Aptiv PLC (APTV) Earnings Call Transcript & Summary

Good morning, everyone. Chris McNally and Doug Dutton here from the Global Automotive and Mobility Team, Evercore ISI. And thank you so much for joining Evercore's 2nd annual clean energy conference. Today, we are fortunate enough to have the gentleman beside me we've worked with for a very long time who always has given us informed and thoughtful outlooks, Aptiv's CFO, Joe Massaro. And for those of you who are unfamiliar, Aptiv global Tier 1 and really a leader in ADAS electrification and then really the future of the car when we think about smart vehicle architecture. Joe, thank you so much for joining us.

Thanks for having us.

And thank you everyone joining on the webcast as well. Joe, maybe for those who are less familiar with Aptiv and their role as a Tier 1. Why don't you just maybe give a quick overview, a little bit of the history since obviously, you've been there even through the transition from originally Delphi and then where we're going.

Sure. So we're in -- Aptiv is in what I'll call sort of it's 11th or 12th year of really serving the safe, green and connected elements of the global auto industry. So we're very focused on product lines like active safety, which we've grown to be over a $2 billion product line this past year, high voltage, providing high-voltage electrification systems to enable the development and the launching of some of the EV models you've seen come out over the last few years. That business organically has grown to be about $1.2 billion in revenue. It's grown at about 30% per year since 2019. So really strong growth, very focused on, again, the safe, green and connected megatrends. And we've done a very good job of transitioning that portfolio over the past 8 years or so to get really to a point where we've got -- run the business in 2 segments, our active safety user experience segment or what we like to call the brain of the vehicle, and our Signal and Power Solutions business, so the nervous system of the vehicle, provides things like electrical architectures. We've got a very large engineered component or interconnect business within there. Recently, last year bought 2 businesses, one got added to each segment. Wind River, which significantly enhanced our software capabilities to help lead the software-defined vehicle as well as a company called Intercable Automotive Solutions, which makes very high-end bus bar solutions for the transfer of power from within the battery of an electric vehicle to the electrical architectures, architecture system itself. So -- and over the years, have really gotten ourselves to a point through divestiture and the spin-off of Delphi Technologies, which was our Powertrain business, to a point where we really have a portfolio that really has no decremental content. We're not tied to internal combustion engines at this point. Our technology can go into either vehicle. As I mentioned, we either type a vehicle or as I mentioned, we have a very strong and growing high voltage business. So continue to develop along that. We've seen the benefits in the bookings. We had a huge step-up in our bookings number last year, which is future business. Bookings for us tends to turn into revenues 2 to 3 years after booking, where we stepped up to about $32 billion in bookings in 2022, up from $24 billion the year before as we saw increased activity around those existing product lines I mentioned, larger global awards as well as our initial bookings for what will be our next-generation product line called Smart Vehicle Architecture, where we really enable the centralization of compute, effectively the serverization of the vehicle, reduce the number of small discrete controllers or computes within a vehicle and really have whether it's 2, 3 or 4 large central computes that control the entire vehicle. And we started to see those bookings come in last year. SVA or smart vehicle architecture has been an initiative we've been working on with our customers since the 2017 time period. But saw our initial bookings last year and actually booked an additional $5 billion of SVA work in Q1, including a single $4 billion award with a large global OE. So as we talked about in our Capital Markets Day in February, really expect SVA revenues to kick in late '25, '26, but really expect that to be the next active safety or the next high voltage in terms of high-growth product lines. And I think that growth historically for us, translates into what we call growth above market. So over the last couple of years, we've grown 8% to 10% above global vehicle production. We expect that growth over market to continue. And actually, as SVA starts to kick in beyond 2025, we'd expect that growth to market to accelerate above 10%.

That's perfect. Maybe we can start with the super basic sort of the production element in the room. It seems like first half has been strong. I think we are seeing the production schedules for the forecast as your IHS, your LMC sort of moving towards 4%. We see about high-single digits in North America, 8% to 10% in Europe and then China a little touch and go. Could you talk about -- look, you're in 1 of every 3 vehicles. Can you mention what you're seeing in some of the key markets and how you focus on the second half?

