Autoliv, Inc. (ALV) Earnings Call Transcript & Summary

More life saved, more life lived. That is what we are all about. Autoliv has grown from a 1950s start-up into a 21st century global leader by staying true to our purpose and our vision of saving more lives. Welcome to the Autoliv Capital Markets Day 2021. My name is Gabriella Ekelund, and I'm the Senior Vice President for Communications at Autoliv. This is a virtual event. We will be broadcasting for around 3 hours, and there will also be a possibility to ask questions. You will do that by using the chat function in the webcast or any of the phone numbers as listed on autoliv.com. By my side, I have Anders Trapp, Vice President of Investor Relations. Hi, Anders.

Hi, Gabriella.

What we will be sharing here today?

Today, we will talk a lot about the growth opportunities that we have. We will talk about the challenges that we face every day and how we manage them. We will also talk about the profitability opportunities that we see, including how we streamline our operations and the supply chain. And above all, we will talk about how we intend to create shareholder value. But before that, we will talk about the safe harbor statement, which is an integrated part of the presentations and the Q&A that follows.

Great. Thank you, Anders. And with us today, we also have Mikael Bratt, our President and CEO. Welcome, Mikael.

Thank you very much.

It's now 2 years since our last Capital Markets Day and quite a lot has happened since, wouldn't you say?

Yes, absolutely. But first, let me also take the opportunity to welcome you all to today's Capital Markets Day. And it's great to be back here and talk about Autoliv journey. When we met in Utah in 2019, we rolled out our new midterm targets as well as the road map connected to them. And a lot of things have happened since then. I think we're making good progress towards our midterm targets as well as we have added new ones. And earlier this year, we launched our ambitious sustainability targets for 2030 and 2040.

Sounds good. Anders, I believe we will be focusing on all of this today, right?

Yes, absolutely.

I know you have a lot planned for us today. Would you like to kick this off?

For sure. So Mikael, could you please elaborate a little bit on what's happened since we met last time, both for Autoliv and for the automotive industry in general?

Sure. I think the last 2 years has been very challenging, both '20 and '21 has been impacted by the pandemic that we, to some extent, are still in, especially when you look at the impact this has caused us. We saw, of course, the industry coming to a halt during the second quarter last year. We saw a ramp-up, production increasing during second half of last year. And through 2021, we have entered into new challenges when it comes to supply shortages as a result of the COVID-19 situation, you could say. And I'm thinking here primarily about the semiconductor, and that's something we are still facing. But despite these challenges, the automotive industry are still moving forward when it comes to the megatrends that we see impacting the automotive industry.

Anders, what would you say, what the trends have the largest impact on us?

There's several trends that are very, very important. But I think it's clear that sustainability has become one, if not the most important trend that we need to focus on. On top of that, we have electrification that's been around for a while, but it's now kicking in for real. And of course, ADAS or advanced driver assist systems.

Yes. No. And sustainability is one of the more important, I would say, megatrends that is impacting not only the automotive industry, but many industries, and it's definitely one of the most important for Autoliv.

And we'll shortly be digging deeper into the subject of sustainability and also our climate targets. But what is Autoliv's position on sustainability?

I mean sustainability and ESG is really the essence of our business, saving more lives is our business. And I think that fits very well into the overall sustainability and ESG ambitions here. And when we now have launched our new targets here, it fits very well to our long-term strategy here in many ways. And we are also here working very closely with our customers in their transformation into a more sustainable future.

So what does this mean for us in a little bit more detail?

I think it means that we are making sure that we are competitive today, and we are competitive tomorrow, and we will stay ahead of the curve here and leading the work in terms of transforming automotive industry and our part of the automotive industry into a more sustainable future. And we will have more details coming through the day today here in later agenda items in our program here. So a lot of exciting things is happening there. And we have also established our green bond framework. So we have that supporting us also for our investments needed in the future.

So Mikael, what can you say about the other megatrends that we need to focus on?

I think the electrification of vehicles is a megatrend that is very important for us. And that's a megatrend that continues to evolve very fast. We see the speed picking up when it comes to new electrical vehicles being launched. It's very visible right now, I would say. We saw already last year that 4% of all light vehicle produced is pure electrical vehicles. And by 2025, we expect it to be 20%. And by 2030, it will be 40% expected. So quite quick ramp-up here, I would say, and a fast speed here. And Autoliv is well positioned in this segment here. We actually have a slightly higher market share when we look at the EV and hybrid portfolio than if we look at the total portfolio. So well positioned here for the future.

Yes, the EV trend is very, very interesting indeed. When we look at the content per vehicle right now when it comes to the comparing electric vehicles with traditional ones, it's a significant difference with a higher content vehicle in electrical vehicles. So we're going to talk a bit more about that later today. And as an indication of how important it already is, already last year, we had about 10% of our sales that went into either electric vehicles, fully electric vehicles or plug-in hybrids. And we think that, that figure will basically double this year. So the third trend ADAS, what can we say about that?

I think despite some delays in the development towards autonomous vehicles, we see that still a lot of things are happening in that space. And we are working very closely with our customers when it comes to the future layouts in the vehicles. And I would say also in, let's call it, existing layouts in the vehicles there is a lot of relevant development going on there because we see the need, especially on the passenger side in the traditional layout requiring more advanced solutions in, for example, more reclining seats. So we are working in parallel here with adopting the layouts of today, together with the layouts with the future here. So still a lot of things going on in that area.

So would you say are the megatrends, the most important driver for our growth?

I would say the megatrends are positive for our growth, especially looking midterm, long-term perspective. I think in the short term, it's still very much the traditional growth factors that is taking place. We see emerging markets catching up with more mature markets when it comes to content per vehicle. And also in the mature markets, we see the content increasing with more sophisticated products and more products into the vehicle and as we touched upon here, the electrical vehicle transformation is also a part of that. So when we look at content per vehicle growth, we are indicating that we believe around 2% will be the growth going forward here to be compared with 1% that we have indicated in the past. So actually, we see that figure being doubled here when we look at the combined emerging and mature market development when it comes to content per vehicle.

We will dig in much more into the growth opportunities that we have and what we expect later today, especially beyond 2024. But until then, what can you say more about the growth opportunities?

On top of the core growth that we have mentioned here, we also see opportunities within what we call mobility safety solutions that will add to our future growth. And we talked about adjacent business opportunities in Utah in 2019. That is now formed under the heading of MSS. And we will have Per Lindeberg, our new Vice President for MSS coming also here today and talk more about what's included in MSS and how do we look upon the opportunities going forward, still building on our core competencies inside the company.

So adding MSS to the equation, what does that mean for our growth opportunities and growth targets, especially?

Today, we are updating our targets and the growth targets up to 2024 is light vehicle production plus around 4%. And beyond 2024, we are talking about 4% to 6% organic growth. In the 4% to 6%, we see contribution coming from continued content per vehicle growth, light vehicle production growth as well as MSS contribution into the 4% to 6%. So we are looking at quite some exciting years here in terms of growth opportunities for Autoliv.

It sounds really that we are quite confident in our own capability of creating growth. Unfortunately, there is an external factor to consider also and the light vehicle market. So what do you think about that?

We are positive about the light vehicle production outlook. I think right now, we are in a situation where we have supply issues in the industry. Semiconductor, I mentioned before, but we've also seen in some other areas where we have constraint, but that's an industry challenge. And when that is solved, we believe that we will have a very strong recovery, again, of light vehicle production. And I would say here that we believe that also in the long term, we have growth drivers coming from GDP growth as well as the attractiveness of changing into new vehicles and the whole electrification drive also transition into new vehicles. And we should also remember that we have had weakening light vehicle market since 2018, basically. So there is also a pent-up demand to get into light vehicle again and buy new vehicles. And if you look at the U.S., the pipeline there is at record low levels. So I think we talk about 2 million to 3 million vehicles just to refill that pipeline to what's a normal level. So once again, we are positive when we look at light vehicle production going forward.

So we're pretty confident on the growth situation. And of course, growth is always nice to have. But what we do to transfer this into improved profitability, cash flow and ultimately, shareholder value?

Our CFO, Fredrik Westin, will come back here later in the program and talk more in detail about it. But in short, it's all about securing that our growth is profitable as we move forward here. And I think the combination with all the efforts that we are doing today, but also with what we are adding to our road maps here as we move forward, will contribute to profitable growth, transforming that into liquidity and then returning that to our shareholders through dividend and buyback programs here.

Yes. Already back in 2019, we outlined how we are going to improve our profitability, our margin by 300 basis points through major productivity improvements, through the normalization of the market situation and, of course, to outgrow the light vehicle production by 3% to 4%?

Yes. And we will show today that we are making good progress on those activities that we have outlined here. And I feel very comfortable that we are delivering on what we can control ourselves here. And looking at the growth, we are outperforming the market. Last year, in 2020, we outperformed the market with 5 percentage points. For 2021, we're expecting to outperform with 8 percentage points. So what we once again control, we control that well.

Yes, that's pretty good, of course. What are we doing on the productivity achievements? Are we progressing also there?

Yes. We are delivering well on our programs here, and we have made a step change when it comes to our productivity. And we will spend more details -- go into more details later on today here, especially in supply chain as well as in operations. But we're staying well ahead on the development there and doing a good job. And I would say that that's despite the very challenging environment here. So good progress.

And speaking of which, Christian Swahn, Executive Vice President, Supply Chain Management; and Magnus Jarlegren, Executive Vice President, Operations. We'll continue -- we'll come back and show us what we have done and what we continue to do to improve. And Mikael, how is this reflected in our ambitions and our targets?

We are also here updating our target when it comes to our adjusted operating margin target of around 12%. And we are also talking here about the framework to get there. And here, we're saying that we need at least 85 million vehicles in light vehicle production a year. We're also saying that the raw materials cost increases should not go beyond the level it has reached in 2021. So we are confirming our targets here of what we disclosed in 2019 despite the headwind. So a significant difference on the light vehicle production levels. We talked about more than 90 million at the time. And when it comes to raw material, we had no increases of raw materials included at the time. So that is what we are now absorbing our targets, you could say.

That is a pretty strong target setting, I would say, considering that the framework is so much more difficult compared to what we said 2 years ago. So how confident are we on reaching these targets?

I think when we look at the progress we are making and the activities we are implementing here, we feel that we can with that and the expected recovery of light vehicle production then introduce a buyback program of up to USD 1.5 billion. So we have a clear road map here.

That's also a pretty bold statement to come up with a big buyback program when the market visibility is still pretty poor.

I think when we look at our performance when it comes to generating liquidity and cash here during the last 2 years in this very volatile market, we see that we have generated USD 1 billion, where USD 600 million has gone to paying down our debt. We have dividend out $220 million of that. And altogether, we have restored our balance sheet, and we have leverage ratio that are well within the range and very close to our target of 1x net debt-to-EBITDA.

So you could say that the progress towards our targets and the buyback program sort of will go hand-in-hand?

Yes, you could say that. And we have come a long way here and we see very clearly here when we look at the opportunities to continue to deliver on our road maps here. And it comes down, of course, to dedicated people and committed people that we have in the organization and makes me very proud to see the dedication that is in the organization here to fight the short-term challenges at the same time holding on to the more long-term initiatives leading towards our midterm targets. So good work from the whole organization here.

So when people leave this Capital Markets Day in a few hours, what do you want the main takeaways to be?

I think it's really 4 things. First of all, growth. Growth coming from content per vehicle, light vehicle production increasing. And we also see the MSS opportunities. And in the short term, we also have our market share growth. And as we have indicated in the past, we are believing that we are heading towards around 45% market share. So good growth opportunities going forward. Then the second one, I would say is the profitability side, where we are making good progress on the activities that we have laid out and that we are controlling what we can control and we do it well ahead of our time schedule here. And we will, of course, continue to add initiatives here necessary to continue to drive productivity on top of -- hence, then the headwind that we have talked about here. The third is really the increased return to our shareholders, and we're launching then the buyback program here of $1.5 billion in the next 3 years to come. So I think that's a very strong signal. And fourth, but not least, I would say, is also the sustainability targets that we have committed to. And 2030 and 2040, very important dates and years to remember here in that ambition there. So fully committed on all 4 items here.

All right. Thank you, Mikael.

Thank you. Thank you.

We will spend the next couple of hours digging into the details behind this confidence. And at the end of the day, we hope that and expect that you are as confident as we are in our ability to reach the targets.

