Aptiv PLC (APTV) Earnings Call Transcript & Summary

All right. Hello, everybody. Thank you so much for joining us for this keynote session with Aptiv as part of Deutsche Bank's Global Automotive Conference. My name is Emmanuel Rosner, and I'm the lead U.S. autos and auto technology analyst here at Deutsche Bank. I'm extremely pleased to be joined by Joe Massaro, who is the CFO of Aptiv for a fireside chat. As you all know, Aptiv is a leading global supplier that develops solutions to make vehicles safer, greener and more connected with a focus on signal and power distribution, connected vehicle, ADAS and user experience. The company is also working alongside Hyundai through its motional JV to bring autonomous having solutions to the market in the coming years, and we're very excited to discuss all of these trends with you, Joe today. Thank you for being here.

Emmanuel, thanks for having us.

So I guess just starting maybe with the current environment that you're seeing, hard things playing out so far for Aptiv in the second quarter. How do you feel about the rest of the year?

I think from a -- sort of if you take a step back for the year, we still remain very confident with our guide. This was a year of some of the disruptions around supply chain and were heavily impacted last year by COVID in China. We expected those to ease, and we've seen those ease. Sequentially, business continues to improve as we move from Q1 to Q2, and we expect that trend to continue in the back half of the year. From a vehicle production perspective, we see customer schedules, holding a lot less disruptive than they've been over the last couple of years, and that's really a global comment. I think all 3 regions are sort of behaving in line with our expectations. So relative to the last couple of years we've set up here, a much less disrupted environment, and I think an environment that's well positioned to continue to develop positive trends throughout the balance of the year.

That's encouraging to hear. And certainly, a difference this is previous additions. So how are you seeing the industry volume playing out both globally and by region? Is down 1% still your base case assumption on the customer-weighted basis?

Certainly something we're taking a look at. I think we have -- our expectations going into the year that North America and China would be flat. And as I mentioned, where those markets are fairly resilient, and continue in line with those expectations. Europe, I would say sentiment has certainly improved since our original guide. I'm sure folks recall, at the end of last year, early this year, a lot of concern in Europe around energy price and impact on economy, potential recessions. I think that sentiment has improved. There's still some challenges, but certainly, our customer sentiment has improved. We'll be working with our customers over the coming couple of weeks, end of June, early July at -- looking at revised schedules, updated schedules and to seeing what extent that materializes into increased productions. But certainly, European sentiment has improved, which is a positive.

And I guess when you take a step back, what do you view as the biggest risk factors and opportunities for this industry in the second half?

Listen, I think we've -- given the level of disruption to the industry from supply chain, COVID, China impacts, I think there's a positive for the industry of just not having those, right? Getting back to sort of a normal operating cadence, whether it's through the supply chain, customer orders, customer schedules, fewer disruptions. I think that's a positive trend we've seen in the beginning of the year and -- at least based on what we've seen so far, there's a labor question in North America that I think has to be resolved. We don't have answers to that now. But apart from that, really have not seen sort of anywhere near the level of disruption, and I think that's a positive. As we've talked about in the past, and I know other suppliers talk about, I know the OE, our customers talk about it, production disruptions in this industry are just -- are very costly, and they become very costly very quickly. Last year alone, we spent about $350 million on supply chain disruption costs. Within 2023, we have that coming down to about $180 million. So we see improvement within what we've guided for the full year, and Q1 and Q2 are really in line with those expectations. So hopefully, I think the biggest positive would be just a continuation of that trend. The other thing we're seeing, we continue to see very strong growth in some of our core product lines, high voltage, active safety as well as strong bookings. We had almost $14 billion of bookings in Q1, very -- almost a record quarter for us. Well, we're on track to book over $32 billion of business in the full year. Bookings for us will always be a little lumpy. So I wouldn't assume a sort of a straight line $14 billion, but $14 million -- I'm sorry, $14 billion every quarter, but we'll see a strong bookings growth continue throughout the year.

And then schedule volatility from your customers, how has that progressed year-to-date?

As I mentioned, they've very much in line with expectations. So significant improvement over the last few years. We did have -- as we talked about at the time of the earnings call, we did have a couple of North American customers that saw some sort of -- some impacts from supply chain, not related to us. But that wasn't sort of the shutdown kind of impact that just limited the amount of vehicles they could produce after a particular type. We saw those return to normal volumes at the end of Q1 and have continued. So very significant reduction in what I'll call sort of overall schedule disruption from where we were over the last 2 years.