Yes. Yes. We've -- I think certainly relative to the start of the last 3 years, whether it was 2021 or 2022, obviously, a much more stable start to the year from a vehicle production perspective. Chris is absolutely right. We have content on just about 1 out of every 3 vehicles manufactured globally. So we get a lot of customer schedules. And typically, for a quarter, we're on a very detailed production schedule from our customers globally and then have sort of a robust production forecast that backs that up. Customers have been tracking very well to those schedules. We've seen the North America and China markets fairly resilient, meaning those customers are able to attain their schedules. We had a little bit of a supply chain disruption in a couple of North American customers in Q1 caused by other parts of the supply base, but they've recovered nicely. I think Europe, certainly, our customers were -- had a fairly negative sentiment as we first started planning the year back in December and January, concerned about the war, concerned about energy cost increases and as such, I think those concerns have eased. And I think -- and we're in the process now of working through sort of the schedule refreshes with customers. But certainly, if there's opportunities for upside in the year, you would think it's potentially coming out of Europe if sentiment and stability remains sort of where it is today.

That's great. And then just 2 follow-ups. One of your -- at a competitor's conference, one of your electric architecture competitors actually talked up the full year. And I think one of the things that's hard from the outside is this idea of weighted production, right? So specific to your customers. Is there anything about this year where the weighted production number is sort of different than the global number exposure that we need to think about? Or is that ultimately where it plays out as a forecast from the majors as a good proxy?

No -- no real changes. If you look at our business, we don't do any business of significance in Japan for Japanese OEs. We do serve Japanese OEs, the Toyotas, the Hondas, the Nissans of the world. But we tend to serve those in the European or North American markets. So sometimes one of the differences can be with sort of the global number versus a weighted number for Aptiv, depends on what's happening with Japanese production, right? So our weighting tends to be right around 30%, 35% of our business, North America and Europe, the balance being Asia -- Asia Pacific, excuse me, but really the majority of that Asia Pacific business tends to be China, with very little sort of in-Japan production. And that's been something that's always been the case with the company for years. A couple of the -- I'll say, sort of Aptiv like Japanese suppliers are actually in part owned by the Japanese OEs, so they tend not to source to -- for Japanese production in Japan, they tend not to source to Western suppliers.

And then one last one on production, then we'll move to orders. This stop-start environment. The volatility that first, it was supply chain and it was a little bit about demand caution. How is that going sort of in the middle of the year? We still had it in Q1? Where are we progressing on that front?

A little bit in Q1 relative to prior years, but significantly better. I think manufacturing disruption, very expensive for our customers, very expensive for the supply base. Historically, we would tell you sort of pre-2020 that sort of within that 12-week rolling production schedule, we historically saw very little disruption to that schedule, right? Typically, things are committed to then, materials are flowing. Inventory has been ordered and customers will produce over that sort of rolling 12 weeks, what they expect to produce. And any sort of other adjustments to the schedule would come further on. With COVID, supply chain disruptions, part shortages, we saw significant disruption within those 12-week schedules over the course of late 2021 and 2022. And it becomes expensive. The way the automotive supply chain is set up, certainly at the level we participate, there really is no place to sort of build to inventory. We tend to be building to. In some cases, we build at the bin level. We're building a specific system for a specific car, just matching up to those to the option features that are in a vehicle. So if an OE plant has to shut down, that tends to cascade pretty quickly and can become very expensive. Last year in 2022, we spent $315 million on supply chain disruption costs. And that's primarily temporary labor. When we send the workers home from the plants for a couple of days, we tend to pay them. It's the right thing to do, and it's also very important that they come back. If you send them home Tuesday, Wednesday, Thursday, you need them to come back on Friday. You can't have them out looking for other jobs as well as premium freight and some of the other costs associated with disruption. So we expected it to get better. Our guide for 2023 had the $315 million coming from -- coming down to $180 million. We put $180 million of disruption costs into the guide and are tracking very well to that. Q1 was about $50 million disruption costs. I think some of that North American disruption we saw. But again, that was an improvement of well over $80 million in Q1 of 2022. So disruptions are coming down, schedule consistency and ability to attain those schedules significantly improved over the past couple of years.

