Dauch Corporation (DCH) Earnings Call Transcript & Summary

Okay. I think we are ready to begin. Very excited to have our next participant. Great to have American Axle back with us at the conference. Thank you again for participating in a fireside chat. From the company, we're very pleased to have David Lim, who heads Investor Relations for the company. To David left, Arianne Ault, the Assistant Treasurer of the company as well. We do have microphones in the room. So let's keep a fluid interactive as we go through Q&A. The company just reported Q4 results and guided for 2023 on Friday. So good timing here to follow up as we kick the conference off this year. So David and Arianne, thank you so much. Welcome. Thanks for being here.

Yes, it's great to be here in Miami, and this is fantastic conference. Before we get in, I just wanted to make sure that every one of you guys have the time to look at our forward-looking statements. It's a great piece of literature really recommended, well written. It's worth your time, aam.com, or the presentation. But before we begin, I just wanted to touch on a couple of highlights. We did report 4Q earnings, about $1.4 billion of revenue, $158 million in EBITDA, a $99 million in free cash flow, $313 million for the full year. I would say for -- from a guidance perspective, we gave out numbers $5.95 billion on the low end and $6.25 billion on the high end of sales, $725 million to $800 million in EBITDA and free cash flow range of $225 million to $300 million. It's been pretty an eventful year. I want to say that we've wrapped up some business wins in 4Q or meet some formal announcements with Jupiter automotive. We're going to be supplying the 2.2 tonne e-Beam as -- well, e-beam axles were their 2.2 tonne commercial vehicles, and we're going to be supplying track right differentials to an electric SUV variant of an electric truck. And I think you guys get all pieced together on what that is. But overall, look, we're continuing our focus. We want to generate strong free cash flow, shore up the balance sheet, look to our legacy business and pivot on [ AEM ] for an electrification future and a profitable future. So in a nutshell, that's our introductory comments.

Perfect. Terrific. So I thought we could kick off with some financial questions just coming off the quarter -- the report on Friday, then get into longer-term kind of EV topics. Of course, you had your technology day at CES, which was a great event. And then we'll come back to balance sheet and other key topics off of the capital structure. So first, I know it's early in the year. I was hoping you could just mention the production environment in North America. And I ask David, because a lot of suppliers have come in they provided guidance and they've all said that -- or most of them have said, we're still seeing supply chain pressure volatility early on. And I guess the question is, is it set up in 2023 that we finally kind of break through or some of the volatility we're seeing early on, potentially a sign of another messy year for disruptions and schedules from where you sit?

And actually I mean, it feels like a broken record. I mean, I think we've said, oh, it will be better in the second half of '22 and then '23, et cetera. Look, I mean, I think the way we see it is continued volatility has carried through. We saw that in Q3 going into Q4, we're seeing that in Q1 with the volatility. I would say that we're hopeful and optimistic that by maybe the second half of '23 that there'll be some green shoots or beginning of stabilization. But we'll see how that sort of all plays out. But I think right now, it's safe to assume that volatility continues. There's just a lot of uncertainty out in the market. And hence, I think the way we [ catched ] our production environment forecast for North America is at 14.5 million to 15.1 million units for this year. So anywhere between 1% to 6% increase.

Perfect. And what are the biggest sources of that volatility today? And how is that volatility coming through maybe in Q1 relative to the prior quarter as it still just kind of short-term quick shutdowns are difficult to adjust for? Just curious in terms of...

Yes, I would say so. I think that's a great question. I think we saw a same or a very similar level of volatility going into January. Having said that, I think February, we're seeing some level of a little bit more stabilization, still volatile. So it's giving us some level of confidence that maybe we're going in the right direction here. But look, I mean, we've seen plenty of head fakes all throughout the last year, 1.5 years. So we're not going to -- we don't want to be -- we don't want to say it's the all clear sign right now because it definitely isn't. There's definitely a level of volatility that's going through like even yesterday, I was speaking with a friend of mine who is in the semiconductor industry, and he was basically telling me, there's a lot of semis on what, well, how about for autos, it goes, well, maybe not so much for you guys, but there's plenty of semis for other sectors.