Okay. I guess just putting a finer point on some of these cost factors over the rest of the year. So first quarter margin started. And you had a pretty solid top line beat. I think the first quarter margins maybe underperformed investor expectation. Your message has been that margins and earnings in general, should see a strong upward trajectory throughout the year, but I think your full year outlook on the revenue is kind of about 4x what you did in the first quarter. So what are the main drivers of expected sequential earnings improvement? You spoke about the disruptions? Any other big pieces?

The covenant supply chain disruptions will start to come down, and we've seen those come down. That will continue. We, last year, put through a fair amount of price increases to our customers as a result of direct material inflation. So we'll continue to see the benefit of that. And we had some periods of time last year where we were incurring the costs prior to the recoveries kicking in. So there's sort of a positive lapping of that from prior years, where we now have the recoveries in place and make for a favorable, not just a favorable sequential but a favorable year-over-year comp. And we're seeing strong performance from our manufacturing and materials organizations, right? One of the challenges, and when we had supply chain disruptions or we had plant closures or customer cause disruptions, we often talk about the cost of those disruptions. And as I said, last year was about $350 million. One of the other things that gets impacted, though, if your -- is your ability to sort of work on continuous improvement within the operations, and we had a really strong track record prior to 2020 of delivering year-over-year material and manufacturing performance. That's -- those processes were just naturally disrupted. If you're operating a plant and you're dealing with customer shutdowns, you're dealing with these other types of issues, that tends to become your focus and your annual productivity initiatives, sort of by definition, have to be moved to the side. You're dealing with sort of the crisis at hand. As disruptions and production schedules, disruptions go away and production schedules smooth out, we're able to turn back on that sort of those muscles around year-over-year performance and initiative improvements, which we started seeing some traction on at the end of last year and expect that to continue. And we talked about it at our Capital Markets Day in February. There is a strong return of that in our outlook for all the way through to 2025.

Can you dimension the impacts from the nonmaterial-related inflation from freight, labor, utilities expected this year? And how the ability to offset these through pricing or customer negotiations?

Well, a lot of -- it depends on sort of how we bucket things, right? A lot of things like transportation costs, normal course, energy cost, normal transportation costs, we really put in the performance bucket. Our expectation, and I think it's a fair expectation our customers have of the supply base as well. Those type of costs, we need to figure out how to operate better and offset. And that's something historically we've been very strong at. Price increases to customers, we really focused over the last year on the direct material inflation, right? We have a semiconductor, in particular, with a significant impact for us. You had a semiconductor. We saw 25%, 30% price increases in semiconductors a couple of times last year, work its way through. And we -- those are the type of increases we impact to customers. Some of them were directed buys, meaning the customer told us to use that particular semiconductor or some of them were the only chip available for that system, just given the requirements of the system. And we talk through with our customers increasing for those direct materials. Things like normal operating cost, that tends to be what we offset with material and manufacturing performance.

FX was a fairly noticeable headwind in the first quarter, particularly from the Mexican peso. What are you expecting over the balance of the year in terms of impact on the business? Or are there steps that could be taken to mitigate the impact on a go-forward basis?

Listen, we have -- obviously, we're a global organization. We've been in Mexico since the '80s. We've got a large operation in China. So we do have normal course mitigation plans in place, hedges in place and such for those types of currencies. We did see significant swings at the tail end of Q1, strengthening of the peso and a weakening of the RMB. Those tended to, I think, create a little bit more, what I'll call transaction FX impact at the end of the quarter as we mark those balance sheets to current market. If we look out, rates have remained relatively consistent, those rates remain relatively consistent in Q2. We haven't seen some of those 10-plus percent moves that we saw towards the end of Q1. So we're sort of transacting at those currency levels. So wouldn't necessarily expect to have as significant an impact as it did in Q1. Right now, if you look sort of above our internal expectations of the full year guide, FX, right now, if these rates hold is about a $40 million impact over our guide, about half -- a little over half of which we absorbed in Q1. So we're now down to a manageable number for the balance of the year, assuming these rates hold. So I don't think, at least based on where we are on June 14, we're expecting significant transactional impacts. Long term, listen, it's hard, right? We're in China. China is the largest automotive market will be in China for a while. We're going to need to manage through this FX, but there's really not a ready mitigation strategy and very much the same for Mexico. Mexico is a very effective base of manufacturing operations for us. We have a large presence there. And to the extent you're seeing a stronger peso, that's in part because of the strength of that Mexican manufacturing operation. And I think some of their ability to take on some of the sort of regionalization and some of the manufacturing, broadly speaking, that's coming out of China as the world sort of regionalizes. And it's going to be an operating cost that we'll have to put into our performance map go forward and work to offset. But that big spike we saw in Q1 was really the effect of sort of some very sort of end of quarter significant moves.