Thank you, Anders. And today, we also announced in our press release an update on our sustainability framework and our climate targets. And as Mikael said, this is a strategic pillar for us. So I'm now joined by Per Eric Ericson, Executive President, HR and Sustainability; and Kaisa Tarna-Mani, Vice President of Sustainability. So having just heard about how we describe sustainability as a key strategic area for us. Per Eric, can you tell us a little bit more about Autoliv's approach and our way forward here?

Well, it starts with who we are and what we do. And saving more lives is what we do. That's the overall vision. It's the guiding beacon, it's a true north in everything that we do. And thereby, also, the starting point and the very foundation for our sustainability agenda. We know that our products every year save more than 30,000 lives and prevent more than 300,000 severe injuries. Obviously, very proud of that. However, we set out a goal to save 100,000 lives by 2030 and then move beyond that and expand from that. We know that road traffic accident is the leading cause of death among young people globally. Obviously, tremendous harm, tragedies to people impacted, to humans, but also a substantial burden on society. And we can and we are, through our expertise, through our ideas, our products and our solutions we are contributing to cutting the road traffic accidents by half, which, by the way, is the overall ambition also set by the United Nations. So we provide safety to our customers. They pass that on to the user of the vehicle and send them off on the safe ride. And we're very proud of the contribution all this work brings to the society as a whole. So saving more lives, that's our core business, and we're very passionate about it and what it brings. Now our sustainability agenda goes beyond that. So saving more lives is obviously the core, but we also focus on creating a safe, inclusive and attractive workplace for our employees as well as for other stakeholders that we interact with. We also manage our resources, reducing impact on environment and aligning and lining up our climate actions accordingly. And we conduct our business in a responsible, compliant and respectful manner. And in all these areas, we have targets set up. We have actions in motion and acknowledging, obviously, that our responsibility goes beyond our own operations.

For sure. Thank you. Kaisa, earlier this year, we announced our ambitious climate targets. Could you elaborate a little bit on what they are and how we intend to reach them?

Sure. So first of all, our new long-term targets are a significant step up in the ambition level compared to our earlier shorter-term targets. So why are we doing this? Our operational environment is really changing fast. We see a clear shift in our customers and our investors' expectations and requirements. And we want to make sure that we will meet or even exceed those expectations going forward. Referring back to what our CEO, Mikael Bratt, earlier said. So in essence, for us, this is really about positioning ourselves as a supplier of choice also for those most ambitious customers in this area and thus securing our long-term competitiveness. So during the year, in addition, setting our targets, we have also carried out an extensive assessment of our all value chain emissions. And we have also elaborated a number of company-wide initiatives, which will help us to meet our new targets.

Perhaps you can shed even more light on that.

Sure. So let's start with the first target. So carbon neutral in our own operations by 2030. We do have a good understanding what we need to do here as we have been measuring and working with this so-called Scope 1 and 2 emissions already for several years. And by far, the most important measure we can take is to transition to use low carbon electricity in our operations as the electricity use represents 75% of our total Scope 1 and 2 footprint. In addition, we will continue working with the energy efficiency, which naturally is also good from the cost perspective. And we also need to replace the remaining fossil fuel equipment, such as natural gas furnaces at our facilities with electric options.

Great. So Per, when it comes to the supply chain, what are Autoliv's long-term ambitions?

So we've set the ambition to be net 0 throughout the whole supply chain already by 2040. And this is over and above what we've achieved today and build on what Kaisa just described. I mean, we know that the climate challenge is a challenge that we all face and the decarbonization and the transformation of the supply chain is a challenge for the whole industry, but also an opportunity for us. And we believe that we can add value, both to our customers as well as to our suppliers in making this happen. Obviously, that will require collaboration. It will require a partnership. And yesterday, our announcement, I think, is a good example of that type of collaboration. We announced that we are going to, together with SSAB, the global steel company, develop fossil-free steel components that can go into our products. And this is just only one example of the number of areas that we need to address in order to achieve net 0 across the supply chain. So drastically reduce emission from our products, may that be steel, as just mentioned, but may that be plastic, textile, magnesium, and increase the components of recycled, reused and bio-based material. It's also about continuing the transition to low carbon electricity also with our suppliers. It's about optimizing and adopting carbon -- low carbon footprint solutions in our logistic chain. And it is about not last, but not least, providing green products. Green products that not only add low weight, but also add better material and thereby supporting our customers in their transition.

Right. So we've been talking about our financial targets here today. Will these initiatives make it harder for us to reach our financial targets?

It shouldn't. I mean this is value creation, isn't it? And I think this will also help us position ourselves as a driving force in making this happen across the whole industry. And it will strengthen our position as a preferred supplier and a preferred partner in the whole supply chain.

So again, then how will this work be concretized to break these targets down for management, for our operations and also for communications around this?

Well, if we start with internally, so these targets, these activities that we've talked about here, they are already cascaded throughout the organization. Actions are in motion. And we will now follow this up through our normal course of business and any target achievements will obviously also influence our incentives.

Kaisa?

And when it comes to our communications to the market. So earlier this year, in June, we announced that we will commit to elaborate science-based targets and also join the business ambition for 1.5 degrees coalition. Since then, we have submitted our science-based targets for validation and are waiting for approval. In terms of transparency, we are also stepping up. In this year's sustainability report, we will have a much broader climate disclosure, which is aligned with the TCFD recommendations. We will also disclose our Scope 3 emissions. And naturally, we will continue reporting to CDP. And at last, I would also still like to mention the example of that we have published today our sustainable financing framework, and you will hear more about it later today with our CFO, Fredrik Westin's presentation.

Thank you, Kaisa. Thank you, Per, for outlining our sustainability agenda and our climate targets and how we aim to turn that into our future competitiveness. And we now move from one cornerstone to the other, growth.

Thank you, Gabriella. So you heard Mikael earlier today talk about that we actually expect a higher growth rate in content per vehicle going forward than we did expect just recently. And we're going to spend quite some time now drilling into why this is the case. But first, let us begin at the beginning, why we are here?

The 17 UN Sustainable Development Goals are put in place to ensure that our future society is good for our economy, for our society and for our planet. A healthy economy is dependent on a good society and a good society is dependent on a healthy planet. One target, the Target 3.6 is to half the global burden of road traffic fatalities. That is to reduce the 1.35 million fatalities by 50% from year 2021 to 2030. This decade of action requires more than business as usual. It requires that we work on creating a safety culture and also to work with a safe system approach to ensure a safe, sustainable and attractive transport system. Enablers for these new transport systems are electrification, automation, connectivity and transport on-demand and the new transport system will be multimodal. Another thing that is important to develop this transport system is data. We need more data to understand how people are injured in the road traffic system. We need data on road user behavior and also data on how to follow up the improvements that are made. Another important aspect is policymaking and we see a push to take a larger responsibility for the private sector. This can be done with voluntary standards as well as safety footprint and there are new updates with UNECE regulations as well as customer rating.

So I have here with me Scott Dershem, Vice President of Development and Innovation, who is standing in for Jordi, who couldn't make it to join us here today. And Megan Fisher, Senior Vice President of Sales. Welcome.

Thank you.

Thank you very much. Cecilia just showed how important saving lives is for Autoliv and our society. And she also highlighted how important it is that we develop safety for the new modes of transportation. In this area, though, we are not alone. For instance, the United Nations is also driving goals to reduce injuries or fatalities by 50% by the year 2030.

So how are we at Autoliv supporting this?

Autoliv has always been very active in collaborating with several organizations, including the Indian government, crash testing institutions, the Global NCAP and insurance companies to promote traffic safety.

So how this will affect future crash safety in vehicles near term? Let's see what Cecilia has to say.

Even in modern vehicles, we observed serious and fatal injuries. And we need to increase the robustness of the safety systems to protect for a more diverse population and no matter if you seated in the front or seated in the rear seat. This will be driven, of course, from real-life safety but also with regulation and rating. In the upcoming ratings, there will be a big need for as well as adaptivity and also virtual testing to increase robustness. We already see today upgrades when it comes to the IHS front-load case where there is a rear seat dummy that will drive load limiters and pretensioners in the rear seat. We also have upgrades in the China NCAP and in Euro NCAP on pedestrian safety that will drive piston hood lifters and also pedestrian protection airbags. There is also a drive for minimum safety standards in vehicles. And for instance, India is 1 example where in addition to the driver airbag, the passenger airbag will be mandatory from 2022. And there is an ambition to go to 6 airbags inside every new vehicle, which we see the same trend for all the emerging markets. So in addition to the consumer testing in developed countries, we see the introduction of a minimum standard requirement in emerging markets.

As you just saw, we continue to provide technical evidence and support to influence the upgrades to the new government regulations and the test conditions.

So historically, what has this cooperation led to?

Historically, our initiatives have been very well received by governments in these test facilities, which also makes us confident in a continued growth for both new products like front-center airbags and an increased penetration of our existing products.

Yes. You talked about increased penetration, but perhaps the greatest driver that we see is that the content in our existing products is becoming more advanced. For example, steering wheels and seat belts in more developed markets are certainly seeing this trend.

Yes. So let's talk a little bit more about the growth markets. In markets such as Brazil, China and India, we see that there's a main driver or a push or a desire for global standardization or global harmonization of the standards. With this goal of having equal safety or same safety of the vehicles for -- same safety for all the vehicles around the world.

Yes. I guess, South America is a particularly interesting example.

Yes, South America, mainly Brazil, we've seen significant increases in the content per vehicle in the last few years. Penetration rates for side airbags and curtains have increased rapidly.

Yes. And this has had a major effect on the content per vehicle in South America. It's gone up by more than $40 in just 3 years. And last year, it was up at $160, which is pretty impressive.

Yes, it is. And you talked about Brazil and South America, but another area and another country that has developed a long way with content per vehicle and safety products is China. So when you look at China, as you know, Anders, there's 2 groups of OEMs that we have there. So we have global OEMs that are producing vehicles in China, and then we have domestic OEMs. And if you separate the 2, the global OEMs, when we look at the content per vehicle on their vehicles, it's actually right in line with what we see as the global average, which is around $240. And then looking over to the domestic OEMs, it is significantly further behind, but we're starting to see some trends there as well in a positive way. So some of the domestic OEMs actually have ambitions to export their vehicles to other markets. And where we see this, their content per vehicle is actually increasing as well. A few examples there are like Geely and Great Wall.

Yes. In India, we also see major opportunities. 5 years ago, the only safety content in their vehicles was a basic seat belt program that probably wasn't even a 3-point belt system. A number of years ago, we started an initiation -- an initiative to work with the government of India to promote more road safety. And as noted earlier, the driver airbag now is mandatory on 100% of all the new vehicles in India. And starting next year, the passenger airbag will also be mandatory for all their vehicles. And looking forward in India, we also see more take rates and more interest for side airbags and inflatable curtains.

Yes. So we have a good progress in many growth markets. And if you look at them combined, I think we can say that there's -- we expect a pretty good growth between now and 2024. And we have very good visibility into this because most of these sales is already secured business. And looking in totality, we're expecting about $14 of increase in content per vehicle in the growth markets, reaching about $216 by 2024. And that's actually more than 2% per year in growth in content per vehicle, and it's mainly due to higher airbag penetration, but it's also more advanced seat belts and steering wheels.

Yes, that's interesting. You talked about that for growth markets, but we actually see a very similar trend in the more developed markets. So when we look at North America, Western Europe, Japan and South Korea, they're seeing that same 2% in the time frame that you talked about. So by the time we get to 2024, their content per vehicle is reaching upwards of $340.

Yes. And we're seeing that because of increased take rates for knee airbags in North America and more interest in front-center airbags in Europe. We're also seeing increases in advanced seat belts mostly in the rear seating positions. And of course, we're seeing a lot more content in the steering wheel.

So we have 2% or slightly more than 2% growth in growth markets. We have slightly more than 2% in more developed markets. And that, of course, means that we're going to have a little bit more than 2% on the global market as well. And 2% is pretty impressive, at least compared to what we expected earlier, which was basically 1%. So it's a big increase.

Yes, and broadly speaking, this increase of 2% growth is mainly coming from our higher content markets, the developed markets. And this is mostly due to the need or desire for more advanced systems and the changing and improved crash conditions.

Yes, it's really encouraging because it tells us that safety is a top priority, not only for vehicle manufacturers, but also for consumers as well around the world.

So we have been talking a little bit earlier today about the megatrends. And one of them is, of course, electrification. So what impact does that have on us, Scott?