That's a good trend going into the second half of the year.

Yes.

Quickly let's move to the secular side of the business, it seems like each year, '21, '22, you mentioned on the big orders, $14 billion in Q1 of '23, that there's this acceleration. Can you talk about where you're seeing the strength in that safe, green and connected essentially smart vehicle architecture, EV and ADAS. Where is that incremental? Because obviously, the numbers are starting to get pretty big.

Yes. It's interesting. It's coming from a couple of places. We are -- and we talked a lot about this in the Capital Markets Day in February. For key technologies, active safety, high voltage, and ultimately, SVA, we're seeing more, what I'll call, system-level wins and more global wins. Historically, in auto OEs would tend to want to split up large awards, put their eggs in more than one basket. There was a view they could get greater productivity out of the supply base. If they either split up a system or split up a particular award geographically. . And I think over time, what's grown -- the appreciation for the fact that doing that with something as complex as an active safety system or something as sort of -- that can be sort of universally leveraged like a high-voltage system actually ends up costing more money. So in 2022, we saw a couple of very large global active safety awards, right? We had a one with the European OE, Active Safety award Q2 of last year, that was almost $3 billion of lifetime revenue. If you go back to 2016, 2017 and 2018, to get $3 billion of active safety bookings, you would have needed 3 or 4 wins. So they're global awards. Active safety is becoming more prevalent in vehicles as more and more vehicles that are having Level 2 or Level 2+ systems. So they're becoming a lot larger and they tend to be awarded now to one of a handful, a very small handful of OEs that are suppliers that are capable of doing these high-end Level 2, Level 2+ systems, Aptiv -- Aptiv being one of them. So the competitive moat to some of it then has expanded. On SVA, it's very interesting, and we think this is a trend we'll see continue for the next -- at least the next decade as more and more vehicles start to develop smart vehicle architecture. SVA or smart vehicle compute, these large compute boxes that are going into vehicles are effectively designed to consolidate domains. You could have a vehicle today with over 100 small discrete computes, doing all different functions in the vehicle. It's -- there's a small compute that's controlling the chassis or maybe there's a small compute that's controlling the power steering or the power management. What happens when you come into SVA is you take a large compute and you consolidate all of these smaller computes, the functionality of all these smaller computes into the larger box. That is what we're calling content aggregation, right? So you used to go out as an OE and source those 100 computes. Now you're sourcing much fewer and the award for the large compute tends to include more of the content. So the award we won in Q1 of this past year was $4 billion global award for what was a system that will have 4 large computes in the vehicle. We call them zonal controllers, sectioned off different parts of the car. One of the minimum technical requirements of that bid when it came out to the supply base was that eliminate -- was that those zonal controllers eliminate 75% of the smaller discrete controllers in the vehicle, right? So a huge content aggregation in, which, again, is one of the things that's driving up the dollar value of the awards that we're currently winning and we believe that this content aggregation will become a long-term trend.

Yes. So Joe, I'm going to ask you a more conceptual question here, but we've seen such strong EV growth across the globe. It's something your business is going to be heavily levered to with some of your '25 longer-term targets. Some of these bookings you just discussed. So how do you internally think about roadblocks or limits to this growth, especially in the U.S., which has lagged due to pricing due to infrastructure concerns and so on. Or alternatively, has the IRA done enough in your view to push us in the right direction based on what you're seeing from customer production schedules and things of that nature?