Maybe 2 more questions on this year's outlook. But so First on AS & UX, so the margins were just under 5% in the first quarter. Your guidance calling for like 8% to 9% segment margin this year. That's basically a double-digit margin exit rates, that's probably where the steepest curve is in terms of start of the year towards the end of it. What -- how do you expect to get there? And what gives you confidence in this inflection?

Yes, listen, obviously, it's -- we continue to be confident in our full year guide. We've got a lot of initiatives in place. FX did impact. I think ASUX, that segment was about 4.6% for Q1 that had a negative 110 basis points from FX. So the initial expectation would be much closer to 6%. So obviously, we have a little bit of work to do to get back there. But if you look just long term, how that business has been improving in building. I mentioned the cost -- the price increases that went through to customers. Given the majority of those increases were on semiconductors and electronics, that segment, despite being the smaller of the 2 revenue segments of our business actually bore the majority of those costs. So the price increases pass-through to customers will significantly benefit the ASUX segment. Because that's where those costs are. We're going to see strong volume growth. We're going through a heavy launch cycle in Q2 and Q3. Volume flows at about 32% at the EBIT line, incremental volume, whether that's coming from our growth over market or increases in vehicle production. And we have the addition of Wind River, the software company that we bought last year which contributes. So I call it, an EBIT margin of right around 20%, contributing to that segment as well.

And then in S&PS, the margin already exited 2022 above guided range for this year of 11% to 12% or so. Do you see tangible upside opportunity for margins in this business? I guess what are the drivers of the 11% to 12% for this year?

Listen, I think you've got -- that business has been a very strong margin performer and it's closer to returning to sort of its pre-COVID levels, is some investment going into that business as we continue to see launch activity increase. The FX impact, there is FX in that business as well. But certainly, we'd continue to see that business should continue to improve margins. As we provided in the Capital Markets Day, that business is, call it, about $14 billion of revenue within there. We have a $6 billion interconnect business. So I think tea connectivity or Amphenol, a leader in interconnect for automotive and continuing to expand beyond automotive, so very strong margin profile. But yes, I would expect that business to continue to be a strong margin performer as we go forward.

Let's turn maybe to the midterm targets. And obviously, you had the Capital Markets Day fairly recently. So as we look to 2024, 2025, with potential industry volume recovery, continued growth above market. What is the contribution margin we can expect for you relative to your historical average?

Yes. We've historically said this is revenue at the EBIT level for the total business, it will flow on incremental volume somewhere between 18% to 22%, has been a historical range. Remain very confident with that range. We're actually -- I would expect us to be either at the high end or slightly above that over the next 2 years, primarily as those COVID and supply chain disruptions come off, right? So we've got a heavy burden in the 2020 P&L. I mentioned the $350 million. As those come off, will flow a little bit higher than that 22% over the next couple of years. But I do think that 18% to 22% range is still a good modeling range to use. I believe this year, we're closer to 24%, 25% of some of those coveted supply chain disruptions come on.

Are you specifically targeting 14%, 14.5% company operating margin in the 2025 time frame. So beside the volume contribution, which you just addressed, which is a meaningful bucket, a major contributor will be your performance bucket, which I think at the time of Capital Markets Day, you quantify that $1.7 billion...

$1.7 billion. Yes.

$1.7 billion revenue during this time frame with only $400 million guided in 2023, I guess, in the 2023 guidance. So what is included in that $1.7 billion? And what will drive this magnitude of cost savings?