Interesting. So I wanted to kind of zoom out a bit on the story. Whenever you report Q4 results and guidance, it's a good opportunity for all of us to kind of zoom out in the last few years. And we look at the margins of the business pre-COVID and where it is now, meaning last year and what you've got in for 2023, the revenue is, of course, higher margins lower. Maybe as we think about the last few years, the bridge there, maybe just walk us through -- what are the big puts and takes that we have to think about going forward?

Like if memory serves, I think 2019, we did about 4.9%, maybe 15% EBITDA margin. I think the big swing factor is between then and maybe what we're looking for 2023 and just a couple of major buckets, 100 basis points is probably from inflation and anywhere between 100 to 200 from metals. And then the balance, I mean, there's going to be some movement because of volume changes. So look, I mean, if you extricate those factors, then that sort of gives you an idea of where we could be. But no, I think what we've seen in the last several years is just this massive fluctuation in input costs and inflation. If you talk about the major issue that we're facing right now is, yes, directionally, metals have somewhat come down. But there are certain metals that haven't come down. So for example, aluminum is still very high. And if you look at, for example, some of our big large truck programs, they're very aluminum intense. So we have that situation that's happening. We have labor issues that we continue to have to contend with. Labor right now is the lack of labor availability is putting us in a situation where in the past, it would be a variable cost because we could flex. But now it's more like a fixed cost because if you were to let go of people and the volumes come back, you've got to rehire people that may not be available. That's first thing. Second thing is there's a learning curve aspect where you got to train these people love and the efficiency level is not there, so your scrappage goes up. So those are all the dynamics that we have to contend with in this environment.

Absolutely. And obviously, it brings up a really important topic that every supply has been asked about and that is around recovering your customers. Obviously, there are contractual mechanisms to recover certain input costs our awareness is that that's never an easy to negotiation. We you're dealing with OpEx and labor and all this incremental inflation, supplier trends get recoveries on those. And our understanding is that that's not necessarily -- does not work like playbook necessarily of how to go about. Talk us through what's happening and take us into one of these situations where you're looking at inflation, you're going back to your customers, what are the puts and takes to try to get those recoveries? How long can that take if you can get them at all?

Look, it's a very difficult discussion. I mean I was telling an investor earlier today, like it's like you're reviewing your kitchen or your house and your contractor comes up to you say, "Oh, by the way, Mr. Son, so it's another $20,000, like what? And those are the type of discussions. It's a very difficult discussion to have. But I think what we -- the approach that we've taken is we do everything that we can under our own power to offset this, and we make a good argument and do a deep analysis and we bring that to our OEM customers and say, look, this is a big center of what we can do here. We've done everything that we can cross all the t's and dot all the I's and looking for stuff, uncovered all the ones that are possible. And then we have those discussions, but it's not an easy discussion. It's a very difficult discussion. But I would have to say that the OEMs are more willing to listen and understand the supply base. At the end of the day, they understand that they need suppliers to produce the components that go into their vehicles, and they need suppliers that are developing the technology to propel them to the next level, too. So they see the importance of it. But to give you dimension that a little bit, right? I mean, last year, we had about $60 million of negative net -- this year, we're thinking something a little less than half of that, call it, in the $20 million to $30 million range. But that's all predicated on our ability to go to our customers and successfully negotiate during these discussions.

So you guys assume some bit of success...

