BorgWarner Inc. (BWA) Earnings Call Transcript & Summary

Very glad to have all of you here as we continue day 1 of the Barclays the -- 16th Annual Barclays Global Autos and Mobility Conference. Very pleased to have with us here BorgWarner, a leading supplier in powertrain. We have with us Craig Aaron, CFO; and Pat Nolan, who leads the IR efforts. So we're going to go through a list of fireside chat questions. And then anyone who wants to ask questions, please do, and you can e-mail my colleague, J.R. Young, [email protected], if you want to ask a question anonymously. So with that, Craig, Pat, thank you.

Why don't we just start very near term? Because I think a lot of people on the near-term basis have been just following what's been going on with some of the supply disruptions in terms of the Ford Novelis issue in terms of Nexperia. It seems like we dodged a bullet there. Maybe you could just give us an early look at how fourth quarter has played out vis-a-vis these supply disruptions? Anything outside the realm of what you've expected?

Sure. First, thanks for having us, Dan. It's our pleasure to be here. . You mentioned a couple unusual activities happening in the third quarter and the fourth quarter. We mentioned it on our earnings call in the third quarter that JLR was impacted by a cyber attack, and that had about a $35 million impact on our sales in the third quarter. We're watching that in the fourth quarter. It seems like it's stabilized for us. You mentioned the Ford aluminum supplier issue. We did mention that was going to have a $50 million to $100 million impact for us in the fourth quarter. We're obviously watching that and then the semiconductor challenges with Nexperia. It seems like it's improved over the last few weeks, but it's certainly something that we need to continue to watch and navigate. So those are the areas that we're watching in the fourth quarter and would likely impact us in Q4. And we'll give you more guidance as we look into 2026.

Okay. Great. Okay. I want to go to the topic of growth because I think this has been an area where there is maybe some different dynamics between your foundational and eProducts businesses. So maybe let's just start as we look into next year on backlog, how much is the backlog shifting? Because I think a lot of people have been asked questions. We've seen some changes on EV. We've seen some changes on tariffs and reshoring and whatnot. How has this changed the launch cadence? And how does this impact the launch of your backlog?

Sure. So if we go back 3, 4 years ago, we did -- we won a lot of key product programs and was coming off the Delphi acquisition. And as you know, at that time, the whole world was going towards hybridization and electrification, and we had done our part, we had won of those programs. look at our outgrowth '24, '25, we've been in this 1% outgrowth range. And a lot of that reason is because these programs that we won the volumes haven't materialized for various reasons, but primarily consumer demand. We believe there's going to be an overhang, so a similar level of outgrowth as we go into 2026. What we're excited about is that we've won -- we've announced 17 programs across our entire portfolio over the last 6 months. I've been with the company almost 20 years. I've never seen that level of activity. So we're excited about that and what that means for our outgrowth as we move into '27 and '28. But as we look into '26, we probably still have this overhang. I would say the other really important change that was made under Joe's leadership, Joe, taking over the CEO role and, call it, March, is he's encouraging all of the business units to find their pockets of growth. Before we were really focused on, hey, let's take the foundational businesses, the combustion businesses, your job is generate cash provided to the eProducts businesses where -- and that's where it's going to be our growth engine. Joe is encouraging all of those business units to grow. And if that culture shift which I think is really resulting in that 17 wins that I mentioned earlier.

Okay. So let's maybe unpack the foundational versus eProducts side?

Sure.

Foundation is on track for some organic growth decline this year. But I think you've talked about you are still seeing some growth over market. So what is the opportunity to unlock growth -- positive organic growth in foundational if the core market is continuing to decline. Can you have enough an elevated sort of outgrowth to help? Is it hybrids?