Yes, that bridge in the Investor Day went from '22 to '25. So a big single piece of that $1.7 billion was obviously the $350 million of COVID and supply chain disruption costs coming out, right? We had it in '22. Don't expect to have it in 2025, get better over that period of time. So the $350 million is a one big single piece. And as I mentioned, we're seeing those costs come down significantly, both on a sequential basis and a year-over-year basis. I mentioned $50 million in Q1 of this year, that number was well over $80 million last year Q1, right? So we're seeing some significant year-over-year improvement in addition to sequentially getting better. The remaining balance, there is really comprised of a couple of things, and I've sort of referenced them earlier, material and manufacturing performance. So think of the remaining $1.3 billion, think of the vast majority of that being almost evenly split between material and the 3-year impact of material and manufacturing benefits, where leaning out the operations working to ensure that as we grow and will continue to grow 8 to 10 points above market, that we're leveraging our existing infrastructure, our existing capabilities. Something that -- and again, if you go back to sort of pre-2020 and all of this disruption, we were very good at. And that sort of 3-year total, very consistent with the performance, annual performance we would have put up in the 2017, 2018, 2019 time frame. So not necessarily anything new or heroic, but really getting the business back to how was operating before the disruptions. One of the other piece in there, material savings, I mean, we're very good, obviously hard to see over the last couple of years given the direct material inflation, but our organization does a very good job of leveraging our supply base, particularly with the level of bookings, that we have, right? So typically, what we'll do is we're in the process of bidding or winning award with our customer, we'll bring our key suppliers in with us into that bid, right? They're involved that early. So we have a not only a really good sense of what the pricing will look like for that customer award from our supply base, but also leveraging that incremental volume with the suppliers to make sure that we get the pricing and the annual performance. And just like we pay -- give our customers in automotive a -- on average, we average about 1.8% annual price downs. There's annual productivity that comes from our supply base as well to us. And that's included in that performance number.

I guess, it seems to me, but correct me if I'm wrong, that you're assuming in the 2025 targets, some sort of like normalization of industry and macro condition, and I think some of these costs coming out. And to be fair, there were obviously meaningful headwinds over the last few years, including semiconductors inflation and supply chain and COVID and higher R&D and choppy industry volume and tariffs. But is it the case that every year, something else seems to pop up in the auto industry and that -- there is no real normalized year in terms of industry conditions, or do you think this is different?

Listen, I think that's a little bit definitional. I think you have to be careful both as an organization, both internally and externally, defining too many things as nonrecurring or one-off. I think for us, 2020, 2021, we saw -- and into 2022, massive levels of disruption that I think sort of rise above and beyond what I'd call normal auto behavior. In the course of 2020 alone, we were fully shut down for almost 12 weeks during the course of the year because of COVID, right? That is a massive impact to the organization and something that I think certainly sort of goes above and beyond what I'll call sort of the normal operating type issues that you'd expect to deal with. There are always changes in customer schedules. We don't control global vehicle production, right? So that's obviously a variable that we need to manage. But I think the difference is over the last couple of years, the impacts over the last couple of years have been of a magnitude to not just Aptiv, but the industry that truly make them unique. I think as we get back, and we're starting to see this. As you get back to 2023, we're back -- we're more much back into a normal operating cadence, and wouldn't expect the levels of disruption or the levels of costs that we had to incur. Like I said last year, supply chain disruption costs alone for us were $350 million. That's an order of magnitude that we have never seen as a company prior to sort of this 2020, 2022 time period.

As we look out to 2030, I think you're targeting margin structurally higher towards 17% in the latter part of the decade, what drives this stronger -- essentially what drives the stronger margin profile as we get there?

Yes, it's really a growth of key product lines, not only from a global vehicle production volume recovery. We expect we're not long-term bears on vehicle production. We expect global vehicle production to be about $89 million in 2025 and grow from there. But our growth over market, which is consistently running at 8% to 10% above global vehicle production. We actually see it accelerating post 2025 above 10%, driven by continued penetration of electric vehicles in our high-voltage business which will be -- this year, about $1.5 billion in revenue, it's growing 30% annually. And margins at this point that are at or slightly above the segment, the SPS segment. Active safety will continue to grow as we move, not just from the Level 2 business we have, but start to deploy the Level 2+ awards and ultimately in to Level 3. Our software business will continue to grow significantly. With the addition of Wind River, again, that's -- that will be over $0.5 billion of software revenue this year, mostly nonautomotive. That's a well-diversified software provider, but we expect that automotive business to grow considerably between now and 2030. We expect to have about $3 billion of software and smart vehicle compute revenues by 2030. About 60% of that software revenue will be recurring. Recurring license fees that won't be just tied to a unit of production. So we'll go through a -- and are going through a fairly significant transition in terms of the nature of the products, the margin profile of those products. They tend to be higher-margin product lines now, and we expect that to continue, and then really the addition of the software business.