Yes, it does. I mean I think just to give you a little bit more color, I think Q1 is going to be the most difficult quarter. And if you look at our last year, the glide path of the net recoveries, it was worse in Q1, it came down. And you're probably going to see something similar to that this year, where Q1 is going to be a headwind, a little bit bigger of a headwind. So I mean, just to give you some idea, like from Q4 to Q1, what we're facing is we'll probably see in Q1 revenue from a sales production day standpoint to be similar, but we have more production days in Q1. So revenue should be higher quarter-over-quarter. We're going to face a disproportionate amount of pricing in Q1 and the negotiations for these offsets are going to begin in Q1 as well. So when you put all those together, we're probably going to see an EBITDA margin similar to or maybe a shade less than what we've experienced in Q4. And then as the year unfolds, we're obviously thinking that's going to be better the second half being stronger than first half.

Perfect. Now thank you for all that detail. Let's say you -- sticking on the topic of recoveries, one debate we have with investors is if you can't get them, let's say, this year, even beyond Q1 or it proves to be more of a struggle, -- do you eventually just get them anyway in new business, whether it's replacement business or add-on or that's your opportunity to go in with better pricing? Or is that equally as difficult at that point in time because the argument is your OEMs can say, less than talk to me upon the next replacement and then we could go through your whole cost structure and price you accordingly.

I think the way that the way that these programs are now done in some respects, right, is never isolated, right? They always take a look at other programs that are kind of come. They look at other ancillary factors that will impact us. So I cannot say or guarantee that we're going to -- that that's going to happen. I can only say that we're going to make our best efforts to do what we can to achieve some of these offsets. At the really end of the day, it's going to be AEM on one side of the table and OEM customer at the other side of the table, and we'll have to just discuss on how this could be structured. Hopefully, we're going to -- we'll be successful, but it's early on in the discussions. But if last year is any kind of model to what can happen this year, there's -- we're following that plan. And hopefully, by the end of '23, we'll get our fair share of it.

Perfect. One more question on recoveries and we will move into EV topics. But to what extent on your end, is the decision to have aggressively go after recoveries influenced by RFQs and other business opportunities. We'll talk about EVs and your growth opportunity, which is, of course, significant to 2030 with EVs. Does that though hinder you a little bit internally to go after a customer who maybe is also considering awarding you a significant strategic business over time?

It's -- like I said earlier, everything is -- it's never isolated, right? Everything is always like, well, if we do this, can you do this? We've seen that happen in the industry in the past. The extent of how much that's going to happen, that's a very good question. I mean it's difficult to say. But look, all of the way that we do all of our programs is it has to meet internal hurdle rates. It has to make sense in the whole business planning cycle. And we never look at anything in isolation. There's always ancillary factors that we do take into consideration. But I think you can be rest assured that when we go through our process of bidding on any program, it has to meet internal hurdle rates. That's probably the main takeaway.

Perfect. Let's move on to EVs. You had a technology showcase [indiscernible] Investor Day at CES. It was a great event. I love the racetrack -- super exciting. And you shared a couple of really important kind of items. I was hoping to kind of go through for those maybe who missed it or wanted to go through in more detail, $20 billion to $30 billion electric vehicle, addressable market by 2030. How do you get there? Maybe walk us through that process of that number?

Yes. So it was a very extensive analysis. What we did is we looked at our internal estimates of our best intelligence of what was going to come down the pipeline. That's point one. point 2 is we looked at third-party estimates of what they're projecting. We put all of that together. We looked at regional take rates. We looked at power levels. We looked at the unit cost of these electric drive units. And then we took into consideration what is -- what's going to be in-sourced and what's going to be outsourced. And then that's how we came up with the number. But it was an extensive analysis that was done from both a ground-up approach and also from a high-level approach going on going up, one going down just to make sure that everything tied out, and that's how we ended up at the $20 billion to $30 billion number. Now it's a wide range because who knows what's going to happen 7 years from now. But we feel pretty confident that that's where that's the playing field that we're going to be in. And just to be really clear, that's market or our products where we compete.

Absolutely. What's the EV penetration that kind of underpins that?

So we -- look, we base that off of IHS. So I think it was like 35% to 40% roughly, if I remember correctly, right around that code perfect. The question?