Yes. I would say a couple of things. First, what's the goal of our foundational business units? It's outgrow your industry, your industry defined as the combustion market plus the hybrid market. So that's the goal. What we're excited about is in the second quarter, we announced a couple of key wins. So when we talked about unlocking Joe, unlocking those business units to grow, well, we announced 2 Conquest awards. 1 in North America and 1 in Europe related to turbochargers. That means, hopefully, we're going to have more market share from a turbocharger perspective. That's really positive for those businesses. The other thing is all-wheel drive, where we're really strong, #1 in the market. we're seeing a nice tailwind, as an example of our China business. China is exporting vehicles in the Southeast Asia, and we're seeing a nice tailwind there. On top of that, in this market, it seems like combustion is going to be here for longer. So between combustion and hybrid vehicles in this market, those are pockets of growth for our foundational business, and we expect to capitalize on those.

Would you say that there is a lot more runway on uptake of some of these advanced size technologies, turbos, dual clutch transmission. And your share, have you been picking up share? Maybe you can just talk about the positioning?

Yes. I mean obviously, I think there is still penetration opportunities. I mean Turbo is a great example. It's in the 90s in Europe, you're about 70% in China. Here, we're still in the 50s. And we're seeing there's still going to be a need for more fuel-efficient vehicles in North America. We may not switch as fast to BEV. But we'll be an efficiency push, and we see that in the bookings. So we're very happy about that. And I think Joe is also emphasizing as we are generally a 1, 2, or worst case, 3 player in many of our foundational products, there's no reason that the stronger players shouldn't be able to gain share, particularly the OEMs have to turn back on the foundational growth engine. You need to leverage a little bit more of the larger suppliers in those areas.

What's the hybrid opportunity right now? Are you seeing that in the backlog? And what's the timing?

Yes. The hybrid opportunity, the way to think about it is, if you're talking about advanced hybrid, one that you would actually plug in, the content opportunity on that is 4 to 5x what a pure combustion engine is. So it's significant. But what's nice about it from the portfolio perspective is it's going to be both sides of the business. We expect hybrids to have all of the efficient foundational technologies that we have, turbocharging, advanced timing, advanced transmission systems. All of those can be applied to those hybrid vehicles, and then we're going to see the benefit on our eProducts business, things like our motor business, dual inverter awards that we've announced several in China this year. So we think hybrids are a nice opportunity for us. I think that goes back to what Joe is emphasizing. Grow on the BEV side, grow on the combustion side, find the average to growth on the hybrid side.

Okay. Maybe we can talk about eProducts and let's just start with PowerDrive, which has actually had pretty good growth this year sort of after some program roll-offs last year. I think you're tracking mid- to high teens. What -- can you sustain this growth in '26? And maybe you could just talk about -- we know that there is an air pocket that is hitting in North America, but that is a smaller piece of that business. So what is the opportunity to grow even if North America EV is obviously down?

I think it's fair to say they've had -- like you said, they've had a really strong year in terms of outgrowth of the market and growth overall. So we haven't given guidance for 2026 yet. I don't know we'll go deep enough to give guidance by segment. But I think they probably have a little bit harder comp. We'll see how that plays out for them. But we see the growth continuing to come to that business, particularly as you look out in '27, '28. But again, really nice growth. They delivered this year, which is really driven by a lot of those programs outside of North America. We're seeing growth in Europe, growth in Asia. And I think that's what will continue to be the drivers of that business, they'll probably grow more outside of North America versus some of our other business...

And the competitive dynamics for those businesses, I assume the vertical integration risk that had been discussed that that's probably dissipated more so?

Yes. That's a very Western world type of question because when we speak to our Chinese customers, there, what are they focused on? They're focused on technology and they're focused on speed to market. So they'll be much more pragmatic about there may be a platform where they're outsourcing a full IDM, which is the motor, the inverter, the torque splitting device. There may be a platform that they produce that module in-house that they got to buy the motors and inverters. So we think there's opportunities on both sides of the business there.