Yes. No, that's a really good question. So -- as I mentioned, we really started to focus on our high-voltage product line, call it in that 2017, 2018 time period. And we were initially cautious, right? There had been a couple of stop starts in the history of the past 20 or 30 years out of the automotive industry focusing on EV, maybe turning it into a very niche product. There was a small amount of vehicles built. They were cool looking, but they were building 10,000 or 15,000 of them. What we started to see from our customer base, particularly our European and Chinese customer base was a much more of a deliberate pivot where they started to look at large percentages of their vehicle production in '25 -- in 2030 becoming electrified. And what do they need to do to support that? And Initially, we were fairly selective at who we do business with. We continue to be selective, but we really focused initially on who we thought could build EVs at volume. Tesla is one of our larger customers, top 5 customers. So we had grown up as Tesla had grown up with our knowledge of electric vehicles. And at that time, and I think this is -- still holds true to some extent. We have viewed sort of 80% of the EV opportunity from the legacy OEs coming from the Europe and China markets. We always thought those markets would lead. And to your point, there's a number of, I think, questions around infrastructure. I think there's some legitimate use case questions in North America, particularly around the truck and the SUV market as to how you develop an electric vehicle that's -- effectively serves, call it, the heavy-duty pickup truck market, right, those types of questions. But market grew -- I think we thought we saw the world turning, and I think we've seen it. Clearly, the pivots occurred in China, where EV production is significantly outpacing internal combustion production. We've seen our share of wallet grow with some of the top Chinese OEs as they've been able to increase their share of EV. Our business is now about 60-40 from a revenue perspective, 60% global JVs in China, 40% sort of the top called the top 10 Chinese OEs, and our bookings are over the last couple of years have been about 50-50, which means we'll continue to see that pivot as these local Chinese OEs really gained share with the strength of their EV product offering. Europe, again, seeing similar dynamics. North America, I think will lag a bit. We're very well positioned to assist and to work with our North American OE customers as they continue to transition that portfolio. But we do believe a lot of the growth initially is going to come out of China, and we're seeing a lot of the growth come out of China and Europe. Last year, one of the acquisitions we completed, I mentioned it earlier, was a company called Intercable Automotive Solutions. They're on their eighth generation of high-voltage interconnect busbar technology. Bus bars in terms of electrical distribution have been around for, obviously, a lot of years in nonautomotive applications. Intercable was really the leader in developing busbar technology for automotive, very strong position with some of the leading OEs in Europe. It was a smaller family run business. We bought about 85% of the business and are helping them expand into North America. They just felt at the time that sort of expanding into North America, building a plant in Mexico was something that was a little out of their sort of current management capabilities. They were really focused on the business in Europe. But now being part of Aptiv, we've got a plant already commissioned for them in Mexico. They've already been shipping some sample products to North American customers and have already seen some deal funnel -- a significant increase in deal funnel, about a $6 billion deal funnel has really developed since we've acquired that business, and they've actually started to see it translate into bookings. It's about a $250 million revenue business. They've already booked Q1 of this year. We closed on that deal in November of last year. Q1 '23, they booked about $500 million of new business opportunities. So that business as well as our legacy high-voltage portfolio, we expect to grow between 30% and 40% per year. On IRA, for us, the interesting opportunity there would be really OEs bringing electric vehicle production to the U.S. Hyundai Kia is obviously constructing a large manufacturing complex in Georgia. That will work very well with our Mexico manufacturing base and the ability to serve. To the extent there are more cars being built in -- in the U.S. particularly EVs, we're very well positioned to benefit from that.

Joe, maybe we can go and talk about on the electric architecture side. It's always great when we get to think 5-plus years out. Two sort of topics down that next-gen rabbit hole. The first 12-volt architecture going to 48-volt. There was a lot of discussion around Tesla and the Model 2. Could you talk about your sort of how you see that market evolving your technologies and the offering that you can give is obviously, that's something that we'll see pretty much for the first time theoretically with the model?