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Yes. So that's a good question. What we did is we took our best guess on what's going to be in-sourced and outsourced and understanding the behavior of some of these OEMs and what they sort of telegraphed to us, that number was taken into consideration. So that goes into the analysis. I think from an ICE standpoint, right now, the reason why we feel confident in that we have a good runway with these electric drive units is if you take a look at what we do currently, which is with axles, -- and there's a lot of similarity with the dynamics -- the market dynamics between an axle and an electric drive unit. If you look at General Motors, they do they outsource the T1 axles at least most of it to us. If you look at Ford, I think they do most of theirs in-house. You look at Stellantis, it's a JV with ZF, right? So we have taken a look at that and go, wow, there is a lot of similarities between the 2. And hence, that's why we think that there was a good runway for us from the electric drive standpoint. The other point that I want to make is, I know that a lot of people ask, well, you're talking about 10% or 10% market share of that $20 billion or $30 billion. What makes you feel the confidence in getting there? Because of the similarities between the traditional axle business and the electric drive business, we have about anywhere between 10% to 15% market share on those axles. So understanding that as the base case, we felt like it was appropriate for us to overlay that target number for our electric drive units. But to your point, right now, I would say the industry is unfolding the way that we sort of analyze it many, many years ago. We feel like the legacy OEMs, at least in the near term are looking for more on the componentry side initially, which makes sense. They want to understand the technology behind it, the power electronics, et cetera, the software behind it, where we see the full EDU opportunity right now, which sort of is aligned with what we sort of predicted in the past was smaller OEMs or start-up OEMs that are a little bit more interested. But we feel that there's going to be a point in time where the legacy OEMs will start to pivot more and saying, well, do we really have to do all of this. And one of the factors that I -- that should be considered as if you look at electric vehicle build a material rate, the biggest cost in that EV is the battery. So I mean just some round numbers, if you use $150 kilowatt per hour, on a 100-kilowatt battery, I mean that's ginormous relative to a conventional transmission and engine. And if you do the roll up, that's where the focus has to be is where do we get this battery technology to get to a glide path where it becomes more feasible.

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Actually, that's a great question. Actually, it's more tied to the electric drive unit side for us right now. So I mean, look, I mean we got -- we've mentioned Re. We have a number of e-axles eases that are -- the latest E-axle is not actually in that number, but we have more and more e-axle opportunities. We have the AMG numbers in there as well. So I mean those are some of the stuff that we've already disclosed, right? But it's more -- the majority of it or it's more weighted to electric cars right now.

David, you mentioned a 10% target share of EVs by 2030 revenue by 2030. You mentioned kind of how you got there. But the sales cycle is very long. Great. You do publicly provide your quotation number. I'm sure there's a lot of other engagements in the RFI process, you've been pre-RFI that you're involved with --in all that you're doing there with startups, traditionals, does that also inform you on the 10%? Or is it still more of a kind of top-down look at what your share should be of this go-forward market? I'm just curious like what else you're seeing there? Maybe a second question to that is, how should we expect the backlog to therefore evolve in the next few years? Like what should we see there the next 2 or 3 years to give us confidence on that 10% to me?

Yes. So like the $1.5 billion of incremental revenue that we -- that number that we consistently put out and 75% plus being electrification, look, I mean we go through our own level of filtering too. I mean we cannot quote on every single thing that's out there. It goes through a process where we look at volumes -- it says it aligned with our engineering resources, does it make sense. So there is a level of filtering that does happen. I would say from a backlog perspective, directionally, you should see that, that will continue to grow and the percent of the mix of electrification continue to grow. Look, I think the way that this industry is going to play out is it's a little bit -- it's going to be lumpy. There's going to be programs that are larger and smaller. There's going to be a timing aspect. We also want to convey that even though there is a timing aspect that we feel like the combination of our ICE business, combined with the electrification business is going to really put us in a nice sweet spot.