Okay. And then maybe just one more on PowerDrive. And I think this is helpful. I think people don't realize that PowerDrive is not all eProducts, I think it's roughly like 1/3 foundational. So that growth that we've seen this year, presumably that is mostly eProducts, like what is -- maybe you could give some ideas of what exactly has driven that growth? Because I think it's mostly Europe and China, but anything to unpack that growth in PowerDrive this year?

Yes. Maybe I'll start and Pat can add on to it. Definitely on the e-product side of the portfolio. They do have about, call it, 1/3 of the revenue that's primarily ECU driven that's foundational. So that's kind of stabilized, I would say. But really, the growth engine has been on the eProducts side. Not so much in this market, it's been in China and Europe. And importantly, for me, Joe and Pat's how are we converting on that growth? And we're on track to convert in the mid-teens. If you go back, we had restructured that business back in 2024. And what's important for us is grow that business through the first 9 months, we're about 27% growth, and we're on track to convert in the mid-teens, and we're seeing that growth in China and Europe, which is great to see.

It's not one product here. They're seeing growth. They're seeing new program launches on the motor side. Inverter side, we then either be inverters for full BEVs or a product that we've talked about multiple times is our dual inverter in China that's seeing nice growth, and we're seeing full systems growth there, too. So kind of growth across the portfolio. We think there quickly getting to a nice share position both on the inverter side and the motor side.

That's helpful because I think in the past, we had this idea that it was really your signature eProducts with inverters, but it sounds like you're getting a wide set of uptake across the...

Yes, we are.

Maybe you could just talk about the dynamics in battery because I think we've obviously seen reset. You've exited charging, the commercial EV market has come down. So what is the right -- we've been run rating at roughly $130 million to $150 million of revenue per quarter this year. What's the right run rate going forward?

Yes. We've seen some challenges in that business, in particular, in North America, this market but also to a certain extent in Europe. We have -- it's difficult to tell what's the short-term outlook for that business. We believe in the long-term outlook. Energy storage is an important trend, and our battery business can support that trend. So we feel good about our long-term aspirations. In the short term, it might be a bit of a challenge still. What's important about that business, which is different from charging is we're EBITDA positive and free cash flow positive. We believe that business is going to grow. And so we feel like we're operating from a position of strength. When that business grows, we'll be able to capitalize on it. Unlike charging where we didn't have necessarily the best technology in the market. We have really good technology. On top of that, we have a great cost structure that we can leverage as we move forward.

Okay. Let's pivot to margins. And I know you talked about it. And I think this is maybe the piece that has really struck people is just the margin resiliency, especially in your foundational businesses that even in the face of organic growth declines you've still been putting up phenomenal margins in both your Turbo segment and your Drivetrain in BMS, right? I mean, some of the best results you've ever put up. So can you just help us unpack what is going on in here? How have you maintained your margins even in the face of this negative growth where you're probably decrementing on some of those declines, you're clearly offsetting with something?

Yes. First, really happy with those businesses, as you have mentioned. And what's our goal our goal is still operate in the mid-teens, convert in the mid-teens, and we've done much better than that, as you mentioned. And when I think about what's those drivers, it's really been a strong focus on cost controls across the business. I mentioned earlier, hey, we had restructured some of those businesses in 2023. We are operating from a position of strength, let's make sure we continue to focus on cost controls in those businesses. We're seeing that restructuring savings go through the P&L. On top of that, supply chain savings, we're seeing a nice uptick in that area. Lower cost of poor quality, things like warranty and scrap much lower. Productivity. So it hasn't been 1 or 2 things. I would say it's been 3, 4 or 5 things that those businesses are focused on. And it's really allowing us to either maintain or expand margins despite, call it, flattish sales. And that's been really great to see. And I think we'll continue to focus on those aspects as we move into 2026.

I mean, so when we're thinking about -- and I don't want to pin you down on '26, but like when we're thinking about what the right base of margins is to look for the future, it sounds like there's nothing abnormal here. There's no one-timers, right? Is there a path that if organic growth continues to decline because of the market that there is still more in your pocket that you can dig into on the cost side or conversion or scrap? How much more runway is there on some of these initiatives?