Yes, electrification is and will remain an important impact on our business. The electric vehicle is a very quiet vehicle. And that drives our products to have to be more quiet inside the vehicle as well. Along with that, we will also have to continue to make our products much lighter for that -- for the EV segment. Our battery safe products also provide a necessary added safety for high energy content batteries. So what we see with the EV trend is it's a positive driver for us going forward. But so far, we also see that there's been limited specific safety product development in the EV market. But over time, we expect this to change and start to take off for us a little bit more, leading to new and exciting products for us in the future.

Yes. That's also interesting, you say that we've seen limited new products for EVs. But when we take a look at the EV production that we have today, the products that we sell on EVs versus non-EVs, we actually do see that there is an increased content per vehicle based on that. Of course, we're still early in the growth trend on electric vehicles. So we have to see how that develops going forward and what products come in, as you mentioned. But what we can clearly see is that right now, it is a positive driver for our content per vehicle.

Yes, absolutely. I mean the EV trend is really taking off as we speak, basically. I mean, as mentioned earlier here today that we, last year, 10% of our sales went to vehicles that were either fully EVs or plug-in hybrids, and that figure will double this year.

Yes. Yes, I would expect that to continue in that way as well. And did you have a chance to see the electric vehicle behind me in the studio today?

Yes, I kind of noticed it.

Yes, hard to miss. Let's go take a look at it. So it's pretty nice. This is the brand-new 2022 model year, Mercedes EQS. And some people in the industry consider that this vehicle is the flagship of electric vehicles. And of course, Autoliv has safety products on this vehicle. We are producing the driver airbag, the steering wheel as well as some of the seat belts in this vehicle. And the seat belts are somewhat unique, the seat belts are what we call bag and belt, and it has an airbag that's integrated into the webbing of the seat belt in the rear seats.

Yes. And I'm told that this is one of the most technically advanced vehicles ever made. And I wouldn't know that. But I think I can clearly say that this is one of the more beautiful cars I've ever seen. And this was launched second quarter this year, so very recently. And I think this is a great example of a well-established OEM that really takes electrification seriously.

Yes, it definitely is. And when we look at the other end of the spectrum, so maybe a less established OEM, a new entrance to the market, we have Rivian in North America that just recently launched the electric pickup truck for that market.

Yes. We monitor the -- those new start-up OEMs. And we try to make sure that they're working on the right types of products, and they're working on products that have gotten theirselves -- they've gotten themselves past the PowerPoint portion of their product development themselves. So...

Yes, that's not always easy to do, but I think we've been quite successful with that. If we look at around the world, all of the new EV production manufacturing companies today, we do have product on most of those vehicles. So it's definitely been a positive for us. And when I reflect back, I just mentioned the Rivian electric pickup truck. As you know, Scott, we have the entire safety package on that vehicle. So we supply them the steering wheel, all of the airbags as well as all of the seat belts.

So if we look at other areas with great long-term growth potential, what can we say about that?

Looking a little bit further out there. I think even beyond 2024, we believe that we have good reasons to expect that the current CPV growth will continue into the future.

So I think Cecilia has something to say to that?

With the research on the development of advanced driver assist systems and their implementation, we know that a few load cases will represent most of the crashes where you can sustain a serious or fatal injury. What we are now doing is that we're looking into these load cases and trying to understand what are the biomechanical consequences in case you are seated in a different way than today, because we know with automated vehicles, there is an expectation that you perhaps can recline your seat to be more comfortable or you can be in a social configuration. So what we are doing is that we're developing test methods and tools and new injury criteria to really understand the biomechanical consequences and how we will address these biomechanical consequences when designing our future restraining systems. Another important area is the user experience and comfort as we have products that are close to the driver, for instance, the seat belt and the steering wheel. We also have an opportunity to have driver monitoring, for instance, fatigue detection through vital signs in the seat belt. We also have hands-on detection in the steering wheel, and these are essential features for these automated vehicles. With that, we can see that you are fit to drive, and we can also ensure that you have a good user experience and also added value.

Cecilia just showed that we're researching new products to protect occupants in these new interiors that allow for different seating positions. Let's see what this can mean in real practice. [Presentation]

As you just saw, we're developing systems that provide protection for these interiors that are much more flexible and have more options for people to sit in like recline and swivel seating.

Yes. The lifestyle airbag that we just saw Christian sit in, in that video is actually just a dummy model. As you know, we're not quite ready to reveal the real models to the public yet.

Yes. I mean we have other products that is developed or is being developed for this sort of a new kind of market. One of them is the pedestrian airbag, which we have shown many times before, that is now being developed into a product that also protects cyclists. And in the future ADAS world, I think that these kinds of products will be in good demand. And I mean, so far we talked a lot about the growth opportunities here and why we expect this to lead to a solid CPV growth going forward, also beyond 2024. Maybe we could try and start to summarize it.

Well, one of the things is that the interior of the car will most likely change more than it ever has in the next decade, even significantly more than it has in prior decades. This is driven by automotive megatrends. And these megatrends are creating new design opportunities and needs for our products.

Yes. And in addition to the interiors of the cars changing as we go forward, we also know that there will be continued updates to government regulations as well as some of the crash test ratings that will drive upgrades to our existing safety products and potentially new safety products. There's no doubt that safety continues to be a top priority for society as well as for the automotive industry. So this is really exemplified by the World Health Organization target to reduce fatalities and injuries on the roads by half. We talked about that earlier as well as some of the governments around the world having 0 fatality visions.

Absolutely. And sort of ticking in the background, we have the strong correlation that we know there is between GDP per capita and content per vehicle. So with the continued growth in GDP, I think that is likely to support many more years of good growth of content per vehicle as well. If we summarize the summary, I think we can say that we are expecting a solid market growth, medium term, long term. To be a little bit more specific on the long term beyond '24, we are expecting between 1% and 2% in content per vehicle growth, which is pretty good in a historical context. And we are also going to continue to be the sort of preferred partner with -- to our customers. We have been so for a long time. And it's very important to continue to be that now because our customers, as you know, have some major challenges that are facing them for quite some long time to come. And to be the reliable partner is more important than ever.

Yes.

Yes. And one of those ways to make sure that we're a preferred partner is to make sure that we're staying on the forefront of sustainability. And to that end, we are developing new products that have significantly lower carbon footprints. We've actually been working on sustainable products for quite a few years. We have an inflator that when it deploys, it only produces water vapor. And we also have airbag module concepts that utilize significantly less oil-based products, oil-based fabrics. Now going forward, we're going to be intensifying this work, and you should be expecting new innovations in this area.

Looking forward to that. So thank you, Scott, and thank you for being here and coming here and sharing your insights into our growth opportunities for both the short and long term, especially on the core product area. I think it's time to move over now to look at our new and exciting area, MSS. So Gabriella, take it away.

Thank you. And we're not limited to sort of our core automotive safety areas. We're making inroads into adjacencies as well. And one recent example that we have shared lately is how we protect riders of powered 2-wheelers, like motorcycles and electrical scooters. Have a look at this. [Presentation]

You've heard us talk about our adjacencies in the past, and we're now collecting all these opportunities in our new business, mobility safety solutions, MSS. This is where we look at opportunities, where we look at our product and product competencies and how that can be applied for additional growth. I'm really happy to introduce to you, Per Lindeberg, our new Head of MSS.

Thank you, Gabriella. I'm very excited to join the strong Autoliv team towards our strong vision of saving more lives.

Great. It would be good to hear a little bit more about your background, Per.

Yes, I have an entrepreneurial and international background, working more than 20 years with startups and fast-growing technology companies. And as a co-founder and CEO, developing business in U.S., Europe and recently moved back to Europe after 12 years in Asia, living in India, China and Singapore. I also worked 7 years as entrepreneur driving innovation within a large organization, Sonepar, EUR 24 billion turnover company.

Great. It sounds like a very fitting background to head up MSS. So in the film here earlier, we saw some more details around opportunities in powered two-wheelers. Could you tell us a little bit more about Autoliv's investment into this area?

Yes, we are working with several OEMs on vehicle solutions, bag on bike being one. And as you also know, we -- 2 weeks ago, we announced exciting cooperation with Piaggio of developing this further. We are also pursuing the powered two-wheeler in a multi-solution approach. So looking at how to best protect the rider with inflatable personal protective equipments. So in the best way, protect head and body for rider. And here, we combine our core competence and developing products for new markets. And in collaborations to enter the market also. Our main focus is motorcycles and scooters. But in the powered two-wheeler, we also include electric bikes and eKickScooters.

Interesting. Are there any other areas of sort of potential business interest that you could share with us?

Yes. Let's hear what Cecilia has to say about one.

Great.

Approximately 700,000 people die from falls on a global level every year. And a majority of these people are 60 years and above. So it's a public health issue for the elderly population. And therefore, also a growing problem as our global population is getting older. We are developing countermeasures ranging from digital services into an inflatable hip protection airbag. And to do so, we're utilizing our expertise in biomechanics and trauma.

Personalized wearables can greatly reduce the consequences of the fall accident. And here in my hand, I have our hip protection. So it's basically an airbag that you put all around your hip and you put it on like this. And then with the inflatable airbag and the system with algorithms and connectivity, we are developing a very exciting solution, a new technology for out Autoliv. The exact market potential for this product is difficult to pinpoint, but we expect it to be sizable, even though it's a long term -- long time before we see revenue in this area.

And very stylish as well, if I may say. How do you see us gaining a competitive edge in this area?

We are leveraging our core competence and our core technologies, including research, including our deep safety expertise, data and algorithms into -- related to human body modeling. So we have a very good understanding how to best protect a human in an accident and crash. Another competitive edge that we have and a great growth formula is also where we can leverage our regulation and rating function, to proactively define requirements in this area. And as the safety leader with global reach and global scale, we have many sizable business opportunities to develop and capture outside light vehicles.

And what's a good way to start or kick this off then?

We start close to core, understanding the customer requirements and complementing and adapting our best products. For example, as we do in the powered two-wheeler case together with Piaggio, but also with other customers.

So I guess here, we're approaching new customers and even consumers. How do we go to market?

Growing into adjacent markets is a powerful approach of tapping new revenues. We stay close to core. And based on our strength including our safety expertise. We define our ecosystem. We select strategical partners that are already in the markets that we collaborate with and we learn. And we -- together with them, we get -- we establish a clear understanding of the end customer requirements.

So how do we move on from here?

As we gradually learn, we also add capabilities, new capabilities. We grow our business and we expand our addressable markets. My job in MSS is to drive innovation in a systematic way, making a thorough assessment of requirements to win. And we -- based on that, we prioritize the attractive, high-growth profitable markets and where we have a strong ability to win.

You mentioned the keyword here, addressable market. Could you estimate the addressable market for this product?

We have a very attractive and big combined addressable markets in providing safety solutions in different mobility modes, including the powered two-wheeler that is large enough to make a difference for Autoliv's long-term growth.

So how does MSS affect our sort of short- and medium-term profitability and CapEx?

Some of our businesses in MSS like commercial vehicles, power safety switches are already revenue-generating and profitable. So basically funding our early-stage initiatives. And with our position on the markets and also with attractive value proposition, I don't see any issue of further funding a proven and growing business model that is ready to scale, either through -- either directly or a joint venture with an attractive partner or a spin-off.

That's reassuring. We have heard about digital products quite a few times today. Let's listen to Cecilia one more time.

The increased trend of connectivity as well as on-demand transport and also the availability and implementation of sensors means that we are generating more data today than ever before. Our products is, to some extent, already connected today, and they will be in the future and generate data that we can use to develop services and also add value to the OEMs as well as the end users. We are collecting data today to understand road-user behavior, identify critical events as well as then understand how we can use our core competence in order to create this safety awareness and also play a part in educating people on safety. We have developed a data innovation platform where we can use AI and machine learning in order to develop new algorithms suitable for our core products as well as additional products.

So we're gaining the capacity to upgrade and update our core products for our core markets. But we also collect and analyze data to create new products.

Yes, that's correct. Let's have a look on our exciting connected safety score business.

Great. [Presentation]

This is a good example where we can use our unique competence and special experience to enter into new markets. And the market potential here for the connected safety score, we cannot exactly pinpoint, but we expect it to be sizable and enlarge long term. We work with potential customers like commercial fleet, ridesharing services and also insurance companies where they can actually have a great value out of this product. And this also adds to the growth opportunities within MSS.

You mentioned size. What would you say the size of the MSS business is today and what can be expected tomorrow?

MSS' annual sales is already USD 100 million business. And our long-term target is to develop businesses and grow a sizable business to more than USD 1 billion in annual turnover. And also long term contribute to Autoliv's long-term growth with 1% to 2%.

Great. Thank you, Per, for outlining what MSS is a little bit more in detail and what it can mean for Autoliv's development. And by that, back to Anders and Megan.