Yes. No, it's interesting. I think we've even seen a lot of -- even in this relatively short period of time, we've seen a lot of innovation and additional opportunities on the high voltage architecture. And if you have a -- when you have an electric vehicle, you still have effectively a high-voltage and a low-voltage electrical distribution system within the vehicle. And to Chris' point today, they are very traditional 12-volt battery systems are the low voltage, very similar to what's in an internal combustion vehicle. And on top of that, it's the high-voltage distribution system. And the way to think about that, low voltage is powering all sort of the peripheral devices, the dashboards, all the systems that historically have been in cars that need some form of power. Low voltage also manages the signal transmission, right? Your radar sees something on the front of the car, has to send messages back to the compute, has to alert the driver of the car. In some cases, Level 2+ actually makes decisions for itself and applies the breaks or applies the lane-keep technology. All that low-voltage and signal goes through the low-voltage system. The high-voltage system, once you get above 60 volts is a very robust electrical architecture because above 60 volts is effectively a lethal charge, a dangerous charge, that effectively connects the battery to things like the motor, the inverter, converter depending on how the car is designed. So you'll need both systems. As technology evolves, there's been a long-standing question of what happens or how do you design that 12-volt system? Do you increase its capacity to 48-volt to allow it to do more? There's thoughts that at some point, you can have effectively transformers that step down the high-voltage system to power the low voltage. All of that is -- and I think someone is going to drive some very cool innovation. We've seen our initial estimate of content per vehicle sort of TAM for Aptiv in a high-voltage vehicle was about $1,200. We've already seen that expand to $2,300 with some of the innovations on the high-voltage side. And innovation on low voltage should drive the same types of opportunities for us, right? If an OE decides they want, they can do more from a feature set from an option with a 48-volt system that provides more power to the various technologies in the vehicle. That is still a second system. That's still a system that is paired to some extent, with a high-voltage system and flows throughout the vehicle. So I think there's going to be opportunities for us there. We're seeing a lot of opportunity and working very hard with our OE customers to figure out how to take at least round copper cable out of the vehicle. Round copper, very effective at delivering power, but very heavy. A lot of mass -- it brings a lot of mass to the vehicle and somewhat difficult to automate from a production perspective, both in our plants, electrical wire harnesses for something like a large SUV would run half the length of the room and the width of this room, right? It requires a lot of manual labor, both in our plants as well as the OEs manufacturing plants to get that electrical architecture, and it's usually the first thing that goes into the vehicle to get that into the tub. How can we innovate using other materials, things like flex circuitry, ribbon cables, Intercable's bus bars was a fantastic solution, effectively eliminated round copper cable from the battery connections and really not only facilitate next steps in vehicle architecture, but effectively lower the cost of manufacturing the vehicle by being able to use more automation to put these types of things in. And one of the things -- and we focused a lot about this in February, one of the things we are very focused on, in addition to bringing this technology to our customers and in that increasing our available content, increasing what we can sell to our customers, we're also fully appreciative that those systems need to cost less over time. How do we reduce the cost or how do we reduce the mass, how do we make it a more efficient system. Ultimately, we're on this journey where our customers have to make battery electric vehicles profitably. And we believe a lot of our solutions, a lot of our technology can help enable them to do that.

So if we can continue down that road, $2,300 high voltage. You also mentioned flex circuits. Can you help us give a little bit of a one-on-one. I mean flex circuits has been thrown out there for almost like a decade as this white whale. You can reduce the amount of copper in the car, which, again, you are not really being paid for it.

Yes. Copper to us is a pass-through, you're absolutely right.

So can you explain your capabilities in flex circuits internally, whether you install other components? Just a little bit of a background because it is a fascinating topic.

Yes. There's a question, again, the goal -- take mass out of the vehicle, while increasing the effectiveness of the electrical and signal transmissions, right? And so if you think about just -- in a lot of these analogies, you can almost think about the enterprise, right? If you think about how over time, enterprise technology, data rooms have transferred from copper cables that were in, central offices for phone companies to now you go into a data room and there's ribbon cables. It's much more efficient signal processing that goes on, there's lightweight materials. How can you start to use some of those technologies in automotive? Particularly -- and this was going to be more in the low voltage on the signal side, right? You're going to need heavy cable to deliver the high-voltage charges. But we've been working with a number of our customers for a couple of years now on other ways to manage signal within the vehicle. We've spent some time with a couple of companies we invested in, in Israel, where we were using very common twisted pair cable, with very high-end connection systems on both ends. So you get down to a more common medium, but your technology is really within your interconnect systems, around EMI interference, signal processing, those types of things.

Something like balanced.