Yes. I think I'd like to think about wherever we land in 2025, our guide is 10.3% to 10.5%. Let's just say we lane at the midpoint, 10.4%. That's our jump-off point. We're not calling anything out -- our goal as a management team is continued to grow earnings per share period. That's our focus. And we're going to continue doing that. We did that in '25. We're going to continue to do that in 2026 and use all of those levers that we spoke about to drive earnings per share growth. That's our goal.

Can you talk about automation. What is the role of automation -- how much -- because I think this is coming up a lot more amongst some of your supplier peers. What is the level of automation that you're using in your manufacturing? What's the runway?

Yes. I mean I think you automation more from an AI perspective, we launched -- I would say, about 18 months ago, we launched a lot of programs throughout the business units and even in corporate. I'd say there's 2 main areas that I'd focus on from the manufacturing floor standpoint, we see some cost benefits from that. One of the big things we do in a lot of our products is a lot of visual inspection, towards the end of the production line. And that's a great application for a lot of AI projects. So we see some cost benefits there. But in other things, like R&D is another great example one of the first things you do when you're submitting a program, you have a stack of requirement and the engineer needs to work through all those requirements. Working with an AI partner, they can quickly roll through a lot of that, find a lot of the requirements they need and a lot of them focus on more of the actual engineering. So there's a cost benefit there. So I'd say from an AI automation perspective, it's most mainly a cost play for us, but I think there's applications not only on the manufacturing floor, I think there's back office R&D opportunities, too, for cost.

Is this near term? Or is this more of a mid- to long-term type opportunity in the cost of extracting these benefits?

I think you're seeing it within the productivity that you're seeing in the business are starting to see benefits already.

Let's talk about the margins on the eProducts side. PowerDrive has seen some improvement. You're still tracking at negative margins. Just broadly, what is the path to breakeven? Is this just purely a volume play that you're going to increment at your mid- to high teens on the volume. And so you need the volume to get to breakeven? Or is there anything else you can do on the restructuring cost takeout side?

Volume is clearly going to be important. No question about it. And I think this year is a good example. Revenue up at least through 9 months around that 20-ish percent, and we're converting -- we're on a path to convert in the mid-teens. If you go back to 2024, again, we restructured that business. And what Joe and I are watching is, do we restructure at the right level and to determine that did we convert in the mid-teens in 2025. And so that's an item that we want to finish the year and make sure we're meeting that objective. If we don't get to that objective, then we need to take additional cost actions, and we're not afraid to do that. We showed you that in '24. And if we have to do that again, we certainly will. But our focus right now is grow that business, convert in the mid-teens on an all-in basis. That's what we're focused on doing.

Have you -- when we factor in all of the restructuring, so on a clean and volume basis, have you been converting in the mid-teens? Is that the way that the numbers have played out this year?

In Q1 and Q2, we certainly did. In Q3, there was a bit of a timing item with recovery that we got from a customer in Q3 of last year that didn't repeat in Q3 of this year, but we're still on track for the full year to convert to the mid-teens, and that's how you should look at that business.

Okay. Same question on battery. You're now running at sort of negative 5%. That's after the benefited charging exit and you've done some footprint rationalization on the battery side. Path to breakeven? Is it same -- it's a volume play or more on the cost side you can do?

Definitely volume play from here. The team has done a really great job. We exited charging, which helped that segment at the same time. They've done a lot of restructuring in that business already. When you look at Q3 is a great example of that. Revenue was down called $60-ish million, and we held operating income flat. How did we do that through cost controls, whether it's restructuring or other cost actions within that business. What I mentioned earlier is really important. That business is in a far different spot than our charging business. We're EBITDA positive, we're free cash flow positive. I believe in the long-term aspirations of that business, we're in a position to grow profitably as we move forward, but volume is certainly going to be an important component.