Thank you, Gabriella and Per. So Megan, we have been talking now at length about the growth opportunities that we sort of create ourselves. But we are not alone in this world. There's a light vehicle market also that we are dependent on. And sort of what do you think about that market and its development?

Great question. Difficult question. I think it's always difficult to predict these types of things and how things will develop into the future. But one thing that we know, for sure, right now is that the level of light vehicle sales and the corresponding production that the OEMs are having is far below what the market demand is for new vehicles. And there are several different factors that you can look at to come to this conclusion. The first one was mentioned earlier by Mikael Bratt when he was talking about really the low levels of inventory that we see in the North American market. So they continue to be at this kind of historical low. That's one area. And then if you go over to Europe, the wait times that people are experiencing or consumers are experiencing when they go to purchase a new vehicle are significantly longer than what we would consider a norm. And finally, when we look at the used vehicle market, the prices continue to be at a high level. So if you put all of these things together, you can easily conclude that our demand is really outperforming our ability to supply at this point as an industry.

So when do you think that we can see a better balance between supply and demand then?

Yes. Also difficult to predict, but I think that -- and I think and I hope that we can look at some of the positive indications that we're seeing recently. So we're starting to look at a near-term stabilization of supply, which will help us in the near term. And then following that stabilization of supply, we should see gradual improvement over the next coming years as the industry comes back. And this is really in line with what we see from the IHS Markit predictions that came out in October.

Yes. And I think actually there was a new one out today, which basically repeats more or less what they thought before. I think they're still looking at 11% growth for next year for light vehicle production globally. And now I think they're saying 9% for '23 and still 7% for 2024. So still a pretty good recovery and let's hope that happens. But I mean I agree, of course, with what you say that the uncertainty is substantial. There seems to be new areas of concern popping up from time to time just as some other areas are improving. I know that the steel supply has improved in certain parts of the world and semiconductor is very difficult to predict definitely. But there are some small signs in some areas that it might begin to stabilize. Let's see, if that actually will happen. And then, of course, we have magnesium that has, a couple of months ago, popped up as a potential concern for -- well, for anyone who uses magnesium or aluminum in any large quantities, which the automotive world is.

Right.

And we will talk, of course, more about the global supply chain situation in a few minutes when we go into the supply chain management part of the Capital Markets Day.

Yes, it's definitely kept the supply chain busy with all of these different shortages. But really at Autoliv, we'll continue to focus on what we can control ourselves, and that's really what we have done that's brought us to the good market situation that we have and that we've developed over the last coming few decades.

Yes. I mean it's a strategy and a focus that has worked really well for the last 25 years or so, since we merged with Morton back in '97, our market position has improved considerably and also almost year by year. But about 5 years ago, we basically took a step change up in the win rates on orders and have kept it at close to around 50% since then. And, of course, that will add to our growth for the coming years.

Yes. I think that's really evidence that our customers see us having some really strong attributes that we're able to provide to them.

Yes, what do you think is the main sort of attributes that our customers like?

Well, first and foremost, I think what we can look to is the product robustness that we have that we offer to our customers as well as our quality performance. So those are really the main pillars of what we're able to provide our customers. We also support our customers with a really high level of technical expertise and a high level of innovation in our products as well as our processes. And when you talk to our customers, perhaps something that always comes up is really the level of customization that we're able to supply in all of the products. So we have a broad product offering for our customers. And of course, last but not least, our size, our scale and the efficiency that we have in our operations as well as in our processes really provides us the opportunity to be competitive in the commercial arena.

That's really reassuring to hear. So with that, I'd say thank you to you, Megan, for your insights into our growth opportunities and our expectations going forward.

Thank you.

So to conclude then, we do see and expect strong growth in our core products, both in growth markets and in developed markets and both in the medium term and the longer term. Talking about the medium term between '22 and '24, we expect to grow around 4% more per year than the light vehicle production development. And since we have a good visibility into this because most of this business is already secured, we think this is -- have a fairly high likelihood of actually happening. Around half of this incremental growth comes from content per vehicle and the other half from market share gains. A little bit further into the future beyond '24, we are targeting 4% to 6% growth for the company as a whole. And in that growth or the growth factors is content per vehicle growth. It is light vehicle production growth and it is contributions from MSS. And year-by-year, the sort of size of the contribution from these different factors will vary. But over time, on average, we think that they will be roughly similar. And with that, I think it's over to you, Gabriella.

Yes. Thank you. And let's now turn our attention to how we intend to transform these growth opportunities into improved profitability. And by that, we have just the man for it, our CFO, Fredrik Westin.

Thank you, Gabriella. Yes, and welcome to this session. We will spend roughly the next 45 minutes talking about the main building blocks to reach our profitability target of 12% that we have set here for the time frame 2022 to 2024. And we will start with engineering and then continue with quality, supply chain management and operations.

So let's start with engineering then. I mean you know that we have been talking for a long time about RD&E efficiency as an important tool for improving our profitability and also for creating room for growth. And we will now hear from Maria Malagrida to outline what we are focusing on to make this happen.

Engineering represents about 80% of our RD&E cost. So an efficient management of our engineering cost is key for our success, for both to free up resources for growth opportunities and also to reduce cost. Therefore, in Autoliv, we are transforming the way we do engineering. In order to transform the way we do engineering, we launched in 2018, Engineering 4.0. The Engineering 4.0 mission statement can be summarized in 3 steps: to simplify, to automate, and to connect. Complex process are the cause of many inefficiencies, so the first step is to simplify, or in other words, to streamline our engineering processes. Once we have simplified, we can start to automate. We identify areas with manual work and we develop tools, which can do that work. Then the engineers are going to have more time to be more productive and add value activities. All these tools that we have developed cannot work isolated. So the last step is going to be to connect them in order to provide to our engineers a more continuous and efficient work process. Let us show you an example of an Engineering 4.0 tool, which has really transformed the way we do engineering. The tool is the Product Builder. It's an amazing tool, which is adding a lot of value to our engineering teams. Now with the Product Builder, we have been able to reduce the time that we need to configure a complete simple assembly by up to 50%. And this is because now with the Product Builder, we are able to configure a product in just a few clicks. And at the same time, we are able to guide the engineer to identify the best component which is going to perform according to customer requirements at the best cost. But the Product Builder is not only doing the product configuration, it's doing much more than that. The Product Builder is holding the hand of the engineer during the entire product development, guiding them to develop the most robust products by sharing the lessons learned and also simulation tools. With these simulation tools, now the engineer is going to be able to anticipate if the product will pass customer requirements without the need to build prototypes or to do any physical testing, which is reducing the time from weeks to just a few hours. The Product Builder is helping the engineering teams to identify and mitigate risk from very early in the design phase, which is leading to high confidence on the design first-time quality at launch and, ultimately, a shorter development time. This is why we say the Product Builder, it's an amazing tool. It's one of our best achievements and it's really transforming the way we do engineering. Another key driver of efficiencies is to identify the best country to perform each task. With right competencies at the best cost, while still keeping the customer technical contact close to the OEM. For example, in India, in the last 5 years, we have developed a center of excellence for virtual engineering. Working with India as a center of excellence for steering wheels, we have been able to reduce the design validation looks from 5 down to 2 loops. Especially challenging as the steering wheel complexity is growing every day with more electronics. This is a huge achievement. As you can imagine, this is significantly reducing the development time, but also has multiple effects on cost. First, we are moving to India, so it's lower cost. Second, we reduced the design looks, so we also reduced the need of prototypes and testing. So it's lower cost. And last, by increasing virtual engineering, we increased the product optimization. So our final steering wheel has lower weight, so it's lower cost. In addition to lead time and cost benefits, introducing more virtual engineering has further increased our focus on robustness now, very early, on the design phases. We have many more projects and all of them are bringing high benefits. So far, with Engineering 4.0 projects, we have already achieved 170,000 engineering hours reduction. And in 2023, we expect to double this quantity, almost reaching the 400,000 hours. Engineering 4.0 is a journey. It has started in 2018. At that moment, we have just identified 10 projects. At this moment now, 3 years later, we have already implemented 27 projects. We are in process to roll out 28 more projects and 19 projects are coming up very soon. And the great news is that our pipeline is full of new ideas. And we start new projects every month. We will continue to transform the way we do engineering. And soon, we will share more with you.

That was quite inspiring, I would say, both the achievements and the potential in engineering efficiency, wouldn't you say?

Absolutely. And I think there are 2 key points here: The first one is to really stay at the forefront here. It gives us a competitive edge with our customers. But secondly, our engineering costs or RD&E costs are about 5% of sales. So to make significant improvements here can actually make a difference also to the totality of the -- our cost base.

Another very important area in Autoliv is the quality culture, which, together with the methods of Q5 and zero-defect mentalities is really what has taken us to where we are now.

I think one of the major things is, we have been a part of 2% of the recalls in airbags, seatbelts and steering wheels over the 10 last years. That I think we can be pretty proud about in Autoliv; however, it's not enough. Of course, we are working towards the zero recalls and so on. So that's our ultimate target, and we are working hard to get there, and we have also initiatives behind that. When it comes to the other question about what benefits that give us? Of course, quality is more and more important to the customers. And the new order intake, for example, is very, very -- the key point is that we have good quality to the customers. And I would like to mention also a third thing here, actually, that is that quality and productivity goes hand-in-hand. So normally, and I would say in all the times I know of it that when you have good quality and quality improvement, you also have automatically more or less a productivity improvement. So that these 2 things goes hand-in-hand, which is also benefit working with quality. I think one of the key things, absolutely is our quality culture in the company. And we have a new -- I think we have a new unique quality culture, I think, in Autoliv. I must be, in short, I guess, it's really leading by example, I would say, is one thing, being a role model from the leadership, listening to the organization. I think that's one thing. The other thing is to get the whole engagement of the whole company, all the 65,000 employees getting these people engaged with quality. So I think that's one of the things. And in that respect, we have also been very keen on having raise your hand is important for us that if we see a problem, we are always independent on where you are in the organization. You can raise your hand, you can stop the line, you can stop anything and go and fix when you're in the course, when you stop things. So it's really raise your hand, I think, one, if you want to ask me, that's one of the key points. In addition, I guess, then to fostering like a culture all the time. We call it Q5, quality in all dimensions. I think it's -- there are things in that, let's say, work that is zero-defect mindset, always think and believe and work as any problem can be solved. The root cause can be there and you can eliminate root causes. So that's a zero-defect mindset, I think, in the company, which is one of the most important thing here. I think also in the way we do, when we have a quality, I talk about the quality culture. We have also a method to measure the culture, and there's a quality culture survey. I think working in the daily work in all aspects of the company, but we are focusing more now than we maybe did in the past on the quality upstreams, meaning upstream in the development chain. When we do products and processes and we develop parts and processes. We are working very much intensively with the robustness and so on and take that earlier and earlier in the development of products and processes. So of course, our partners is very, very important. And for the robustness of our products, it requires robustness in our supplier components that they ship to us, and we work very much in collaboration with the suppliers. Yes. I think we have prepared some of my friends working in engineering, Alexander Gulde. He is actually talking about in an interview talking about how we try to make real-time data from the process, from the production into the new development projects. So product development engineer, he can then have real-time data on things that is lessons learned from the ongoing production. And I think that is one of the keys, and which is also part of when we talk about digitalization going forward here.

Looking on big data. In Autoliv, we have a system called PLM, Product life Management system, which contains all information about products, processes and the performance. This is a very big data source. This brings me to the next question, how to access this tremendous amount of information? If I would read it, I need 750,000 years, 24/7, mission impossible. The main questions are how to access this information? How to bring its smart together? How to compile it? Autoliv has started to develop a new tool or philosophy called 3P. 3P stands for product, process and performance. These 3 pillars will be combined in a smart way throughout the entire supply chain. Our next step of this 3P dashboard is to use artificial intelligence and machine learning. This will enable us to get into this unknown area where we find not new answers, we even find new questions, and this will enrich us to find new innovations.

I think it's -- sometimes you think digitalization is specifically maybe in manufacturing, and it is really because we are working very much in collaboration, quality, manufacturing, engineering. And we just heard about this, Alexander Gulde has talked about this. I think that's a good example. We are also working in parallel with Manufacturing 4.0. And a lot of that work is really aiming at anticipating problems before they really enter into like a recall or before they even enter into a scrap and so on. So early warning from the process. And here, we use auto SPC and various tools, which is, of course, our way to really to improve further and further on the operational part of the quality side. Some more steps to go. But of course, we are well into our journey. And I think we are in a very good shape in Autoliv.