Absolutely. And then maybe speaking on ICE versus EV or the common question and I think you brought up to it at the Investor Day, is this transition? How are you prepared as you've done the kind of bottom-up modeling to get to the 2030 EV addressable market for you? What -- how much of that comes at the expense of your ICE business. Meaning as you look customer by customer pre program, understanding we don't know all the OEM lands today out to 2030. How much of that was like this could be brand-new business, maybe even beyond North America as opposed to -- yes, this is probably going to be a cannibalization situation. And how should we think about, I guess, the AAM ICE business in 2030?

Listen, I think the way that we see this in our executive -- our senior leadership is very, very clear. But there's a lot of debate on when electrification is going to happen. Is it going to happen faster as it can happen. Is it going to take a longer tail. The bottom line is you've got to have the technology ready to accommodate the timing. And from our 3in1 electric drives to their original electric driver 2 and 1 out of Jaguar I-PACE. Look, the bottom line, I think, like what I'd like to convey to investors is we have the technology. We have an engineering. It's proven. We've won multiple PACE awards. OEMs come in, and I know that every supplier that makes electric drives will say they're the best. Well, I'm going to say the same thing. We're the best, at least I think we are. But a combination of the awards, a combination of working with AMG Mercedes, AMG I think that's sort of telling sign of our engineering now. Having said that, I think the way that we approach electrification is even though it could be lumpy in the near term, our view is as ICE comes down, our electrification business should make up for the decline and additional growth on top of that. So that's the whole idea or the genesis behind our platform approach to these electric drives. You make a platform approach, and this thing -- this technology could accommodate small car and then our bread and butter trucks, which is combining e-beams, well at the beam-axle within electric drive. And I think we're one of the best, if not the best when it comes to that, so we could do the whole gamut of these things. And it opens up other opportunities outside North America, like in Asia and Europe, where historically, it hasn't been a particular strength of AAM.

Absolutely. And then maybe that was very helpful on the kind of revenue handoff. How do we think about the margin handoff before about pricing on new contracts? Obviously, there's R&D, I think, in your guidance $20 million I think for 2023. At a high level, how should investors think about when -- and I know we have early days on EV margins or return, I guess, positive or in line with corporate average? How to think about that hand off in 2023.

Yes. We haven't really talked about when would we would have like an inflection point. I think that's what you're aiming at. But look, I think with the initial high level of R&D that's going in, and there's a couple of things that we've got to generate -- we've got to generate the volume -- and eventually, over time, that's going to offset the R&D investment. R&D is obviously front-loaded. So a majority of our R&D right now on our R&D spend is for the actual 31 electrified product. We would probably anticipate R&D levels to be elevated this year and next year, the following year, it will probably start tailing off. But going beyond that, one thing that you have to be cognizant about is depending on the launch cycle and program size, I mean, that has a possibility of where it could spike back up. But look, when we do our business planning and analysis, like I said earlier, it has to meet our hurdle rates, it has to meet our financial targets. And obviously, that's also predicated on volume assumptions, too.

Sure. Absolutely. So in this phase, you're investing in EVs or booking more business backlog is growing. You're still trying to delever, you're making progress. It looks like you should be under 3x, I think per your guidance by the end of this year. Can you talk about the prioritization, just I think interest expense to as a headwind this year of bringing that gross debt down, how much liquidity and cash do you want to operate under in this environment given the capacity to bring down the gross mean just give us an update on how you're thinking about that?

I'm going to have Ari answer that one.