Okay. From an EV standpoint, you've talked in the past, and I don't think you discussed it much this year, but this idea of R&D, there's ER&D versus, I guess, what foundational R&D would be the alternative. So with the reduced EV environment, at least in North America, how are you thinking about the R&D approach? You've been tracking in the low 5%. How does this differ between foundational versus the what's the right R&D profile going forward?

So we've changed the way we look at R&D broadly over the past 2 years. We used to communicate mid-teens incrementals, but we're going to have to spend x amount for R&D, so you have to back that off when you think about our incremental return process. Now we want to deliver a mid-teens incremental inclusive of that spending for R&D. And there's 2 ways to think about that. It means if you're a growing eProducts business, you need to manage the growth in your R&D spend within that mid-teens incremental. So PDS still needs to hit mid-teens, even though they're spending R&D for their future growth. But the other side of that is our foundational businesses, which previously were funding a lot of that higher R&D spend now as long as they're hitting their mid-teens incremental, if there's R&D dollars to spend to drive your future outgrowth, so be it. So I guess now we don't think about it, it needs to be a certain percentage outside of that incremental margin, it's one of the levers that you have on the upside and the downside to manage that incremental margin within each business unit. So we don't view it separately. It's a cost lever within the businesses now.

Okay. How about from the perspective. You referenced a moment ago in PowerDrive customer recoveries. Obviously, on the EV side, there's been a lot of programs that the volumes haven't come in as planned or have been canceled. There's some other dynamics on the commercial side in terms of tariffs. So how are we thinking about the commercial side, how much opportunity there is to maybe recover some costs that have been incurred for volumes that haven't played out as expected?

Yes. So we have volume clauses in our contracts and basically it says, hey, if volumes don't materialize to what the OE communicated, we have a right to sit at a table like this and have a discussion. And we obviously do that. I mentioned Q3 last year where we were successful in getting some recovery. Obviously, to hit the mid-teens incremental conversion year-over-year, it means we have to replicate that this year. So it's a constant conversation as those volumes haven't materialized. We're at the table with our customer, and it's going to be a significant component of making sure that we recover that capital because those volumes do materialize.

Okay. Let's pivot maybe to the regional side of things. China, obviously, there's a lot of questions for across the supply base on China exposure. You've given some disclosure in the past, domestic OEMs are roughly 75% of your China revenue and your China revenue as a whole on the foundational side seems like that's gone well. So maybe you can just give us a sense the domestic OEM split within China, how that is faring? And maybe you could just talk about the competitive landscape, not only against Chinese suppliers, but also from a vertical integration standpoint?

Sure. So you mentioned it about 20% of our revenue is with China -- within the Chinese market. When you think about that, about 75% of that 20% is with local OEMs. So we're overweight locals. And we tend to work with the top 8 to 10 in that market. When you think about the financial aspects of that market. It's very challenging, but we still hold our discipline of, hey, we're going to focus on 15% ROIC or higher. We're meeting that objective in China. And for us, the dynamics in the Chinese market are very different in the Western world. Example is R&D. When we get a program in China versus a Western OEM, Joe likes to share the statistic, we have to test against customer specifications. For an IDM in Europe, there might be 20,000 different specs that we have to test against. So think about all of those R&D dollars going to test those specs for that same IDM in China, there might be 600. So that plays into the equation significantly. But for us, it's all about 15% ROIC. 15% ROIC, that helps us to maintain our ROIC discipline and our margin discipline across different regions of the world.

So that's saying the trade-off is maybe a lower R&D footprint, but the pricing maybe is a little tighter because of the...

Absolutely.

Just R&D. I'd say the cost across the board, whether or not your supplier costs, your manufacturing cost, manufacturing flexibility. I think there's a lot of cost levers that you have. So I don't think you can look at just the price point of the product in the region, dictating what the overall margin profile is.