So I think Svante and Alexander showed very clearly here in this video that in addition to Q5 and zero-defect mentality, we are moving on and looking at how to secure upstream quality as early as possible in the process deploying digitalization and big data and data analytics.

Yes. I am convinced that the strong sales growth and then the market share gains that we've had since the formation of Autoliv Inc. in 1997 are rooted in our quality culture and our engineering capabilities. It's really about being the preferred partner for our customers.

Yes. And I think this has also contributed to many of the world's first innovations that we have produced over the years. I think we should talk a little bit about supply chain management as well. I mean, the world has been pretty volatile over the last few years, and that, of course, has a big impact on any company's supply chain.

Yes. And then, direct material makes up 50% of sales for our company. So to have a good performance here is critical for us.

So over to you, Gabriella.

Great. And I'm now joined on stage our Head of Supply Chain Management, Christian Swahn. Welcome, Christian. You will help us understand what we do in supply chain management and how we manage the global turbulence in the supply chains and also how we reduce purchasing costs in the supply chain? So welcome.

Thank you very much, Gabriella. Happy to be here.

Great. When it comes to managing our supply chains, it's been an interesting period, the last couple of years, what do you say?

Yes it has -- certainly has. I mean, the last 2 years with COVID, but not only COVID. With supply chain disruptions and also volatility in the supply chain, not only hampering the automotive industry, but I would say all industries in the last 2 years.

So would you be able to comment on a few of these, please?

Yes, certainly. I mean if we start with the semiconductors, which is the word on everybody's lips these days, it's, of course, challenging for the automotive industry. We've been quite successfully working with these subjects together with our suppliers and also taking measures in changing suppliers when appropriate and also look for other solutions and other products together with our stakeholders, but not only semiconductors, it has been also other areas like the logistics, like the container shortages and what have you and also, of course, other commodities as well that has been under huge pressure these past 2 years, I would say. And also, of course, hampering our customers because like us, our customers are also being impacted and they impact us when they are then lowering their volumes, we get impacted. And also quite often a short-term notice, which also gives some stress to our supply base. But as I said, we've been successful in working together with our supplier base, mitigating all these risks.

So how do we manage the situation with supply chain issues or supply issues, I should say, in some raw materials?

Yes. And the 2 last years, I would say, the raw material industry and the raw material pricing, as we can see here on the slide, has actually been hampering the industry quite a lot. And as we can see here, this is one example of steel in North America, where the development has been quite dramatic. And as you can see here on the slide, not only for steel, many, many commodities have actually been looking like this for the past 2 years. And then we talk about price, Gabriella, but it's not only pricing. I mean we have the winter storms. We had a lot of different supply issues with containers, et cetera. So the challenges have been many. But I would say we have been successfully mitigating them working very transparently in our company, but also with our suppliers and stakeholders.

So with all of these fluctuations, how do you manage to optimize operationally?

Yes. We have a structured process in Autoliv, which we call SIOP, sales inventory and operational planning. That is a cross-functional tool, working with all the different functions within Autoliv, coming from the customer needs, taking that into our company, transferring those needs to our supply base. That's the transparent and very structured way in dealing with the fluctuations we have had. And we have been successful in using that.

So it's not only enough to secure supply. We also have to be more efficient. We have to reduce cost. And after all, as Fredrik also mentioned, purchasing is around half of our sales. And also a key lever in our business model is to offset price deflation and labor cost inflation over time, right?

Yes, definitely so. And this year, we have been actually taking out 3% of our total purchasing cost also in a tough year in 2021. This is, of course, excluding raw material impact. But even though so we have a net cost reduction in our purchasing costs, which is a quite good achievement a year like this. We've been doing this by taking out cost by commercial activities, but also using a process that we call value engineering.

Value engineering. What is that?

Yes. Value engineering is a very cross-functional. Again, a concept that we use working with all the functions in Autoliv, but also using our customers and taking them in the [ boat ] and also helping us in doing what we need to do in our products, but also bring in the supply base onboard, taking their knowledge and their expertise into our changes that we need to do. This is a process that's not new to us, but we've actually been focusing even more in the last 2 years on this process, and we will do so also going forward.

So that means that these savings are not just something that we will see this year, but...?

Correct. It's a process that's built in now and very focused, and we have dedicated teams working with this process, which still will enable us to be safeguard and that is not only one-off for this year.

So what is the trend in savings and supply chain management in these recent years?

Yes. It's a good question. And when you have actions in place, it's always good to make sure that this gives results as well. And if you look on the chart here, we can clearly see that the actions we have had in place has really taken off and really taken us to new levels year-by-year. And the 3% reduction that we have in 2021 is actually translated into 150 basis points of improvement of EBIT this year. And if we take into account the raw material that has been hampered us with 130 basis points, we've actually yet again a net saving this year, which is actually an achievement, I would say. So the purchasing portion out of our sales has actually also been decreasing this year.

But we're not just doing this on our own, are we? We're involving the whole value chain.

We are involving the whole value chain and, of course, all functions in Autoliv. We are involving our customers and our suppliers in an end-to-end approach of taking out cost.

Great. Then I think you have an example here from a supplier conference that we had last year -- last couple of months, right?

Yes, we do. We had a supplier conference -- yes, we did. We had actually a supplier conference just the other month and involving 700 of our suppliers. And let's have a look at what they had to say and what we said on that conference together. Let's have a look. [Presentation]

That's great. And speaking about cooperation with our suppliers, Autoliv recently launched our climate ambition of becoming net zero -- or have net-zero emissions across our supply chain by 2040, right?

Yes, we did. And that means that we will work with our suppliers reducing CO2 footprint in an extensive way, and we will find structures to do that. We will also, of course, upgrade our sourcing requirements when we are working in a daily life, we will be doing that in another way. But also, we will look into recycled components. We can recycle material in a better way, but also to use other types of materials. So this would be an interesting journey ahead.

But when it comes to this journey, I know that you also have some more news to share, right?

Yes, we have. Actually, yesterday, we launched a cooperation with the steel company SSAB. And as you can see on the slide here, the 2 CEOs of the company shaking hands for a bright future. So we will work together with SSAB to look into our products together to make them carbon neutral and gradually upgrade all our products into a carbon-neutral free steel. And we will also be the first player in the world actually, bringing automotive safety product to the market that has -- with carbon-neutral steel.

Great. So we're working hard to reduce cost and CO2. And another key factor for supply chain management is working capital optimization, and we do this under the capital efficiency program.

Yes, definitely so. And we have been working on 2 parameters: First of all, the accounts payable. And so as we can see here, program that we launched in 2019 has really been successful for us. We have released USD 200 million in cash year-to-date, and we will release yet another USD 100 million for the years to come next year. And then in 2023 and onwards, we will release even more cash. Second element, the inventory. We have been implementing really solid and good initiatives on the inventory side. And of course, in the volatile environment we are in now, this has been a bit hampered us to be those -- to see those activities really biting. But when we come out of this volatile climate, we are confident that this will really help us taking out inventory in a meaningful way.

So you have mentioned volatility quite a few times here today, and that's understandable given the recent situation and turbulence that we have seen in the world. But how do we work with risk risks in the supply chain given this situation that we see around us, and that is likely to continue in one way or another?

Yes. Risk management is definitely a really, really crucial area. And we have been working with that area using cloud-based tools, using artificial intelligence to really to have data hands-on. So instantly, when things are happening out here, we can get access to data. And that brings us in a situation where we can mitigate with action straight away. But also that we can see financial risks that suppliers will hands on straightforward and also mitigate them very quickly. Also cyber risks, we'll be able to detect with these tools and we have actually been successful in taking out cyber risks lately.

Is there any way for you to show us how this looks in practice?

Yes. We have actually a short movie that displays how this works for us. So let's have a look. [Presentation]

That was an example of how we work with supply risk management and also an example of how that will give us instant information in order for us to act really diligently and fast. We also believe that this will give us some competitive advantage because if we can do this faster than our competitors, it will actually bring us a very good upside and being faster than the other companies out there.

Sounds impressive. But do you have any concrete examples of this, how this state-of-the-art risk management system has really led to risks avoided?

Yes. Yes, we do actually. A month ago, we had one of our suppliers being -- having a cyber risk attack towards them. We were able to identify that was very, very early on so that we could mitigate, first of all, to safeguard that this risk wasn't being posed to Autoliv. And secondly, early on to work with that supplier so that they could find solutions to get out of the situation. And also, of course, for us to see there were other sources to use. So that's a good example of how this is really becoming a competitive advantage for us by using these tools.

Sounds great. So if you were to summarize how supply chain management contributes to Autoliv's business value, how would it sound?

Yes. I mean, first of all, we have a very good and experienced supply chain management team that is really dedicated to take on the challenges we've had the last 2 years. We mentioned a couple of areas that we work really diligently to build: cost management is one area, risk management, another one. Of course, the accounts payable area extremely important for us. And of course, product quality. The quality in our products is core. And not at least availability of components is, of course, of really, really huge importance for us also going forward. So we really have a committed team to work on these areas going forward, Gabriella.

Great. I think this sounds very good in my ears. It would be interesting to hear what our CFO has to say about it. Don't you think?

Yes, very much so.

Fredrik?

Thank you, Gabriella. Thank you, Christian. I know that the supply chain management team has done a tremendous job ever since the early days of the pandemic in the fourth quarter of last year. But we also know that it's all about continuous improvement. So we cannot rest on our laurels. It's all about what we can also deliver in the future. And it has been supply savings, but also continued efforts on working capital where we have even higher expectations going forward? Don't you agree, Christian?

Yes, Fredrik, definitely agree. And with the plans and road maps and activities we have in our plans, we are confident we will be able to deliver on these going forward. So fully agree with you, Fredrik and happy to be contributing to Autoliv's success going forward.

Thank you very much, Christian.

Thanks, Gabriella.

It's very good to hear that we have solid plans and high expectations on continued improvements in our supply chain. I think it's time now to look at what we're doing in operations and what kind of improvements that we have achieved and can expect going forward there. So back to you, Gabriella.

Thank you. Thank you, Anders. And now I'm joined on stage by Magnus Jarlegren, our Head of Operations. It's now 2 years ago since our last Capital Markets Day. Could you elaborate a little bit about what has happened since?

Sure, and excited to be here. Back then, we talked about several different things that we identified of improvements that we can do. One of the areas that we outlined is that we had very scattered performance among our different plants. And through that, really looking at what we can do for those plants, but we also have identified that, that particular point actually hampered us on driving automation and digitalization. So what we saw is that we had low-performing plants, and we had high performing plants, and that's really where we started the journey.

So I know that you have a medicine or a recipe for this, right?

At least we had a tactic for it. What you see here on back is really our APS or Autoliv Production System assessment, where we can categorize our plants. And we identified at that point in time that there were different medicines to take dependent on where you are. And we have an ambition of taking all our plants up to goal or above level. And as you can see here on the screen on the red line, that is the population of plants that we had back in quarter [ 3, ] 2019. And you can see they are coming all the way down from basic, and we had a few ones performing up on goal, but it's a fairly directed picture downwards, you could say. And it's really a question around taking the plants are on the low-performing area, making sure that they increase and create a journey of improvements up towards goal level. So that was the focus. And that's where we started the journey.

And how did it continue?

Yes, that's the question. Right. So -- If you look on the next line here, which is a green one, this is the quarter 3 results of where we are today. And I'm especially proud to show this picture because what you really see here is 2 things: One is, of course, that we have moved upwards in the level or in the performance. But you can also see that we have a much more smaller reach or spread for the plant. So we have more dense population performing better altogether. I think it's super important from the point that you need to be up on this level in order to drive automation and digitalization. So we actually now have more than 83% of our plants performing on Golder above level. And it's interesting because this is an internal assessment, I'm also happy to say that the last month, we have assessed 6 of our higher-performing plants with an external validator or auditor. And we are actually getting a slightly better score from an external perspective versus what we get in our return on one. So I can proudly say that when we have plants up on this level, they are actually amongst the better ones in the industry.

I think this is fantastic achievements. Is there anything left to do?

Yes, of course. There are many things left to do. And I think they say is that the better you get on operational excellence, the more we understand how much you can improve. But I'm very confident that we still have a lot of opportunities here going forward. And in order to instill some confidence in the audience here today, maybe I would like to talk a little bit more about automation, digitalization journey because that is really where we have positioned ourselves now to be able to do that going forward.

I'm sure that will be highly appreciated. Why don't you start with automation?

