American Axle & Manufacturing Holdings, Inc. (DCH) Earnings Call Transcript & Summary

All right. Thanks, everyone. We're going to get started with our next session. Very pleased to have with us next American Axle & Manufacturing. I have Chris May, CFO; and Shannon Curry, Treasurer from American Axle. Chris, then you get some just brief opening comments I want to make and then we'll get into Q&A. We'll also be taking questions from the audience. [Operator Instructions]. But thanks for joining us, and take it away to, Chris.

Great. Thank you, Joe, and good morning to everybody. First of all, thank you, Joe, for hosting this event also to UBS. This is always a great event to come to and talk with our investors and share our story. It's always very exciting for us to do that. Before I begin, I would also remind everybody to take a look at our forward-looking statements that we have out on our website for the matters that we're going to talk about here today. But just from a perspective of some opening remarks, we closed our third quarter and reported our results about a month ago. Certainly pleased with how we are performing on a year-to-date basis. Strong quarter for cash flow, nearly $100 million of adjusted free cash flow inside of the third quarter, but also we continue to perform multiple quarters now in a row where we have year-over-year positive favorable performance as a company. So really placing us well into conclude out through 2025, but also setting us up really nicely in our view for 2026. I know another topic we'll probably dive deep into here today is our acquisition of Dowlais and that continues to progress very well. We did get our shareholder approval in July. We've now completed our permanent financing with Shannon and team here in the October time frame. And in our earnings call, we said we've received 8 of our 10 approvals from the respective jurisdictions. I am pleased to announce we have received our ninth that would be from the country of Mexico. So now we're really down to waiting for final approval in the China marketplace so we can conclude and close this transaction. So we are tracking to close the transaction here in the first quarter. Certainly excited to get that size and scale to continue to leverage those synergies and create a lot of value creation for our shareholders and our other stakeholders inside the company. At the macro, for our business as well as for Dowlais business as well. The ICE for longer continues to be a theme that we see that's exciting for the foundational elements of our business that will carry our performance and cash flow for a very long time to go and we'll continue to focus on our operational core productivity of both companies in addition to those synergies. So really setting us up, hopefully, for a great 2026 and beyond. So with that, Joe, maybe that's sort of some positioning where we sit today and maybe turn it over to you for some Q&A.

Sure. Thanks. Maybe what -- you sort of talked a little bit about your guidance for the year. We've got about 3 weeks left in the year. How are -- how would you sort of say things are trending? And I guess specifically, like you gave some ranges on the GM full-size truck program, which is obviously a very important program for you. We saw the S&P update. There were some positive revisions now. Again, maybe some of that was timing because I think there was also a positive revision to the third quarter as well, in which I know we've sort of talked about post earnings that you thought maybe their cadence as above. But overall, they still did raise the number I think they're probably a little bit closer to what you were expecting now, but how are you sort of seeing that trending through this quarter?

sP1 Yes. We provided our guidance early in November. We talked about a North America production environment of around 15.1 million units. That continues to be sort of our line to say to that. We did get a range of the T1 truck production of 1.3 1.39 million. We have seen volatility inside the quarter for some of our platforms, some of which we talked about in terms of -- at our earnings call, we saw some early downtime in the quarter at [ Janesville ] for GM facilities. We have seen some extended downtime planned around the Christmas holiday. I think, generally speaking, that's in line with what we talked about on our earnings call. And of course, one of our other large customers for some of their volumes as they've gone through some of their local supply challenges with some of the aluminum side. We've seen some softness in a few of our schedules for Ford around the edges. So we see them clearly trying to build out the Super Duty platform, which we are a large supplier for from a component standpoint. So Volatility is still inside the fourth quarter, but generally aligned with our commentary at our earnings call. Those updates from S&P Global really factoring into any of our thinking at the moment.

Okay. And then as you begin to sort of some of your planning for next year, any high level of commentary on what you see from a U.S. market perspective or maybe some of the internal American Axle goals, again, on a stand-alone basis from a cost side. And then obviously, I know you'll have the integration to deal with.

From a production standpoint, is your...?

Well, one from how you're planning for production and then related any sort of cost initiatives that internal.

Yes. And at this point, it's a little premature to give any guidance or ranges for '26. So -- but in terms of how we're thinking about '26 and some of the elements we're stepping into, from a macro market perspective, as you know, S&P as the North America market is down slightly and the European markets, I would say, call it, relatively flat. So that's sort of our current planning scenario that we're evaluating and taking a look at. From a truck production standpoint, we are, I would say, very bullish on our trucks, whether it be the General Motors trucks, the Ram trucks and even the Ford trucks going into next year. Now GM, I think from our view, we'll start to their next-generation platforms. And you've heard some of our commentary as it relates to our fourth quarter performance that we're starting to make some investments from a capital and project expense standpoint.

When does that go through when will that be done?

From our standpoint?

Yes.