And I think you've answered the question, but I know there's been some question amongst other suppliers that all of this rise of domestic Chinese business could be heavily margin dilutive. But it sounds like if you're maintaining your ROIC threshold throughout regions, that's not the case for you. Is that a fair assessment?

It's a fair assessment. And the best data point I have is look at PowerDrive Systems. If we're converting in the mid-teens and the growth is primarily in China and Europe, well, we're doing our job.

Okay. And then one more on the China side. And really, it's sort of the entry of China into Europe. That there's been some concern, you've obviously seen Chinese share in Europe rising a lot of exports and talk about localizing. So what is your exposure maybe on export business or potential localized China business in Europe. Is that -- does that change the profit picture for you at all?

Yes. I mean I think what's really interesting is I think it's clear that our Chinese customers ultimately do have aspirations to produce in other regions. And Joe gives a great example. He was at the IAA conference, the Frankfurt Auto Conference that occurs every other year, and he's been going now for decades. What's interesting that changed this year, about 20% of his meetings that we had there were with the Chinese OEMs, talking about how do we enter this market what -- how can you help us from a supply standpoint? How can you help us understand some of the regulatory requirements. I think clearly, their ambitions are to grow in that market. That could be an opportunity for us. I think the key for us, we often get the question, is that a bad thing or a good thing. We're so diverse from a customer end market perspective. It comes down to that same win business find outgrowth opportunities rather than customer mix dictating our success...

Okay. Why don't we talk about free cash and capital allocation. I just want to start on free cash because you've got -- the earnings profile has been steady, but really what's more interesting is the free cash is like one of your best free cash flows ever. Really good operating cash flow, very low CapEx. So maybe you could just talk about on the free cash flow. I think we have a good grasp of the earnings side. But what else is going on in free cash flow? And maybe you could talk about the CapEx that's tracking at 4% of revenue historically 5% to 6%. What is the right profile?

Sure. Yes, really happy with the free cash flow generation that we expect for the year. The midpoint of our guide is $900 million. if you go year-over-year, that would be over a 20% increase. I think the teams have done a really great job in all aspects of free cash flow. First, working capital. They've done a really nice job managing inventory levels, net AR/AP, but you mentioned CapEx being really low. And it comes back to your earlier questioning, hey, you have a lot of eProducts investment. Are you going back to the customer for recovery. While we're also doing our part of -- if there's an eProducts program, and we can send that capital from one region to another to take advantage of that, do it. And that's what PowerDrive Systems is really doing very successfully. So we're able to leverage that cost, that capital that we already put in place to where it's needed and really make sure that we're managing our CapEx and our cash flow, and we're seeing a really low CapEx environment and a great impact on free cash flow.

Is that 4% sustainable?

I think it's a little bit low. I don't think it's sustainable. When you go back historically, we've been in this, call it, 4.5% to 5% range. And as we go into '26, '27, I think that's probably the right data point.

Okay. M&A, and I think you've changed the way you've defined it. You're looking not about foundationally product. You just -- you're looking for a target that is immediately accretive. So is it fair to say that, that precludes something in eProducts? And maybe you could just talk about what white spaces on the customer or technology side still exist in the portfolio?

Yes. So when we think about inorganic investments, we've laid out 3 criteria. First, it's got a link to the core competency of what BorgWarner does. We have a lot of core competencies. You mentioned the second one. It's got to be accretive. We're focused on growing the earnings power of BorgWarner, whether that's organically or inorganically. And third is we have to pay a fair price. The way to think about our strategy is we've opened the aperture but we've raised the bar. And why have we done that? Because we have a great portfolio. We feel like we're in a strong spot on the foundational portfolio on the eProducts side of the portfolio. Let's build on that strength. And so let's raise the bar. I'd say we're really active and we're operating from a position of strength from a free cash flow perspective and a balance sheet perspective, we're ready to execute on a transaction when it meets all those criteria. That's what we're focused on doing.