Let's shift gears maybe to some of your technologies and growth opportunities, what kind of content and the revenue opportunity do you see from the smart vehicle architecture system at scale compared to what's in the electrical architecture systems today. And what is the time line for starting to see these revenues and growing it.

Yes. So for us, for those of us -- for those of you who know us, we've been talking about our smart vehicle architecture concept for a number of years now. We first introduced it in 2017. And really started to see what we call advanced development projects, so advanced engineering products, projects with our customers take off in 2019. And smart vehicle architecture really is the redesigning of the underlying vehicle architecture to not only optimize cost and performance, but start to consolidate, particularly compute within the vehicle, to effectively serverize the vehicle, right? Vehicles today can have, in some cases, 100 small various computes throughout the vehicle that all do different things, all run on different software, that makes development costs more expensive, that makes warranty and maintenance costs more expensive. And it ultimately limits the vehicle's ability to be managed through the cloud, right? The one exception to this really being Tesla. And for those of you familiar with Tesla vehicles, you can really see the difference between how Tesla can manage their software architecture within a vehicle versus the broader industry. And this serverization or the smart vehicle architecture, we really view as a way for the broader industry to take that next step. Work through a number of advanced development programs with customers. Over the past 6 quarters, we've booked $10 billion of Smart Vehicle Architecture business. Those programs will start from a production perspective in 2026, which is when you'll start to see that revenue. Typically, our bookings can be sort of 2 to 3 years out until you hit revenue. So our expectation is we'll start to have meaningful SVA revenues in 2026, could have some starting in 2025, but sort of see a meaningful inflection beginning in 2026. That's a high-end compute product line. So we expect margins in sort of those mid-teen levels at volume, which again is going to help with the incremental margin growth as we get out into 2025 and -- 2025 and beyond. And just to give you sort of an order of magnitude of what we're seeing here because we do think this is a meaningful shift in vehicle architectures. We won an award. In Q1, a North American OE for the Smart Vehicle Architecture, it was a $4 billion -- one award worth $4 billion, which is a very large single award. And there's a couple of reasons why those awards have become larger. One, as an OE starts to think about next-generation architecture, particularly for electric vehicles, they're going to place it across all their platforms, right? Electrical vehicles, and we've seen this with. Obviously, Tesla being a great example and a leader in the space. But legacy OEs, looking to standardize platforms, looking to standardize their architectures across models. So because this is going across multiple models, it's a larger award. The other thing that's very exciting for us and something we expected to see, but it's always great to go from sort of expectation to actually seeing it. And a win with customers is what we call content aggregation. And the system we want are 4 large zonal controllers, 4 large computes that will consolidate a number of smaller compute platforms into the vehicle into these 4 zones. The technical requirement from the customer on this bid was that these 4 zonal computes eliminate 75% of the smaller controllers within a vehicle, right? So chassis control, power steering control, propulsion control, all those types of smaller computes are now being pulled into these larger boxes that we'll be making for this customer. Very positive for Aptiv because that's all incremental content to us. We typically make larger compute platforms, software around things like infotainment, active safety. We don't make the smaller discrete controllers within a vehicle. So this is all new and incremental content for us. And this -- I think this aggregation, based on what we've seen from the $10 billion of SVA bookings we've done to date as well as our we're working, we've got 9 active advanced development projects with customers on Smart Vehicle Architecture. We think this content aggregation is going to be something that is a big driver of content growth for us.

Maybe 2 more questions. First one is on ADAS. I think historically, you've spoken about fairly high win rates among the semiautonomous solution Level 2, Level 2+ plus. How is the competitive environment looking now? Are those win rates still as high? What is really the driver...