That would be balanced, yes. Yes. Thank you. So there's those types of ideas, those types of technology. I think they're still somewhat early stage. You occasionally hear folks talk about potential Bluetooth technology within a vehicle, could you do Bluetooth window lifters, those types of things. You -- as folks that know that have ear pads in a phone, right, Bluetooth doesn't always work. So you got to get to the point where these things are, particularly in safety-critical systems can be judged as very reliable. But there's a lot of innovation going on taking mass out for our customers. Again, we don't make a margin on copper. We pass through copper, but our customers pay for it and it's very heavy in the vehicle. So if you can take that out and replace that with newer technologies that make the car overall less expensive but help increase Aptiv content. We think that's obviously a win-win for both. And we used this example at the Investor Day, and it's a very current one, where we had a large European OE come to us with sort of a combination question, smart vehicle architecture, high voltage. They were looking at what their next generation of architecture look like and asked us to sort of design what we thought they should be looking at for a particular range of models. And we came back to them with a solution, and this slide is in the Investor Day deck, where we saw a meaningful decrease in direct material costs to the OE, over 10% direct material costs. That customer estimated they could have upwards of another 20% of savings on the manufacturing side. Again, a lot of that taking labor out and that system had 30% more Aptiv content in it than their current architecture. So we were able to reduce their costs. We were able to make the system much more cost effective for them. But at the same time, we saw a significant uptake in content opportunity as well as, again, when we move into things like interconnects and other technologies, bus bars, that's a much -- there's a margin there for us. We're obviously on round copper cable, it's simply a pass-through. We don't have the margin.

Joe, one last one for me and then I want to leave to the last 10 minutes open to the audience for Q&A. Your $500 of content that goes to $1,200 or even $2,300 in a high-voltage EV. Could you either qualitatively or quantitatively give that sort of walk an example in China, where obviously, we're talking about smaller vehicles, lower battery sizes, if you're making a $15,000 to $20,000 EV work, what's that math in China?

It's -- at least for our China business, it's fairly consistent because again, we're really concentrated on those higher-end Chinese OEs, the newer vehicles, the newer technology. And in some cases, the vehicles, they ultimately want to export, right? So those are held at a, I think, a sort of comparable standard to the global multinational JVs. So we don't see a lot of difference there. Certainly, if you were to go out into the broader there's still probably a...

And the BYDs...

Yes, we're at the BYDs, the GLEs, the Great Walls, those types of customers really building sort of those higher end very competitive vehicles and vehicles that will be -- and I think we're starting to see this, are competitive globally. We tend not to for a number of reasons, do business with a lot of those people tell you there's about 100 OEs in China. We tend not to do business with those smaller regional or maybe state-owned type OEs. They tend not to -- they tend to be vehicles that don't necessarily need our technology. And to your point, when they do, they're not building the same level of sophistication of the vehicles. And those aren't customers that we've historically targeted and wouldn't necessarily expect to even as they transition to EV.

But if we were to take those large global companies, but they're building that cars specifically for the China market, it's a 200-mile range, it's a $15,000 30-kilowatt, what is that sort of electrical architecture system? Can that still be $1,000 plus, it would be a big portion of the Chinese market?

It will be -- and we've gotten this question a couple of times recently. With the smaller battery -- a smaller battery that has less range, but it's still over 60 volts, brings with it all of the safety requirements of high-voltage system, right, even if it's a smaller battery. So what you tend to see and really where the profitability for us comes in on these high-voltage systems, a typical 12-volt low voltage system is about 70% cabling, 30% interconnect, round numbers. A high-voltage system tends to be almost 50-50 and typically requires a lot more interconnect within the system. Once you get above 60 volts, you may have things like safety disconnects for technicians or first responders, right? Where you can -- because you effectively got this sort of lethal power grid in a car when you get to a high-end EV or plus 60-volt EV. Technicians need to be able to depower sections of the car, first responders want to be able to depower parts of the car. You've got a lot more stops with motors and inverter converter type technology where you're seeing a lot more interconnect. So as long as the battery still has that level of voltage you'd expect in terms of certainly hitting the more common safety standards for that type of technology to be prevalent there as well.

Well enough from Doug and I. Questions from the audience. Sean? Well, I always have one. So if we can talk, Joe, when you go through the production outlook, I thought it was sort of interesting that you didn't mention China as sort of a source of concern. To start the year, we had a kind of a weak Q1. We definitely have a little bit of excess inventory from the stimulus of last year. We're seeing better numbers each month as also the economy is reopening. But can we talk about China because that has been a lot of the stop start kind of headwinds in Q1, especially?