No, I think our position is relatively the same or similar to the prior years. As we continue, we still expect to generate a significant amount of free cash flow over the next several years, which we would -- one of our priorities would be to continue to delever the balance sheet and pay down our gross debt and get to the near 2x in the next few years. That's still a goal for us. We feel we have more than sufficient liquidity to run the business. We ended the year at $1.4 billion, which is well above what we view as our necessary liquidity for the company. So we'll continue to probably have elevated levels of liquidity, but we'll also be opportunistic in delevering. And roughly, what do you think you can hit that kind of -- is that still a couple of years from now? I guess we can... We -- it's a function of EBITDA generation and net debt. I mean it's -- we're not going to give like a solid time frame. But look, I mean, it's a major target or a goal for our management team to get to that 2x or less leverage. And then that opens up a lot of other optionality from a shareholder perspective later that we can consider. But yes, that's probably our near to medium-term goal.

Perfect. Question. One more back to EVs. We've got this question recently less so in the last few weeks, but certainly in January. With some of the price cuts and EV is obviously a big topic still, but particularly in January, -- do your customers call -- how do you feel about margins and pricing or content? Like internally, when you see these things, are you saying, "Oh, look, we may have to adjust our own pricing as maybe our customers start to see margins under more pressure. But do you think for now that's still pretty independent? Are your customers talking to you in real time as it is going on and saying, "Well, look, what are you going to do to help us predicament.

Look, the OEMs always want, they always want the best deal, right? I mean, look, if they could get it for free, they probably would take it I mean I'm being a little facetious, but look, I mean, pricing dynamics has always been -- it's always been -- they've always been tough at it, right? And so look, like I mentioned a little earlier about with that example of the battery cost that the focus has to be on the battery. I mean, look, if you're -- let's just say your -- because of your battery, you're $5,000 or $7,000 under water on a bill of material rate, they can go through -- in my opinion, they can go through all these suppliers, whether it be seating suppliers, EDU suppliers, closure suppliers, and they could squeeze out a little here and there. And they're still not going to make up for that battery differential. So I always sort of a joke around actually working in electric vehicles for a little bit. I always said there, what are you going to use? Do you dinner sheet metal, use cheaper plastic? So look, there has to be some sort of fundamental change in how they come down on the battery cost. They can only squeeze the supply base so much. And look, we're always willing to listen and work with our OEM customers. The supply base in general is always going to listen and work with them. But at a certain point, they understand where that cost differential that is coming from.

Absolutely. I wanted to ask you what was the question? [indiscernible] $20 million to $30 million that you were talking about again before, can you help us maybe understand the regionalization of it? And where the prioritization of maybe that in-source outsource dynamic is occurring. You mentioned seeing with smaller OEMs. So when you're kind of looking at that regional footprint that's really flowing through, is there kind of an overweight on a certain region that's tied to it and an underweight on others just to better understand.

Yes. We looked at that from a global perspective. So we're looking at take rates globally in North America. We're taking -- looking at take rates globally in Asia and Europe. I mean, nevertheless, we think that North America is going to be a little bit longer of a tail. And Europe and China is going to be a little bit fast on the adoption curve. From an AAM perspective, right, our bread and butter or -- where our strength has always been in North America. So I would say that to sort of categorize it, North America is an area that we feel probably the most comfortable with, but we are actively engaged in Asia and in Europe. I mean the 2 recent e-beam announcements have all come from Asia, India specifically, right? So we have boots on the ground that are making headway there. Look, no, we feel like right now, when we take a look at the large trucks going -- large trucks going to electrification. That's definitely going to be consumer-led. If you talk with anybody down in Texas or in Oklahoma, they have a little bit of skepticism about electric trucks and rightfully so, there -- it's a new technology, right? But that's an area where we feel like we have an advantage. And that's an area when you see our CES deck, we specifically call out e-beams because we feel like that's an area that we have a definite advantage combining our axles with the electric drives.

One -- I'll come back to that, but maybe just 2 more in terms of strategy and cash. I think there's still some restructuring in the guidance this year. Maybe talk about what that is to work like did that help margins either this year or potentially, I guess, next year and the impact there? And how do we think about that activity beyond -- is it sort of perpetually there's always going to be some amount? Does that eventually kind of come down?