How does the experience of recent years in which I think we've all been thrown off by a very different uptake curve on EV. How does that shape the way that you look at some of these? Or is it that, okay, as long as it's immediately accretive, I'm not as concerned about how things may play out in 10 to 15 years.

Our overall objective for any of our businesses is mid-teens conversion, mid-teens conversion. So if there's an inorganic opportunity, whether it's on the foundational side or the eProducts side that meets that objective. Let's go take a look at it. So again, we're opening the aperture, anything is possible. It's got a link to our core competencies. It can't be way off in my field, but it's got to meet those financial hurdles, and we just have to hold to that discipline. That's what we're focused on doing.

Okay. And then maybe just last one. On the -- before I open it up to folks on the balance of share buyback to return to shareholders versus M&A what should that split look like? And in the absence of M&A -- maybe you could just give us a sense of what the pipeline looks like. But in the absence of M&A, is it fair to assume the majority of that free cash flow should be deployed towards share buybacks. So just give us a sense of that trade-off.

Yes. I think that trade-off is we can do it all. I think that's kind of our focus is, hey, we have a great balance sheet. We're generating $900 million of free cash flow at the midpoint of our guide. We have a strong inorganic pipeline, but we source our own deals so it's difficult sometimes to get a buyer and a seller to agree and get that timing completely right. So in the absence of having a near-term accretive deal, we're going to deploy cash to shareholders because we want to reward our shareholders, and that's what you saw this year. If what we've shared publicly is we're going to return roughly $420 million plus of cash to shareholders this year. At the same time, we have a great balance sheet to capitalize on an inorganic opportunity. I think we're finding that right balance. And as we go into next year, we're going to look at it quarter after quarter. And if there is an inorganic opportunity that's there in front of us, that's accretive, we're going to return cash to shareholders.

So when you look at our history, though, our history of M&A and capital, it's pretty bad -- it may not be 50-50 to the percent, but it's been pretty balanced between those 2 things, particularly when you look on a multiyear horizon.

Any questions, folks?

On the 3-year view, cash restructuring, inevitably, one of your customers, even if not huge, is going to do a lot better or a lot worse. But your manufacturing footprint, if I understand it correctly, it's pretty flexible. And so accordingly, do you really anticipate having to do much restructuring over the next 3 years? And if so, what kind of dollar amount should we be thinking about?

Yes. I mean, historically, we've always continued to restructure our business because we're operating from a position of strength and let's stay ahead of any one trend. I would say I like what we did in '23, I like what we did in '24, let's see how the business operates as we end 2025. And if we have to take other cost actions, we certainly will.

But where would that be? Because it seems like from a customer standpoint, that's not going to be the issue. It's going to be if there's some really big shift again that we don't anticipate in the end markets, eProducts or foundational, right?

Yes, any major restructuring actions that we have to take today, but we need to watch those markets. Those markets are moving so dramatically between regions. It's important that we stay ahead of that trend. And if we have to take actions to make sure we're hitting that mid-teens conversion.

Yes, just really add on to Dan's question about cash.

Maybe one final one. There's been some headlines lately. I know this has been sort of a volatility from a supply chain standpoint and rare earth in China. So we've seen some -- some headlines of some OEMs trying to ask suppliers to sort of clear China materials out of their supply chain. Maybe you could just talk about to what extent the China supply chain for you with an issue in the West or does not really affect you, how easily you can sort of support that goal?

Yes. I mean our goal is to support our customers with what they need. And so if they're looking for supply that's not in China, we're going to try to support that need. With that said, I would say the underlying goal for most OEs right now is cost competitiveness and China obviously provides a cost competitive supply chain. So I think we have to navigate it customer by customer. But as I sit here today, I would say cost competitiveness is probably the #1 priority for OEMs.

Right. We'll leave it there. Great. Craig, Pat, thank you so much.

Thank you, appreciate it.