Yes. We saw -- as we launched our first Level 2 active safety system in 2015. It was a very robust Level 2 system. Since that time, I'd say we've seen the competitive moat expand significantly around Level 2 and now Level 2+ systems. Our largest competitor in that space is Bosch, and continues to be. Very strong active safety wins last year and the beginning of this year. So I would say that from a win rate perspective and a competitive landscape perspective remains very consistent with what we've talked about in the past. Our strengths really in that space come from a couple of things. One are -- our software expertise, and this was sort of pretty Wind River, we were a very strong application software developer for the automotive industry. So things like path planning, sensor fusion, radar algorithms, all software applications we had worked on for years. And I believe we're sort of a recognized leader in the industry for that. We're also very good at large systems integration. So when you have a Level 2 or a Level 2+ active safety system, it's obviously one of the more significant systems that go into a vehicle, right? It's a large compute, heavy software, a lot of sensors throughout the vehicle, whether it's radars, cameras, and it ultimately gets integrated into the vehicle control systems, right? If you think of something like autonomous emergency braking, lane change assistance, lane change -- lane keep. Those are systems that ultimately wind up participating in how the vehicle is controlled. So there's a fair amount of integration that goes with designing and ultimately deploying one of those systems in a vehicle. That is one of our key strengths. And typically, on a Level 2 system, we may do about 70-plus percent of the software ourselves, will tend to incorporate software from our customers or in some cases, other suppliers to complete the system. And again, all of that integration work tends to be a fairly heavy lift. Like I said, I think Bosch is a strong competitor in that space. It's actually that know-how around large compute and systems integration that I think has set us up so well for SVA. And we -- a number of the SVA wins we've had to date are with our legacy Level 2, Level 2+ active safety customers who I think have grown -- who's have confidence in our high-end system integration and development capabilities.

Let me ask you about Mobileye. So there the other sort of marketing this supervision, essentially Level 2+ solution, which can go into like high levels of autonomy. If they're successful with it, is this good? Is it bad? Is it neutral for you? I guess I'm trying to understand if you compete with what you're offering? Are you working together on this? Like what is the opportunity here?

Well, historically, they've been one of our -- historically, they've been our primary vision provider. So as I mentioned, we do about 70-plus percent of the software ourselves and will incorporate others. So in that case, that would be their vision algorithms, and their vision system that comes into our active safety system. So obviously, a technology leader from that perspective. I would expect them to continue to be a strong vision provider within the industry, have seen some competition with Envision. Obviously, we -- there are others that I think are competing for space or -- and we announced this at CES this year, our Gen 6 active safety system that we launched actually at the request our customers is fundamentally sort of a vision agnostic system. It can work with Mobileye, it could work with Qualcomm, the system that was on the road at CES actually works is actually using the vision system from a company called StradVision which is a Korean AI-based vision company. So we certainly expect them to be an important partner, an important partner to go forward. And I think, listen, I think any technology that helps enable continued adoption of Level 2, Level 2+ active safety systems, enables the industry to over time move to a Level 3 system. I think it's a positive for everyone that participates in that space.

Let's talk about Motional. I think my question to you at the Capital Markets Day was -- I don't see a slide about Motional on the Capital Markets Day. So first of all, in terms of operational update, what is Motional targeted time line to have fully autonomous vehicle, I guess, driverless vehicles on the roads. The revenue target, but then most importantly, just trying to understand the commitment of Aptiv to Motional. How important is it as part of the strategy?