Let's do that. So if you look on automation and if you look on how automated we are, we can see here that from an airbag textile perspective, we have a bit more than 60% of our processes being manual. And then if we move over to the next one in the airbag side, where you have the modules, it's even more potential for us to tap into, so 69% of our processes are manual. And moving on in the seat belt even more again. So 76% of our processes are manual. Then I think we have one which is relatively good. It's an inflator area, only 19% really to tap into. And then last but not least, we have the steering wheel where we have up to 94% of our process being manual, which is maybe not so strange because it's leather wrapping and its manual sewing and so forth. So this is really where we start. And of course, we are focusing on where we have most of the potential. And what you see here is an example from China, where automation has been done in more of a serial production. So it's really connecting the different steps, which has been manual forward before, and then making sure that is done in a way where we can secure both quality as well as getting rid of labor in those processes and driving productivity. So that is very good. I also mentioned before that inflator is a relatively good area. We are maybe not focusing there; however, the journey continues there. But I would also like to draw the attention to this one because this is the exact same slide I showed in Capital Markets Day 2019. And on the left-hand side here, you see our inflatable curtain process and how it looks in terms of how manual it is. I also then talked about taking that to an automated process, which you see on the right-hand side here and then going from 12 people down to 0 to 1. You have someone to take care of the loading, unloading and so forth. So that's where we start at the level. And this has now been done. So I would like to show a tip of what we actually have achieved here. So what you see on the screen here is the concept of automation in airbag, and this is especially done for inflatable curtain where we have connected all the processes in more or less in one flow. It's also, of course, all done by equipment or robots taking care of the different process steps. I think this is an interesting one. It's a modularized plug-and-play setups. You can quite easily install, and here, we got 50% more capacity by adding in the same process with one more. But the same can also be done in the flow, meaning that you can put in other process steps, making it flexible for more programs, but we can also expand it in the totality, which means that, again, here, you have 50% more capacity of an output in those ones. What you see here is actually the real line is not as long as the full concept, but this is the first one which is fully built and now in production, where we are running production of inflatable curtains in exactly this setup. So I'm extremely proud to see that this has now been done, and it's in our plans, and the journey has really started.

Nice line. How scalable would you say that it is?

It's very scalable. The exact line we saw here is eligible for around 30 lines around the globe, which is more or less equivalent of somewhere around 1,000 FTEs in productivity. And I should also mention when we do, we do this also with the design for manufacturing aspect in mind, which actually has proven that when we go this full way, we do the optimization of the processes as well as changing small parts of the product, we get roughly 20% to 30% more effect out of it, not to mention the quality area of it as well.

So if you consider all of these different components that you have now talked about here today and take it to a total level, what would that mean for Autoliv?

So in a way, it's a transformation. We are taking big steps of changing and automizing our products, of course, and all processes. And it will definitely reduce the dependency we have on labors. We have a retention in one of our countries where we really need to have access to the labor, but also we have the cost inflation. But then also it should be mentioned that quality is extremely important in these areas. The more automated we have, the more you can drive secured quality out of it. And also, as you mentioned something about the investments because when we go for automation, we actually achieved a reduced CapEx for unit set up for 2 reasons mainly: One is with an automated process, we get more output. And the second one is really that we have a longer lifetime and a flexible asset and we can run more programs in it. So it's really scalable. And we have several hundreds of projects for automation in our pipeline. We are looking to have an equivalent productivity improvement of 5,000 FTEs before 2023, but we also have a pipeline of activities, which will take us all the way up to 10,000 beyond 2023. So there is a pretty packed again of what we're doing with automation. And as 3I mentioned, it has only really started?

So some great examples from APS, some great examples from automation, but you also mentioned digitalization as an important tool.

Yes. And I think it's also been mentioned here both from Svante, Maria as well as Christian. I think that is important to note, the digitization that it's not only in manufacturing or production. It actually cuts across all our different disciplines, from our DNA through all the way up to supply chain and also the admin processes. And especially for the admin processes, I should mention that we right now have somewhere around 140 processes automated with RPA, so robotic process automations. And that is also looking to be doubled here in the years to come. But if we take a step back then and talk about operations where we also do a lot of digitalization, so right now, we have more than 20 use cases that are proven to be very effectful and valid for us, which are now in implementation. Each one of them is roughly eligible for 30 plants. So not everyone will hit everyone but roughly 30 plants, which means that right now, we have around 600 implementations or actually more than 600 implementations ongoing of digitalization. And you have more or less 2 to 8 months of implementation for each one of those, dependent on the complexity of it. And the use cases span from perhaps relatively more simple one, which can be digitalized dashboard or automation of logistics flow and so forth. But we also have quite advanced in which analytics as well as having some applications spearheaded with AI and trying out that as well. So we have a broad agenda of what we're doing in digitalization going forward.

So it sounds like we have good momentum, both in APS, automation and digitalization. Taking this again now to a consolidated level, what does it mean for us?

Yes. So that's the right question. And I relate back to something which [indiscernible] actually said once. And no matter how good the strategy you should at least occasionally look at the results. So let's do that. And I think we have it on the scrutineer. I think with all the things that we have done now in the last 2 years, we have more or less realized or we have realized USD 140 million. That is coming from the APS improvements we have done as well as the digitalization and, of course, automation. We know very prudently how we're going to get another USD 160 million within 2 years, which is in implementation. We also have a good plan to reach another USD 200 million on top of this for the next 5 years. So USD 140 million realized, [ USD 116 million ] planned and USD 200 million more to come. So we have a lot more to do, and it's full speed on this.

So pretty impressive to see what we have achieved to date, but also a lot of potential going forward, right?

Absolutely. But we should also be fully aware that when we do this, we obviously have all the cost inflation that we need to address as well as the inflation and the labor rates that we need to address. So we need to have this pace of improvements, and I think we have significantly increased the pace of improvements over the last 2 years, and that level that we have now, we're going to continue to have for several more years. So it's really something that is needed, but we are well underway.

Great for our profitability targets. What do you say, should we get the CFO point of view on it?

Let's do that.

Thank you, Gabriella. Thank you, Magnus. I think it's great to see the progress that we've made to date, even better to see the progress that we have ahead of us and that we are picking up speed on delivering this. We should never be satisfied, and our ambition should be to always find a better way. So also here, continuous improvement is really what it is about. And I'm very confident also here, Magnus, that you and your team will bring home the additional savings that you are highlighting.

Yes, sure. And to put it in other terms, all the things that we are doing right now equates to 25% productivity improvements that we have in the plan here for the next 5 years. So well said, Fredrik. The challenge is taken that we are well underway.

25%, that -- it really sounds like a lot of things is going to happen in the next few years. So by that, thank you very much, Magnus, for your insights into the development happened and expected in operations. Now thank -- we need to talk a little bit about our footprint optimizations also.

Yes. I mean, footprint is in addition to what we have discussed here. So footprint is more, say, longer term in nature when you look at the paybacks of those initiatives. We have already communicated initiatives or projects in Germany, Sweden, Mexico, and just last week, further optimizations in Japan. So we are also very active here. But as I said, they are more longer term in their payback structure. So they will generate savings here more in the outer years and there's more to come here as well. It's really a continuous process that we are following to look forward also here, continuous improvements through our supply -- our plant network, both from an efficiency point of view and also from a logistics point of view.

Very, very good. So to try and summarize the profitability segment that we have heard about now today, I think the one thing really to say is that the pace of change is very high. We have seen some great results over the last 2 years. And there's no intention at all of slowing down this process. With that, over to you, Gabriella.

So great to hear that the activity level is high and getting higher. We are coming closer to shareholder value creation in our agenda, but before we do that, I would like to remind you about the question-and-answer session that will follow a little bit later here today. [Operator Instructions] And by that, it's going to be interesting to see what all of this means in terms of opportunities for shareholder value creation. So back again to Anders and Fredrik.

So thank you, Gabriella. Fredrik, what do you think about today's discussions?

No, I think we show great progress for -- with everything that we have showed you today. And definitely, there's a lot more to come.

Yes. As Gabriella said, very high activity level going on.

Yes. And then putting this a bit into perspective and putting it in numbers, we can actually see that we are, to a certain extent, even above the targets that we set ourselves. In particular, when I look at the organic growth above the LVP level, that has come in higher than we expected, both for 2019, 2020 and 2021. Secondly, on the cash conversion, we are also above the targets that we set ourselves. And lastly, on the net debt-to-EBITDA level, we have now converged down to a level of 1.1, which is well within the range that we set ourselves.

So beating the target so far, you say, it could be a little bit difficult to see that considering the margin development. We are, for this year, guiding about 1 percentage point below where we were 2 years ago.

Yes, Anders, you're absolutely right. But we also have to factor in the massive headwinds that we've been facing, both from the underlying LVP development with the shortages on semiconductors that have impacted 2021 here significantly. And then on top of that, the raw material price development, which are on some components even at record high levels.

So you're saying that the headwinds are impacting the profitability significantly.

Massively. I mean when you look at, again, the volume development, we have an LVP that is 14 million units lower than when we set the targets in 2019. That's around 16%. If you look at our decremental margin on that, I mean, we guide typically for a range between 20% and 30%. And if we take the midpoint of that, around 25%, this alone is a headwind of around 300 basis points from this, the volume development.

So you're saying that without the hard work and the mitigation actions, the LVP would have sort of cost us 300 basis points compared to the starting point of 9%.

Yes, it is, I mean, a theoretical exercise. The most important thing is that we focus on what we can control, but it's nevertheless important to understand the magnitude of headwinds that we've had from this component.

Yes. And the second major headwind, what can you say about that?

Yes. It's -- as I said, the raw material development. We have some commodities that are at record-high levels. Again, if we compare to when we set out the targets in 2019, we have since then faced a headwind of around 100 basis points. So in combination, if you take the 300 basis points from the volume development and then take another -- or the incremental 100 from the raw materials side, we're talking about a combined effect here of 400 basis points.

So 400 basis points compared to the -- in headwinds compared to the 100 basis points around that we are behind on the margin. That's a 300 bps difference. How do you explain that difference?

It's a combination of what we discussed here during this day. It is our ability to take out costs, but also then our growth above the light vehicle production. We have again, set out a significant number of improvement projects and initiatives that were embedded in our road map, but we have adjusted to the volume development. So we have even added further projects to that. The structural efficiency program, too, is just one example. So the cost reductions are also a key factor in this ability to mitigate the margin erosion to only 100 basis points.

Okay. So good cost reduction actions. What about the outgrowth over light vehicle production?

Yes. It's, I mean, really our ability here to grow organically over LVP, and it's a combination of the higher content per vehicle and the market share gains, meaning that we have close to covered or recovered the sales drop on the underlying LVP due to this strong outperformance. But as a company, we are set up, say, on an industrial setup for a volume of -- in the range of 85 million to 90 million. So for that reason, even if we flex the cost on the direct labor side, we cannot fully mitigate the underlying volume effect from the underlying LVP.

And you could almost say that there's a third major headwind also with the high volatility in call-offs.

Absolutely. We have not quantified that. It's very difficult and that's very theoretical. So if we focus on the main pillars on the profitability development from 9.1% on here to 8%, it is really the volume development to the underlying LVP decline with 300 basis points, the additional raw material, 100 basis points and then our, say, self-help on both the organic growth but then also on the cost side that then lead to the 8% that we're guiding for this current year.

So despite the negative margin development, we can clearly say that we are on track towards our targets.

Yes, I mean, definitely. As I said, it's the 100 basis points from the raw material side, the 300 basis points from volume that we have been able to mitigate to very, very large extent through the, again, organic growth and the cost mitigating actions, and this makes us very, very confident that we are in a position to grow into the 12% margin target that we have set ourselves. It is, to some extent, even ahead of the road map that we had identified back in 2019. So all in all, it makes us very confident that the 12% is achievable based on a certain framework that we have defined more narrowly here.

And I think an indication of that is also that if you look at second half of 2020 when the light vehicle production was at around 85 million and there was no raw material headwind yet, we did generate more than 11% margin that second half year. Speaking of raw materials, how are we managing that?

We've talked about this very often, and we buy mainly value-added components. So our direct exposure to raw material is through our suppliers to a large extent. So through that, we are able to both delay and then mitigate the impacts from the increased raw material prices. And we've seen only a very limited amount coming through during the first half of this year, whereas the raw material prices started to increase towards the second half of last year. But we are still guiding for 130 basis points for -- as a full year effect with an increased impact here during the second half, running up to close to 300 basis points in the fourth quarter.