Yes. We -- it's interesting. We've gotten that question. And again, to some extent, our view of the market is really formed by how our customers are doing relative to the schedules they gave us at the start of the year, right? And that's as consistent, this 12-week rolling forecast, that's -- there are some nuances region to region on how customers do it. But for the most part, we see this 12-week rolling production schedule. And I would say China and North America have been consistently achieving those schedules. And they were fairly resilient last year as well. So we're seeing good uptake on EV. We continue to see EV being strong in China. Now some of that may be we -- again, just where we're located, we saw heavy disruption last year in China, both Q2 and Q4 was...

Also COVID-related.

COVID-related shutdowns of both our customers and our facilities. And perhaps our customers sort of set schedules with maybe a more realistic expectation or something they were comfortable they could achieve. But we've seen very good consistency of production throughout China. Our view is China is going to be flat, we're sort of 27, maybe a little bit over 27 million units in China and still feel like we're in that range.

That's great. Maybe on the ADAS side. At the Analyst Day, you talked a lot about the RADAR solution. Aptiv is a top 4 manufacturer of RADAR alongside a strong, obviously, vision and ECU business. Could you talk about -- are you seeing a larger portion of ADAS where you're asked to do the whole system as opposed to where you were an integrator sort of bringing the ECU and mobilized camera, but it could have been someone else's RADAR. Are you winning more business as a result of a full system?

We do have some discrete RADAR business where a particular OE likes our RADAR. But for the most part, we're selling full systems. On a typical Level 2 or Level 2+ system, Aptiv is providing 70-plus percent of the software is our own software. We're providing the large domain controller, and we tend to be providing the perception system, mostly radar and cameras. Now on the software side, we're also incorporating whether it's other suppliers or our customer software to complete the system. Vision algorithms would be a good example. We have a couple of customers who are very focused on -- they're going to provide -- and this tends to be if they think it's important to the branding of the vehicle or their brand, how their brand behaves, they typically have some involvement in the software development. So some of the HMI, the human machine interface within the cockpit and in some cases, particularly in Europe, on the performance brands, we're seeing the OEs do a lot of work on the highway pilot, where they believe they're the ones that best understand how their car should drive when in automated mode, and they want to develop that software. It ultimately gets incorporated into our system. Our system is the one effectively controlling that through the compute and the sensor suite, but it's their software that's determining some of that behavior.

And then can you talk a little bit about the internal capabilities for your next-gen 40 RADAR, how that sort of stacks up against some of -- there's some new entrants, the [indiscernible] of the world. How does what you're doing internally stack up on the 40 imaging RADAR side?

Yes. It's a really good question. So one of the -- and we're seeing a lot of what I'll call sort of future requirements for next-generation systems are starting to get defined by electric vehicles. And it's really not a surprise, right? We have active safety systems. We have a large active safety system Level 2 system today that we first launched in 2015 for a performance and luxury brand in Germany. That system is now on both their internal combustion vehicles and the same systems on their electrified platforms, which is great. It's a great extension to the product line. But if you think about it back in 2016, that system was not optimized for an electric vehicle. And as we're getting into longer-range development with customers, one of the things we're being asked to do is make sure we consider how the system behaves on our electric vehicle. And at CES, at the beginning of this year, we launched our sixth generation active safety system. It incorporates and we call it radar-centric, it incorporates more radar units and less cameras than our prior generation. Two main reasons for that. One, it's less expensive. So again, my earlier comment about how to get with more of our own content, how to get systems -- how to get the cost of systems down. So the system is about 25% less expensive from an onboard perspective than its predecessor. But because of the switch from camera -- vision-centric to radar-centric and as well as a few other enhancements, that system is effectively 60% more power efficient than its predecessor. So it's ideal for an electric vehicle because if you can get to that level of power efficiency, much like mass reduction and EVs, it's a direct translation to range, right? It's a direct translational range, and it's an easy range enhancement. What has enabled us, to your point, on 40 RADAR, what has enabled us to replace some of the vision technology with the RADAR technology is advancement we've made in our RADAR algorithms, on our eighth generation of RADAR algorithms within Aptiv, 40 RADAR, it allows much better interpretation of what the radar is seeing. So it starts to enable the RADAR to do some of the work that historically the vision did with object detection, some ability to do some localization. You still need a camera. There's still a camera in the front of the car for things like traffic, signal recognition, traffic sign recognition, redundancy around pedestrian and collision, both the radar and camera, so to share that responsibility. But really opened up the opportunity to put more radar in the vehicle, creating both the cost advantage as well as the power efficiency.