So motional, for those who don't know, is a 50-50 joint venture we have with Hyundai. It was formed in March of 2020 and where Aptiv contributed are what we referred to back then as autonomy or our Robotaxi business. So business that was focused on the development of a software stack in a sensor suite that would enable effectively Robotaxi's, vehicles operating without a driver in a geo-fenced area providing some type of service, whether it was package delivery or passenger delivery. We contributed that technology. Hyundai contributed $2 billion into that joint venture, $1.6 billion of cash and $400 million engineering services commitment to help them get that technology into vehicles and get those vehicles on the road. It's progressed well from a technology perspective. They're on track from a road map. They received permission last year to go completely driverless on public roads. They do most of their driving, most of their testing in Nevada, which we found to be sort of a more cost-effective place to develop that technology than California. They were originally in California, and we went a little bit east to for talent and cost reasons. So they're fully driverless. The technology has been now deployed in a battery electric vehicle by Hyundai Ioniq 5. So I think from a technology perspective, continue to track. Commercially, they've entered into 3 meaningful commercial agreements to date. They will need to do more, and we will need those 3 existing to ramp, obviously, over time. But one is with Lyft, who's been a partner on some development rides in Las Vegas for a number of years. But Lyft now has a commercial agreement to go into multiple cities starting this year with fully autonomous ride-hailing available on the Lyft app, and 2 agreements with Uber, one for passenger transportation and one for Uber Eats. Uber Eats is currently being tested in Southern California, where they've got effectively they call it trunk delivery, but it's a box in the back seat of the vehicle that delivers food to Uber Eats customers. So good progress on the commercial side continue to need to see that develop, obviously. And they're working hard on other ways to monetize that technology. So they're working with both Aptiv and Hyundai on Level 3 solutions is the ability and how best to do it from a cost perspective of taking their Level 4 technology and bringing that down to solve some of the open industry questions around Level 3. And that's something that's in flight now as well as other uses for the technology outside of the Robotaxi market. Over the last few years, they've been utilizing the cash that Hyundai put in the joint venture, they have is a question we get a lot. They have cash until about this time next year. So we're obviously starting to look at what are the funding options for that business. Obviously, maybe a more difficult capital market now than maybe it was 2 or 3 years ago. So we're evaluating to the partners put in another year of funding. They spent about $550 million of cash a year. So the partners would split that number, maybe do a year funding, evaluate capital markets after that. So we're still working through that. But again, we remain committed to the space. And committed to the technology. One other thing I'll say, if you look at sort of we often get the question, how do they compare with the Waymo or crews. I think from a technology perspective, very well. We've had folks that have been in all of those vehicles. We actually provide some technology to those vehicles as well. I think from a technology perspective, they compare very well. The difference really is the business model where Motional intention is not to become a ride-hailing service. We're not building out an app. We're not building out a customer front-end motional. They're really a technology provider of what are effectively Level 4 software and systems to help a vehicle or to control a vehicle through sort of effectively the Robotaxi type activities.

And just your comment on capital markets and not being there now and maybe, let's say, a year from now, I guess, what is the intention there? Is this to...

Listen, I think it's -- whether it's capital markets, whether it's another partner, whether it's a private funding, our view at the moment is they need to be a little further along from a commercial perspective before we bring in another partner. I think we're certainly open to thinking through that. But at this point, I think for us, for the 2 existing owners that them taking the next couple of steps from a commercial perspective, and building value that way probably makes the most sense.

Awesome. We have a few minutes left for any questions we have in the room [indiscernible].

Joe, I really appreciate the time. Just wanted to ask about the price cost relationship you guys are expecting over the next couple of years. It looks like even excluding the $350 million of the COVID and supply chain costs, you're still expecting price net of the performance improvements to be a positive number over the next 3 years. I think looking back pre-COVID usually, your price downs were larger than performance. So I guess, is that a paradigm shift and you think the supplier earnings growth algorithm from here? Is that some level of catch up? And what gives you the confidence that the ultimate your customers are going to accept that level of productivity improvement not being fully passed through?

Yes. I think the majority of what you're seeing in those bridges is the catch-up, right? It's the sort of $600 million plus coming through. Our expectation, and it's included in the guide is that as you work through sort of this bow wave of material inflation, we would return to normal price downs with our customers. Our approach was very, as I mentioned earlier, was very specific about passing on direct material, particularly on things that were directed by. Those direct material costs were passed on to the customers with the expectation that we'd return to sort of the normal contracting practices that we had with our customers. And as I'm sure everyone knows, automotive does have annual price downs. We've tended to range -- to be between 1.5% to 1.8% price downs per year. We've included about 1.8% in that Investor Day model, so would expect that. But I think if you look at the walk, what you're seeing on there is just sort of that sort of catch up that's coming through from the direct material inflation. And as I referenced earlier, we've got the same dynamic on the material inflation side, right, where we experienced a large increase in direct material costs, but we do have annual productivity commitments from our supply base, and you'll start to see those sort of reset at the higher level and start to come through from a material performance perspective.

Any other questions?

Just one quick follow-up on the FX impact. I want to clarify, I know it was $65 million in 1Q. And today, you're saying that it's $40 million for the full year. Is that sort of implying that in the back half, we have a positive benefit for...