Yes. Look, I mean, I think we're at a point where because of the volatility because of labor availability issues, we're looking at how do we improve our capacity flow-through utilization? Are there other areas of structural costs with both on the fixed and the variable side that we could improve on and capital intensity. So those are all areas that we're taking a look at. We're looking at automation where feasible. So we haven't put out any kind of numbers on these. These are being considered. These are being taken a look at. And eventually, once we achieve these factors, then it would be a definite tailwind to margins in the future. But it's a little too soon for us to dimensionalize, if you will, on what impact that, that would have in '23.

Perfect. And then on M&A, obviously, you did a transaction last year. There's a lot of talk in the industry about ICE consolidation going forward. You could or potentially play a role in that presumably Talk to us about the appetite there going forward for the company, of course, leverage targets you want to hit as well. So how do we think about that as part of the broader story going forward?

Yes. Look, I mean, when we take a look at the M&A side of it, it has to make sense for us. It has to be well within our wheelhouse, point one. Point 2, it has to be a quick return and it has to be of value. So if you take a look at the Tech 4 acquisition, call it, over EUR 125 million, EUR 150 million enterprise value. I think it was EUR125 million actually. And then on a synergized EBITDA basis, -- so that was a no-brainer. It was a smaller acquisition. When it makes sense, we're not going to shy away from those quick return acquisitions. So that's definitely on the table. But like Ari mentioned a little earlier, the focus of our operations right now is to reduce the debt.

Perfect. And one question we're asking -- a 2-part question, all presenters. I think on the answer to it to the first one, but I'm curious if into the second one for sure. What are the top 2 or 3 innovations, megatrends, structural changes that are affecting the company over the next 5 years? And the second part is, are there anything emerging in these trends do you think are being overlooked that we're not writing about, we're not talking about enough once you're thinking about it and looking at it internally that, wow, this is a big deal. Curious on those 2 questions.

Yes. I think you guys do a very fantastic job in trying to couch what's going to happen in the next 3, 4, 5, 10 years. From an AAM perspective, we know that electrification is coming. We don't know how soon it's going to come, if it's going to take longer, but you're not going to catch us sleeping no way. David won't allow any of his people sleep when it comes to that. He wants to be ready, been in a number of meetings. That's the focal point of a lot of the discussions is we got to be ready for this transition to electric. And we will be ready, and we are ready. Our next-generation products are going to be launching, and so we're very confident in that. I think the question at hand is how soon this transition will happen? Will there be infrastructure for it to happen as quickly as people think it will happen? Is there enough in the supply base, for example, lithium? Is there enough to power 80 million vehicles or what have you, whatever the number will be. So those are factors that are beyond our control. We can only control what we can control, and that is our electric technology. Our focus is to be the best at it, the most power dense, the best value proposition. So the way that we see it is we want to walk into an OEM customer and it's going to be really, really hard for them not to consider us. That's the point that where we want to get to.

Perfect. My last question, I know [indiscernible] from lunch. GOM growth over market is obviously a very well-followed metric for suppliers. You just updated your 3-year backlog. When do we get asked a question, as you're investing in EVs to R&D, how do we think about AAM's longer term? I mean in the words, and maybe share a number with us today or if you want, you feel free. But do you target one internally? Or is that just a culmination of all the hard work you're doing and whatever the number is, it is based on…

Look, I think we look at all sorts of data growth over market and stuff. And that is a data point that is well considered. I mean, look, if you're growing in line with market, then you've got to consider other avenues of growth. We want to continue to outperform and do the best you can, whether that be with revenue, margins, free cash flow. So we take all that into consideration. And like our management team will tell you, growth is important. Profitable growth is important. So those are a couple of the launches that permeate through the buildings of our building.

Well, that was great. We'll end it there. We are past our time. So David and Arianne thank you so much for a great discussion. Appreciate as always. Thank you.