That will continue probably the fourth quarter of this year and into a little bit, call it, first quarter so and then they'll transition. So I would expect probably some volatility from their plants as they do some conversions in the next year. But big picture, I would still expect the T1 platform to be a strong perform platform next year. From the RAM perspective, they went through this phenomenon a year ago. So they had softer production in Q4 of last year and Q1 of this year and now they've been running very strong and steady. Our view on those heavy-duty platforms, again, ramp would be strong and steady next year. We see no reason why that wouldn't continue to be the case. And same with some of the Ford programs that we support as well as production.

Yes. I don't want to get to the cost side. But I think it's a good time to interject this. So you mentioned the ICE stronger for longer sort of thesis and we agree with that. I'm curious to sort of get your view, though, on not just ICE but, let's say, pickup trucks, work trucks in general. With the more relaxed regulatory environment with automakers not having to sort of manage their overall mix and inflated vehicles with a potential CapEx cycle and sort of the need for infrastructure build. Do you see a world -- maybe it doesn't play out in '26, but if we think out over the next 2, 3 years, where the pickup market overall just trends higher than what we've seen in the past couple of years.

Yes, I don't know if it trends higher, but it clearly, in our view, continues to remain strong and robust. And we have an interesting -- our pickup programs we support both light duty on the GM side, and then we really have a great line of sight into the heavy-duty side, so call it greater series for GM, Stellantis and for Ram and for Ford on the component side. And our view is those markets to the items that you just talked about will remain very strong for the foreseeable -- that's our expectation. Now if you get into a boom where there's a lot of capital investment going on and housing continues to grow or it takes off in some regard or construction. Obviously, that drives demand for those 2,500 and Greater Series. That's what they support. So that would continue to either keep a floor on strong production or maybe pick a like pickup. But our view over the past many years is those are strong and stable platforms. because they have a need in the marketplace. And there's no substitute for frankly.

And you mentioned in your opening remarks, the good recent sort of performance that you guys have had Again, how are you sort of thinking about that into '26?

Yes. So some of the maybe cost puts and takes as we think about '26 going forward. I think from a couple of different perspectives. From an operational perspective, if you look at our driveline business unit has performed strong and steady, and that environment allows that business unit to generate productivity that offsets price downs or inflation. I would expect that recipe to sort of continue on our driveline side. I'll be with, call it, a little bit of puts and takes for the GM conversion to the next-gen truck. On our metal form operation side, look, we've been trying to trend it back to double-digit margins. It got close here in the first half of the year, quite frankly, the third quarter wasn't a particularly strong quarter for that group. So I think we still have some work to do in terms of operational efficiency of a few of our locations, but also some continued capacity optimization as it relates to our metal form group. So we've -- we've taken some actions through our restructuring costs for American Axle this year as a stand-alone to close some facilities. I would expect that to continue into next year to some degree. So to continue to bring some cost improvements in the metal form side, which would translate to margin improvement for that book of business.

That's on a stand-alone basis, and I know you're limited in what you can sort of say now on a combined basis, but when this deal does close, will that provide additional opportunities to maybe restructure even sort of stand-alone American Axle facilities? Or is some of that thinking and calculus already go into the decisions you've already done?

Well, I mean, as the items I just referred to were...

Needed to be done irrespectively.

It needed to be done irrespectively. But if you think about the ones we're combined, part of our synergy opportunity is plant optimization. So I would expect that we would further optimize our plant footprint as part of the acquisition over the next couple of years together. So we'll be able to leverage both companies today footprint and optimize that through some restructuring. And that's already included in our synergy estimates and costs.

Okay. We have seen some price movements in the metal markets of late. I'm curious if you could just sort of give us an update there, what you're seeing, how that would play into '26 and remind us sort of how that works its way through your financials?

Sure. I mean at the macro, how it works through our financials, generally speaking, for index-related cost changes, we pass, call it, 80% to 90% of those costs up or down to our customer either every month or every quarter, it depends on the customers. So we're generally insulated from that. There can be some timing lags. But what we have seen some of the main, I would call it, input costs to our business that factors into is scrap steel, which is the key ingredient to make bar steel that we buy. And that's actually been relatively, it's come down over the last, call it, 12 months and has sort of run flat the aluminum that we purchased has been remarkably flat over the last 12 months as well. We've seen some other copper and things like that starting to increase. But again, we're protected with our pass-through mechanisms. But right now, I would say big picture over the back half of the year. It's been relatively flat. And we don't really make predictions going forward on that as we are predicted.

Yes. You mentioned the metal forming EBITDA margins, and I think those were I think you said double digits, you want to get back to, they were, I think, mid-teens back in the day. So what -- just what is the plan? What needs to happen to sort of get back to those levels?

Yes, it's a couple -- I would say, this year, I think year-to-date, they're about 8% all in for the 3 quarters. And there's a couple of factors driving that. I mean when you compare back to the high-teen element, of course, that was a while back, the cost structure from a metals pass-through perspective has changed quite a bit, and that has caused a meaningful change margin profile because you pass on those costs at cost. So it actually deteriorates margin, but it protects the company and protect the business unit.