Yes. Looking at this chart with a 300 basis point headwind in the fourth quarter, one could assume that there will be some carryover effect into the beginning of 2022. But I guess it will, to some extent, be offset by commercial recoveries.

Yes. But taking all together, we do expect that the full impact will be larger in 2022 than it was in 2021. So even though that our recovery efforts will increase and our recoveries, I mean, will increase also year-over-year, but they will not be sufficient to fully offset the impact from raw materials that we also will have into next year.

I think it's time to recap and reiterate what we actually expect in terms of growth going forward.

Yes, as mentioned earlier, we do see very strong growth in our core products, and this is both in growth markets and in developed markets. Over the next 3 years, we expect to grow by around 4% over light vehicle production. And this is a combination of the continued market share gains that we are expecting and the content per vehicle growth that we have now also upgraded to a level of around 2%.

And looking beyond '24, we are targeting an average annual organic growth of 4% to 6%.

Correct. So then beyond 2024, we are again saying 4% to 6%, a bit different composition. It is here about MSS driving the growth, the underlying light vehicle production, and then a continued content per vehicle growth. The composition of these 3 components might vary per year over time, but we expect them to contribute between 1% and 2% per component, and that's how the 4% to 6% are made up.

Yes. And as we heard earlier today, I mean, the CPV growth will be -- come from continued updates of regulations and ratings increasing GDP per capita and also a safety-focused society and new vehicle designs that offers exciting opportunities.

Yes. In the long term, we are still optimistic about the prospects for light vehicle production. This might seem optimistic to some, but basically, it is for -- or based on the fact that for a large part of the world population, there is still no real alternative to owning a vehicle, and that's where we see this is coming from.

Yes. I think it's fair to say that for most people, there's -- the reason to buy a car is basically the same as it's always been. It is about productivity for yourself and for your family. It's about convenience, of course. And it's also about joy and pride and in some cases, also about presence and starters.

Yes. And then in addition, in the developed markets, we believe that the addition here of the fossil-free drivetrains and the driver support systems will also continue to support a good demand level there by making, say, the acquisition or buying a car also be an attractive proposal.

Well, I heard a little bit about capital efficiency during the day. I know that there's a high activity level. Could you talk a little bit about that?

Absolutely, a topic very close to my heart. And then we have several initiatives ongoing here. It's aiming at releasing around $800 million in working capital from our balance sheet. The most progress we made to date has been on the payable side where we have already released around $200 million from the balance sheet and already identified and secured an incremental $100 million to come through it through the rest of this next year.

And we do this by negotiating improved payment terms and improving our own internal processes, and we can already see this in improved DPOs for instance.

Yes. And in addition to the accounts payables, we are also focusing, of course, on inventories and receivables. On the inventory side, of course, the current market environment with the high volatility in the call-offs and extended lead times on many, many components, it's not so visible in the balance sheet, but we believe that we have very good progress also on this topic. And as the market should continue to stabilize and normalize, we expect also to see a significant improvement here also on the inventory side then as we come into a more stable environment.

And structurally, internally, what do we do to improve inventory management?

Yes. It is really looking at several topics. It's looking at our plant network, so optimizing flows across the network but also not only internal but external flows. And then on top of that, looking at how we work with call-offs and also looking at, for example, safety stock levels and so on. So multiple or sub-projects that are ongoing here, and we believe we are in a very, very good track here to also secure further improvements going forward.

There's been quite a few announcements over the last year, maybe when it comes to footprint activities. And I assume that, that also helps in improving the inventory management.

Absolutely. I mean it's really about, say, optimizing the entire network here. And on the footprint side, we have already announced a number of activities, and it is a continuous process for us. In addition to that, I would also like to mention that if you look at our current cash position, we are at fairly high levels also historically. Again, a normal stable environment and at the size that we are as a company right now, we would only see a need for around $300 million of cash as a minimum position. And that also gives further opportunity to optimize the balance sheet going forward.

So during the day, we have heard a lot about the pace of automation that you see and that it is increasing. So is Magnus asking for a lot of more money?

Automation and specialty footprint. This is leading to a somewhat higher investment level at the moment. But over time, our target is to get this in line with our depreciation ratio, so to have a reinvestment ratio of around 1. One benefit that will help us here is that the automation that we're putting in place is more flexible. That would allow us to both have more carryover investments from one product generation to the next and also have longer lifetimes of the equipment. So it should, over time, also help us to even structurally maybe even improve our investment levels.

That's very reassuring, Fredrik. Over time, this should mean that we approach the 5% CapEx-to-sales ratio that we have been focusing on and talking about for quite some time. And combined with the capital efficiency program that is progressing well, that makes us pretty confident of the 80% or more cash conversion target that we have. But what is the end result of all of this?

It's really putting the different components here together. And if you do that, you can easily come to an operating cash flow that is above $1 billion that the company would be able to generate and also a free cash flow of above $600 million. Important to stress here that these cash flow numbers are not targeting themselves, but they are really an outcome or a result of achieving the other targets that we have defined.

It's pretty impressive numbers. It should do miracles with our leverage ratio. And that makes the question, of course, of the capital allocation priorities.

And here, I mean, clearly, our priorities have not changed. M&A is not a significant part or not top of our agenda. It is really focusing on continue to delivering shareholder value. And over the past 2 years, we have been able to generate liquidity and then cash of around $1 billion in a very, very challenging environment, of which $600 million have been used to pay down our net debt and $220 million have been -- has been paid out in terms of dividend to the shareholders. And being very confident here about our future, we can also then set out this new buyback program of USD 1.5 billion for the time frame of 2022 to 2024.

So in summary then, could you summarize the opportunities that we have for shareholder value creation?

Yes, it's really -- I mean, our high confidence in all the different components, again, of the targets from our sales outperformance over profitability development opportunities on capital efficiency and cash conversion that we believe can offer very, very attractive opportunities to create further shareholder value. In addition to that, the agenda that we set out regarding sustainability and ESG and not the least also our sustainable finance framework that was published today is equally important. And with that, it really goes to the core of our company of saving more lives. And we set out, I think, a very, very strong position here that we can build on for the next couple of years.

Thank you, Fredrik. I'm really looking forward to the next 3 years. And by that, we conclude the shareholder value creation segment of the Capital Markets Day. Over to you, Gabriella.

Thank you. So that concludes the presentations in today's Capital Markets Day. We will now be moving into Q&A session. [Operator Instructions] I think by that, we're ready to start the Q&A. So over to you, Anders.

Thank you, Gabriella. Thank you. And I'll just pass the ball direct forward to Mark.

[Operator Instructions] We have a few questions coming through. The first is from Mattias Holmberg of DNB.

On your long-term organic growth target beyond of 46% 2024, you've specified roughly 2% to come from increased content per vehicle, leaving 2% to 4% to underlying light vehicle production and mobility safety solutions. Could you please elaborate a bit on how the 2% to 4% is split between LVP and MSS, please?

Yes. Thank you for the question. You could say that simply put, it's about 1/3 from each area there, I mean 1/3 content per vehicle, 1/3 light vehicle production growth and 1/3 MSS contribution over time. And as Anders mentioned in the presentation here earlier today, is, of course, not equally every year here. But over time, that's about the distribution between the different contributing factors there.

That's very clear. And one more question for me if I may. On the $800 million in working capital release that you expect, just to be clear, can you repeat how much of this has already been achieved and by when you expect the entire $800 million to have come out of the working capital, please?

Yes, sure. So of the $800 million, we have achieved roughly $200 million already that we have released from the balance sheet, and that is in the accounts payable part of the balance sheet. And you can see that if you look at our days of payables outstanding. And the basis for all of this is also as with other targets in 2019. We've not given a real time frame for this, but they are also in conjunction with the 2022 to 2024 time frame. So the latest by '24, we envision to achieve that target.

Our next question comes from the line of Colin Langan of Wells Fargo.

Great. Just you mentioned a pretty large $160 million in savings over the next 2 years and then I believe it was 500 over the sort of further period. Are there any incremental offsets we should be thinking about that because that seems to be quite a material margin help over the next few years? Or are there some other key drivers we should think about that mitigates that full impact?

No, it's a saving that we're looking at, but also you have to keep in mind how these savings are calculated. So there are volume assumptions behind this, and they are, of course, based on our forecast for how volumes are expected to develop. But they are then the net savings that we're talking about. So we will have costs that will come in, in order to be able to facilitate these initiatives and then to -- and also investments, but this is really the net amount that we're looking at here and that we're presenting.

Okay. That's great. And how does your automation -- it seems quite impressive. How does that compare to a lot of your competitors? Obviously, they're doing the same things. It's kind of going to be passed down to margins. Are you well ahead of them? Any sense on how the competitive landscape looks on that automation front?

I think it's difficult to compare to our immediate competitors here as we have no insights into their operations, of course. But I think we are really here ambitious in the way we want to progress with our automization plans here. And as Magnus alluded to, we have come a long way since we talked about this in 2019, where we really, you could say, actively launched this program. And we have more in the pipeline here. And I don't know, Magnus, if you would like to elaborate a little bit more around our program here, but I feel definitely that we are on the forefront here.

Yes, sure. As you said, Mikael, we have an extensive portfolio of activities that we're doing. I think in some areas, we are really trying to be in the forefront of what we automate. Other automations that we're doing are common automations that you would see in the industry. But really, it's hard to say because we don't have the insights, but our agenda is very, very -- I'm very, very confident of what they're doing there.

Our next question comes from the line of Emmanuel Rosner of Deutsche Bank.

So 3 quick ones, if I may. The first one is on the midterm growth, LVP plus 4%, and it's helpful to understand that 2 points of that comes from market share gain. Would you be able to tie this to some market share expectations as you have in the past? How have your win rates been trending? How do they give you confidence in terms of these market share gains? And maybe what's your view as the ultimate asset safety share that you could achieve over this midterm period?

I think when it comes to the near-term growth here, as we have talked about leading up to 2024, it's, of course, the combination of our expected market share gains, as we have alluded to in the past. And here, we have said that we expect to grow into a market share of around 45%, and that is still valid. And we also see here that we have stronger content growth than what we indicated in the past, where we have talked about around 1% growth on a yearly basis for content, and that is now doubled. So I mean that's really the 2 main contributors here to the outperformance of light vehicle production. And the last 2 years, meaning 2020 with 5 percentage points together with the expected 8% for this year is I would say, a good weight towards the growth that we are talking about here. And we're gaining good traction there. And we, of course, continue to fight for the market share that we can get. But our ambition is to protect the market share of around 45%, which we are expecting to get to.

Great. Then on the margin front, can you just please clarify the -- what the target is exactly over the near term? Do you expect 12% average over the 3-year period, 2022 to 2024? I think that you can get to 12% at some point within that period. And then just specifically looking at next year with your other comments around raw materials being a higher net headwind than 2021, I guess, what is your ability to extend margin?

The margin target of around 12% adjusted operating income is connected to the previous communication we have had here, and it's within the same time frame. So we're not giving a year for one that would be achieved other than within this time frame that we have talked about. So i.e., between now and 2024. But it's important to remember then the framework in which that target is given. And here, we are talking about that we need at least 85 million vehicles in global light vehicle production and that we don't see that raw materials continue to increase from 2021 level. So that's really the framework for this guidance and the time frame.

Okay. And then just a quick math question, if I may. Would you be able to just give us the quick math behind the $600 million in free cash flow? When I was doing a back of the envelope at 12% margin, I was maybe getting closer to $700 million or more. Can you just give us the large pieces again?

No, we said above $600 million. So I think your calculation is not contradicting the number that we are talking about either here.

And we currently have one further question on the phone. [Operator Instructions] That question comes from the line of Joseph Spak at RBC Capital Markets.

So obviously, very clearly impressive that you're able to sort of hold this 12% despite significantly lower LVP. I think last time you're looking more like in the mid-90s, and now you say you could do at 85 and a higher commodity base. Just 2 questions off of that and maybe building up from Emmanuel's prior question. Like for 2022, are you saying that if LVP was around $85 million, 12% would be achievable? Because I know you're saying commodities don't move higher from here. But like even if they hold from here, there would still be, I think, somewhat of a year-over-year headwind in '22 versus '21, just to annualize it. So I just want to clarify that. And then LVP, I think, as you sort of indicated, is not going to sort of stay at $85 million here. So as we think further out, are these benefit -- cost benefits you've been able to realize sustainable? Or are there other costs that are going to have to come back in the system as volume is higher?