And then Joe, why don't we maybe end on smart vehicle architecture. I mean the way I think about it is it's EV and ADAS or maybe in the next 10-plus years, SVA is really the next 20 years of the company. You've obviously acquired Wind River. Maybe just for some of the generalists on the line and in the audience, can you talk about the type of introductions we'll see in 2025 or it's more zonal whereas we get full systems closer to the 2030 time frame, where it's really hardware and software and disaggregated.

Yes. No, that's a good point. So smart vehicle architecture, again, the consolidation of what could be up to 100-plus computes within a vehicle down to a -- think of sort of, again, think of what's happened with the enterprise, right, much more consolidated compute, distributed systems get put into data -- get put into data rooms, the laptops, the desktops over time have become more powerful, right, enable you to do more with a single device. That's effectively what's going to happen in the vehicle over the next 10 years. And some of our OE customers are starting with the zonal approach, which is saying, okay, we want to put 4 big computes. In my earlier example, eliminate 75% of the smaller computes. We have a couple -- particularly a couple of Chinese OEMs who are going right to give me one large central vehicle compute a CVC that's going to do a bunch of the functionality in the vehicle. Ultimately, we would agree. It goes to maybe it's 2 or 3 sort of CVC central compute -- they share some redundancies. They're able to back each other up, which gets important when you get into sort of level 3 of the car -- the car controlling itself, you need redundant systems. That -- I think we've been a leader in sort of driving that physical to hardware side of that consolidation, both conceptualizing it in 2017 and 2018. And then starting in 2019, working with our customers through some advanced development programs on how it would actually work in the vehicle. And I gave that example of a customer coming to us and saying, okay, what would your view be and where we were able to save the money and increase our content. When River, which we completed the acquisition last year, we had actually selected in 2021 as our development partner to create the software stack that would go on these large central computes, right? We had the hardware down. At one point, we thought maybe the automotive supply base around software would come together and sort of provide the industry with a solution for these larger computes. They need to run as you think about it, one of the challenges with the 100 different computes in the vehicles, not only just the physical number of compute, but they all run their own different software, right? Maybe there's some commonality around RTOS, but they're all designed differently. They're very hard to coordinate. They're very hard to wire together, which is one of the reasons legacy OEs have a challenge today of delivering maybe some of the same over-the-air software type services that Tesla does. Tesla's consolidated its computes. It's able to obviously do a lot through the cloud, harder for legacy OEs because there's such a bunch of small boxes in the cars, right? And you have this -- you have a concern inherently, if you touch a box, particularly if you touch a box in a legacy architecture over the air, not only do you got to make sure you've updated that box correctly, but you got to make sure you didn't have any negative impacts on other boxes, right? And a good analogy we often use today to explain this is the car today is the equivalent of your iPhone if every time you wanted to download a new app, upgrade an app or download the new iOS, you actually had to go to the Apple store and hand on the phone for 45 minutes, drink a cup of coffee in their lobby, and then they give you the phone back, right? That's where the car is today for big software upgrades, legacy OEs, you have to go to the dealers, they plug in the car and they work it that way. And with smart vehicle architecture with the addition of the Wind River Software, that really starts to get to a containerized software stack on redundant computes that effectively is then enable sort of software life cycle management over the cloud, effectively where a lot of the consumer electronics are today, but to be able to do it in -- with the safety requirements that's something that the car would require.

That's great. Well, I think that's time. Joe, it seems like a lot is going after this way this year and for years to come very much look forward to that Q2 update. And everyone, now let's give Joe a round of applause for coming in today.

Thanks, everybody. Thanks, man. Appreciate it.

Thank you.