No, $40 million above the guide. So some of that $65 million would have been -- we had assumed some FX in the guide, right? So you're really dealing with above the guide. We're estimating right now, it's about $40 million above the original guide for the full year.

And what was the original guide for the full year for FX?

Included within FX, I'd have to come back to you on that. It's $40 million higher. About 20 -- Q1 was about $25 million above our internal, we didn't guide for Q1. So Q1 was about $25 million above our internal expectations. We expect full year to be about $40 million above the guide. So it's -- think about it as a $40 million headwind for the guide.

One quick last one in the back.

So going forward, if we're returning to a normalized price down environment, but if we remain in a higher-than-normal inflationary environment compared to pre-COVID. Do you have to find higher operational performance savings than you did in the past to deliver on that plan? Or are you expecting there will continue to be annual inflation adjustments from customers to give you back the higher inflationary environment?

Listen, it was a little bit of a manuals question. There is certain inflation, and this has always been the case, which is on the supply base to go and figure out how to deal with ourselves, right? We need to increase annual productivity to offset costs. We're not of the view that our customers will or should pay for every increase that goes on to the business. We have to run the business better every year, and that's really what you see coming through in those annual performance commitments. And I'm fairly sure our customers would agree with us from that perspective. I think if we were to go through another, which was truly unprecedented, right, we ahead 3x in 2022 with 20% to 25% price increases on electronics and semiconductor. And again, for certain things that we're directed by our customers tell us we want to use that chip in that system. So go by that chip. And I think if we were to go through another period like that, we'd have to go back and have discussions with customers, right, and work through that the way we've done over the past year. But there is an obligation on the supply base to offset material place like there is for any business. It's not necessarily everything that you can push through on pricing, and how to make your operations better where you choose to locate your operations, how you engage with your supply base. And I think we're well positioned to do that, particularly with the market growth. I think one of the advantages we have, particularly on the material performance side, but even when you think of just the manufacturing footprint, we've gotten the business position in such a way growth over market is going to remain very strong. We're 8% to 10% through 2025. We believe that goes up post 2025. And we have positioned the business in such a way that we really have no decremental content from internal combustion going away. Within ASUX, we have active safety systems, the same active safety system that goes into an electric platform that goes into an ICE platform. We've got a high-voltage business that's been growing at about 30%. So as you look at Aptiv relative to other automotive suppliers, we're a fairly attractive customer for the supply base, because we're not managing a portfolio that in part is decreasing because ICE is going away and some of it's growing because of electric, right? We've really got ourselves well positioned to not go through a round of decremental content here. So That, combined with our overall growth, I think, puts us in a very good position to a very good position to drive productivity within the organization. I think one of the other important thematics, I think, in the industry, and you heard. We talked about this a lot at Investor Day. Kevin was very clear on it. We often get the question, how are our customers going to deal with all the investment, right? How are they going to be able to afford to do the battery transition and put all this new technology in the vehicle. One of the ways they're going to be able to do that is by having supplier partners that are very good at providing technology at lower cost, right? And we had a couple of examples of this at Investor Day, and I think it's important to talk about we -- as part of our Smart Vehicle Architecture initiative, we had a large Europe that came in and said, you give us your design for how we should roll out a Smart Vehicle Architecture. What would you guys suggest. Here are our current architectures, Here's what we're trying to do, what does Aptiv think we should do. And we delivered an architecture system to them that had a meaningful cost reduction in direct materials, plus 10% less expensive than their existing system. The customer estimated the changes we made in the system would provide them an additional 15-plus percent, 20-plus percent savings on cost of manufacturing that vehicle versus the current state. And at the same time, we had 30% more active content in the system we designed and then their legacy system, right? So we were able to provide a system that significantly enhanced our content opportunity, but at the same time, save the customer a significant amount of money. And I do think there's -- that's going to be an important thematic as we go forward, particularly with the higher levels of technology going in the vehicle. You have to has a supplier, you have to have a value proposition that saves the OEs money. You have to help them bring down, particularly on the EV side, bring down the overall cost of the vehicle.

Awesome. Very [indiscernible] and thank you so much for the conversation.

Thanks for the time everybody.

Thanks everyone for being here. Thank you.