I think on the timing question there, I mean, we don't comment to 2022. But more than what we said here around the framework. I mean it's the way forward here that we feel comfortable with our internal activities that are progressing well, which I hope you all have got a good picture on how we are doing there. And then we need a stable and improving external environment. And I think that is very much in line with what we have communicated in the past here. And as you said here, I mean, we are absorbing the additional headwind compared to the regional outlook that we had in 2019, where we expect it to be above 90 million vehicles per year in -- within this time frame here, together with actually no impact expected from raw materials. So I think that speaks for the fact that we feel that we are controlling what we should control in a good way and making good progress. And then when that target is reached within this time frame, we will have to come back to. So...

Okay. And then just in terms of the sustainability of sort of the lower cost you've been able to keep out like -- I'm assuming some of that's going to need to come back as sort of volumes move higher, but it sounds like you feel you've got enough internal initiatives to keep the margin march higher towards 13%.

Yes. I mean the net effect of all the activities that we are implementing, as we speak here, is, of course, there to give a sustainable lift to our profitability. In the short-term activities we have done to reduce cost as a consequence of the dramatic decrease in the global light vehicle production coming from the pandemic and then the semiconductor shortage, et cetera. Of course, some of that cost needs to come back. But it doesn't change the underlying picture on the tractor we have going forward here. So it's more, let's say, the timing effects here. But once again, the underlying improvement is there to be sustainable of course.

Okay. And maybe just one on the buyback and the leverage because even based on sort of the free cash flow commentary, you sort of seem like -- it basically seems like just your -- if you're looking to your free cash flow generation over '22 to '24 or potential generation, that's sort of all going to the buyback. So your sort of leverage doesn't really change that much. And it seems like if we recover by '24, you'll sort of be more into the automotive cycle, which I think, historically, you've sort of been thinking you'll be more comfortable at the lower -- I'm sorry, at the higher end of -- lower end of that range. So how should we -- like is there a potential to do even more with the cash? I mean I know you mentioned M&A is not really an option. So -- but what else would -- could you potentially do it with that cash? Is it more organic investment you could potentially do?

No. I think, I mean, as you said, I mean, we have been clear also that M&A is not a top priority for us. But of course, if the opportunity comes our way and it looks interesting, we'll take a look at it, but it's not something we're actively pursuing at this point in time. So our focus now is to make sure that the growth we're expecting to see here coming out of the supply shortage that we see in the automotive industry should translate into profitable growth and profitability improvements resulting in cash flow together with initiatives that is being made also in improving our balance sheet and generating cash from that should be a good basis for us to deliver on the buyback program that we have communicated today together with the general dividend the dividend that we have, and we expect to be and plan to be stable and improving over time as a base scenario here. So that's our priorities with this, but it ties together from growth, profitability improvement, cash flow generation and then shareholder-friendly approach here when it comes to return on liquidity.

And we've had a few more questions come through on the phone. The first is from the line of Hampus Engellau of Handelsbanken.

Shall we move over to the next question on the telephone line, Mark? I think in the meantime, we can actually take some questions that has come through the chat. And we have one to start with from Sascha Gommel. He wants to know that -- you said that EV tend to have a higher content per vehicle. Why is that? And will this be sustainable going forward?

I think on the sustainable going forward part there, it's probably too early to say. But what we see from the launches coming through here now with new EVs is that they have a high content. And you could say, the level of sophistication in electrical vehicle is very high. It's a lot of new technology going in there, meaning that our products also can speak with the vehicle in a different way and we can adjust our products to signals we get from the car, not we are now going to crash, but we are potentially going to crash, et cetera. And all those features are common in the new vehicles. And I mean, right now, also we see a lot of premium electrical vehicle coming through like the one we saw here earlier today. But also as the electrical pickup truck also mentioned today here is a good example of high-level content vehicles. So we'll see as we move forward here. But I think the overall trend here with increased content is definitely supported what we see with -- in the electrical vehicle space.

So Hampus has been busy. He has sent some questions also through the chat. So let's do them instead on the phone. He asks, what need do you see for in-house sensoring technologies and knowledge to develop intelligent airbags and ADAS functionality change the way occupants sit and behave in the car?

I think, of course, we need to secure that we have the right competence for our future products. And here, we have a great team built up around electrical and mechatronics competencies, and we have several sites around the world here now where we are staffing up and increasing the knowledge in these areas and -- because that's knowledge that is needed in all our different product families. So that's something that we are securing.

And Hampus' second question was -- let's see here. Yes. What is the market potential that Autoliv see for the body protection for bicycle riders? And is that a potential market for Autoliv?

Per, maybe a question for you there on the MSS side.

Yes. Long term, of course, we -- in the power 2-wheeler area, we include motorcycles and scooters and electrical bikes and even e-kick scooters. But as we see the urbanization and the micromobility trend growing stronger, of course, long term, we see a sizable market in this area. And right now, today, it's a bit difficult to pinpoint exactly how big it can be.

All right. Let's look at another question from Jairam from Daiwa. He asks like this. So IHS has an LVP reaching 85 million units already in 2023. Does that mean that the 12% EBIT margin goal is likely to be reached already by 2023 in that background?

I think it's basically the same answer as previously here, and that's a part of our framework together with the raw material development here. So between now and 2024, if these circumstances are the right, we believe that we would meet our targets here. So we will come back when we are getting closer to the numbers here.

Let's pick another one. Sascha again asks, can you please talk a bit about the timing of share buybacks?

We are launching -- communicating this buyback program today here, and that's in effect as of January 2022 and stretches for 3 years. And as always, when we do something, we will communicate accordingly. So we will come back when we have more to tell in that question.

All right. I will try and summarize this question from Victoria Greer, very long-term question. Over time, we know that the OEMs are looking to -- for scale to mitigate the high investment needs that they have. R&D costs for you to integrate products into a model that makes 100,000 units per year versus a platform that make -- might make 500,000 per year, units per year might not be so much different for Autoliv. So would you say that that's a revenue risk or a cost opportunity?

If I understand...

As the platforms get bigger and more vehicles per platform.

Of course, I mean, scale, I mean, the number of vehicles included in a program is, of course, supportive for us to be supportive to our customers here. So of course, scale is important in all of this. So we see a benefit of that absolutely for both the customer and ourselves when we have bigger platforms.

Here's an interesting question maybe from [ Stephan ] [indiscernible]. What will decide if Mobility Safety Solutions will be part of core business in the future or a spin-off like Veoneer.

I think as we have explained here that, I mean, our Mobility Safety Solutions business is built on our core competence and knowledge. And we are really in the beginning of this. And we have, as you see, good traction already, just 2 years into our focus here around the adjacency, as we call it, in 2019. So I think we have a lot of opportunities here, still very close to our core and our planning, of course, that it should be a part of our core going forward. So right now, there is no other plans than that.

So I think the phone line is up and running again. So let's see if we have any questions from there.

So we'll try Hampus Engellau of Handelsbanken. Hampus, if you have your phone on mute, you can try and unmute. We'll see if we can hear you on your line.

Can you hear me now?

Yes, we can hear you now.

Okay. I actually had a question on the growth outlook in 2024. And I noticed the market share gains, and if I remember correctly, I think you have been running at order intake around 50% market share since 2015 when we had the [ contact of ] collapse. And shouldn't you be running at around 45% or maybe slightly above that by 2024? And i.e., do you expect additional market share from like new products? Or what's the thinking behind market share as being one of the drivers for the 4% to 6% growth long term?

Yes. Thank you. As we stated here before, I mean, our expectation is around 45% market share in the next coming years. And once again, we don't have a market share target to say, but we will for sure not give away any market share. It's something we will continue to focus on. But the important thing here is that we see a total picture here that we have a profitable growth in front of us. And I think with what we have in the pipeline here in terms of growth and profitability improvement activities is ending up where we now have communicated our targets to be. So that's really where we are, and we'll see where we are heading beyond that later stage. But this is where we are now, and this is what we're focusing on.

Our next question comes from the line of Sascha at Jefferies.

I actually have a follow-up on the near term -- or near to midterm outperformance of 400 basis points. I'm trying to just reconcile that number a little bit here because, initially, you had 3 to 4 in your '19 plan, and then you upgraded that to 4 to 5, I think, a year later. And now we're talking about 400 basis points despite kind of very good order intake and very good success on content and everything. Just trying to understand this 400 basis points. Is that an average over 3 years? Is that kind of higher initially and then going down? I'm just trying to really understand here why you became a bit more cautious from the 45 now down to 400 only.

Compared to the indication in 2019 where we talked about 3 to 4 up to -- in this -- 3 to 4 in this midterm target range, we are now looking at around 4% from today up to '24. So if you go back and use the same time horizon as we were in -- when we talked about this in 2019, it's actually about 1 percentage point higher than what we talked about at that time. So compared to the regional growth here, we see a stronger outperformance today than what we said in 2019.

Okay. Understood. And then my second question would be on the working capital improvement program because the number looks quite sizable with kind of $600 million still to go. Is there any factoring or reverse factoring included in that number? And if so, how much of that $600 -- or incremental $600 million would that be?

No, it's 0 out of the incremental $600 million that would be from components or instruments like you're referring to here. So it's really the -- what we've already secured with our supply base, the additional $100 million that Christian was talking about that we expect to come through over the next couple of quarters and then further potential that we see on the accounts payable side. But then what we've done also on the inventory side, and you can see that -- it's difficult to see an underlying improvement due to the volatility in the market environment. And so the extended lead times on components and also safety stock levels that we need to operate on. But we are confident that as markets stabilize, you will see a significant inventory improvement when the volatility comes down on then the inventory side. And then we're also working on activities on the receivables side. It's mostly process related and overdue related. But overall, those are the main drivers for it. So it's really hard work and not using those type of instruments that you were referring to.

Next question comes from the line of Jairam Nathan at Daiwa.

Just on the automation slides are pretty informative. And I just wanted to understand, in all of the -- a lot of what you talked about seems to come from visualization of software that seem to be available of the market and might be available for your competitors as well. So I just wanted to kind of understand, is there anything specific beyond that is more specific to Autoliv that you're doing on the automation front, which would separate you from the competition?

Maybe Magnus, you could take the question.

Yes. As I mentioned previously, part of the automation we do are common automation that is available for the industry. But we are also investing in innovation, in automation. And obviously, when we do that, we are also looking to get the IPs for the processes that we develop. So I think we are running a balance of doing both. So in totality, we will see, call it, big ticket moves where we can do things. But of course, a lot of the expertise and also the capabilities are available on the market. So you're running both tactics there, I would say.

Okay. And I just wanted to also follow up on the working capital. It looks like if you talk to the OEMs, they seem to talk about lower and holding lesser inventories, and it seems like they probably will be shifting some of that -- their inventory into the supplier as they expect faster turnarounds. So just wanted to understand what you're seeing. Are you seeing any sourcing changes? Or is that kind of in your $800 million number?

No. We've not really seen any fundamental changes of any significant magnitude that you're referring to. For us, it's really to optimize our end-to-end supply chain, and then there are opportunities on, say, both ends of that. But no, it's not really an element. What you're talking about is not really what we're seeing.

Okay. No, the only reason I'm asking is a lot of like Ford or GM [indiscernible] stock about how -- now that they have lower inventory levels, they're not going to go back to the inventory levels they have had. And that -- I'm guessing that implies that we would expect more inventory to be held by the supplier base. But I understand.

But overall, of course, the inventory levels across the value chain are not at normal levels at the moment. And then you can see that also on our balance sheet but also when you look at both our customers and our suppliers. So there's certainly a significant amount of normalization needs to happen here across the whole supply chain.

And as we have run out of time for questions, I'll hand back to our speakers.

Okay. Thank you very much, Mark, and that ends the Q&A session and for the last time today. Back to you, Gabriella.

Thank you, Anders, and thank you for all of your questions, and thank you for joining the Q&A here today. And before we conclude the Autoliv Capital Markets Day 2021, let's go to some concluding remarks from our President and CEO, Mikael Bratt.

Let me conclude today's Capital Markets Day 2021 by thanking you all for your participation and your interest in Autoliv. I hope you have got a good picture of our progress when it comes to our activities and initiatives across the company and our value chain: near- and long-term growth through content per vehicle, light vehicle production and market share growth as well as our MSS opportunities; profitability improvement through broad number of initiatives across the value chain; ambitious climate targets to support our customers and taking responsibility for the environment and society. I have great confidence in our team to continue to fight through the current market conditions, and at the same time, stay focused on our road map initiatives leading to our updated targets presented here today. We will stay focused and control what we can control and do that well. I and the full Autoliv team is fully committed to continue our journey towards our targets to create shareholder value and saving more lives. Thank you, and stay safe.