors at the RTOS level, but we think Wind River has got an advantage when you talk about the development and the deployment environment, certainly something they've invested in, Wind River has invested in and has been successful in, as I mentioned, in other industries. So you could see somebody like a Green Hills or Red Hat come into the space as well, but it's -- as I said, we think that automotive software stack over the next couple of years is a 2, 3, 4 competitive environment. It's not a 20 plus. It's not every OE running their own system. And part of that is exactly what we're talking about with the content aggregation, right? If you're providing in the future SVA state apps, right, just similar to what you have on your phone, but your app is your brake control software or your propulsion control software, you want to develop that in an open environment. You want that developed in an open environment. You don't want to have to pour or develop your software to 20 different systems, right? And so much like we've seen in other areas of technology, we do expect that operating system and that operating environment to be less than a handful versus where I think folks were thinking a couple of years ago that every OE would have their proprietary stack.

Okay. And I'm going to see last -- one last one in here. Sort of an adjacent to all this is power electronics, inverters, and electric motors. Adjacent went out with Delphi spin. You had -- there were some competency before, is there any interest from you or any push from your customers to integrate that in the electric architecture you're talking about? Because it seems in some ways like a natural, it is adjacent is it's separable, but it could be the kind of thing that could make sense for you in adding that to the product portfolio?

Yes. I think as you mentioned, that part of the portfolio went out with the original Delphi Technology spin, here over the past, what about 2 years, I think we've been building up that vehicle electrification systems business. We're seeing -- because of the tight coupling between how do you move power around the vehicle to how do you control it, inverters, converters. We definitely see that there is a place for us to be playing there. And so that's what led us to start up the vehicle electrification systems group, they're looking at their latest generation integrated inverter converter and power electronics modules. So bringing that together, optimizing, taking all -- from all those separate boxes, pulling that together, to drive costs out, and that's what they've been working on. They got their first win here just recently. And so we see that as a very interesting place for us to play. We can use a lot of the same approaches that we have on the low-voltage side but have been building up that high-voltage power management capability over -- really here over the last 18 months or so.

Really, we're -- the theme we're seeing on BEV development, and it's part of SVA, but it goes beyond is power efficiency and mass reduction, right, become very important. And there is a view our customers have that your ability to design a complete system and integrate those components into that system gives you a better opportunity to achieve some of the power efficiency in mass. And even something on the Gen 6 radar, we've -- one of the design requirements or Gen 6 ADAS system. One of the design requirements was better power efficiency and that system uses 60% less power than its predecessor, right? So it's truly a system that can be -- is designed for BEV and can contribute to ultimately, when you get -- when you talk about mass reduction or power efficiency and BEV, you're talking about range enhancement, right? And so you can have an active safety system that actually helps from a range perspective. And that's in part, I think, due to the less -- the fewer cameras and the more use of radar, which is just a better power consumer.

And electric motors I mean because that really -- I mean that management of electric motor is soft -- I mean there's a lot of software in there. I mean, would that be something you guys [Indiscernible]?

We've looked at the motor side. We had a lot of this is probably 3 years ago now 4 years ago, where you had a lot of customer interest in us looking at the motor supply chain. I think we had some customers at the time felt like it wasn't sort of at the automotive grade level. We evaluated it. We made the decision not to -- based on sort of 2 views we had at the time. One, particularly in Europe, you're going to have a lot of OEs focused on the motors. A couple of reasons. One, it was sort of near and dear to the propulsion of the vehicle, they had historically been involved on the engine side of things. And there is an element of I think particularly in Europe, what some of the OEs do with other people, right? There's a lot of folks that work in the engine plants and there was a view that maybe the batteries and the motors would be something the OEs would want to keep to themselves for a couple of reasons. Apart from that, as we looked at it, we also thought there were some very robust players like a Nidec who is a very strong electric motor technology provider, could probably get to automotive grade quicker than somebody like ourselves could get up to speed on motors. And so we may -- we have to prioritize capital investment, so we prioritized around things like SVA, compute, and then the battery management system.

Okay. Great. Just one -- sneak one in before we run out of time. For the bond investors here, the ratings are pretty solid, investment-grade, BBB. If you can maybe just talk a little bit about your leverage kind of goals, targets as we kind of migrate into the bigger EV world?

Sure. No, I think we've done on that -- sort of on that side of the balance sheet. I think the company has done a really nice job over the last few years. I think we took advantage of those very favorable credit markets. We've moved over the past 5 years around numbers. We've moved [Indiscernible] from 7 years closer to 18 years. And I think we've done a really nice job of managing that. Our commitment to our financial policy remains unchanged. We've got a, I think, a good reputation and a good track record with the agencies of maybe we pop up a little bit with M&A above sort of that 2 to 2.2x, but then work our way back down. And I think we've gotten the agencies comfortable that we have the ability to do that. So you may see us do that as M&A comes on, but if you look at the current structure, we've got $1 billion of prepayable debt, $300 million of a term facility and $700 million of a 3-year noncall, one we did last year. And that provides us the flexibility to -- we're just not dependent upon EBITDA growth to delever. We do have the ability to take out some debt if that need were to arise. So I think we're in a very good position and the commitment to the policy remains unchanged.

All right. Great. Joe and Glen, we really appreciate it. It's kind of rapid fire. Lot's of color. A lot we covered there, but we really appreciate for your time. Thank you so much.

Appreciate everybody's time.

Thanks.