And that's a change from when you were doing high teens or...

Yes, I think we've added a lot since then in terms of some of the...

Structurally, they're just...

There's a piece that's structural, but that's not the whole story. There's truly operational improvements that we need to do inside of this business unit. And as I mentioned a few moments ago, we've made progress, but we still have work to do. And how are we going to accomplish that? Look, a lot of this is inside the 4 walls and a few of our select facilities, quite frankly, struggling a little bit with capacity optimization as well as efficiencies inside those plants. So we have teams dedicated to working through those. Like I said, we've made some progress this year. I would expect that to continue. But in addition, through some footprint optimization, I would also to squeeze out some fixed costs. And that's also another piece of that story that will get us into those double-digit margins, which should play out over the next 6, 12, 18 months inside of that business.

If you go back, I don't really think so much this year, but definitely last year, labor was a little bit of an issue as well in turnover. And how has that sort of played out across your different sort of facilities and businesses? And is there a little bit more stability there as -- and how do you sort of view that going forward?

Yes. No, that was a significant challenge for our business and many businesses in many industries just a couple of years ago. We put a lot of structural changes in place, in some cases, compensation changes. We try to introduce automation where we could in quick order to sort of take some relief off of the need for manpower. So I would say for the most part, we've now reached a stabilization in terms of -- at our facilities. We do have some challenges from time to time. But it's nowhere near like we experienced about 2 years ago. So that issue, I don't want to say it's passed. It's something we have to manage every day. I think every company has to manage that every day. But I think the major pain points that are sort of passed through a lot of the things that we have done. And I would expect to continue more into the automation side.

So I was just going to say, I mean, as you sort of reevaluate things here and obviously, sort of automation technology has progressed as well. Is there an opportunity to do more. Because it does seem -- I don't want to say you're sort of underinvested in that in the past, maybe it wasn't sort of the right time to do, but it seems like there's more opportunity to do that going forward? And how does that play in, I guess, to sort of go-forward CapEx plan?

Yes. Well, it would be included in our estimates of CapEx today in terms of at least what we think from an investment standpoint for automation. But I would say our -- our factories have a fair amount of automation into them, but this is a very, I would call, hot topic inside of our company with our engineering teams and our MAs to look how we can advance because it solves a lot of different issues. Number one is some of the labor pain points that we talked about, but it also -- it can improve efficiency inside of our factories and create better capacity utilization of our equipment. So they're looking through a lot of opportunities to do. We've done some quick hits in a lot of our factories, but we're also trying to lay even a longer game plan on how we can increase the automation in our factories going forward. So this is a key topic for us to continue to into and install in.

So would you say you're still in the earlier earnings of that, like long term -- like not to say in 2 years, it's going to be sort of all automated, but there's a long path here for...

Well, it's clearly a path. I don't know, I would say a long path. Again, our view is we do have a lot of automation in our facilities. But I think in terms of some of the advancements from an IT perspective, from just pure automation continues to evolve very rapidly, and we are evaluating some of these sort of and techniques. But those would be probably a little longer path. But I would say it's kind of short to midterm, you'll see continued investment inside of the automation in our factories.

And what about on the Dowlais side that you're inheriting? Are there -- where would you say sort of they stand on that front? And are there any practices or techniques they use that you could sort of scale across your stand-alone facility?

Yes, it's certainly a little bit, I think, early days to address some conclusions there. We -- if you've heard us make some remarks that we really haven't had a lot of opportunities to get into the factors since our shareholder vote path back in July, that has opened up. So our teams have been able to spend some time in their factories. And I think we're excited about some of the opportunities they would present. But look, they're a very capable company. They have a lot of automation factories. And I think combined, we'll have even new ideas to advance our operating systems and automation is a key piece of that.

Right. So we danced around the sort of topic of the acquisition a little bit, but let's sort of dive into that a little bit now. Well, first, with the approvals and closing. So it sounds like you're just waiting on China now and you expressed confidence that the deal can sort of close in the first quarter. Like is that -- like once you do get approval, are you able to close? Or is there still some sort of timing that needs to happen between those -- that process.

Yes. So we've been in active dialogue with our teams and regulators in China. We're not concerned about any of the topics. It's just, I'll call it, a process, and it takes some time, and that continues to work through. And then once that's concluded, we have to set -- it's -- I would call it -- I want to call it mechanical, but there's a court date you have to set in the U.K. to get sort of final approval, which is generally relatively automatic and then you close it's not really viewed as a meaningful hurdle to get past. You just sort of at the schedule and go through that process. So once we get approval from China, I think we're accelerating the process to get ready to close.

Okay. You mentioned the synergies. I think you sort of talked about $300 million. There's a number of different buckets. And maybe you could sort of just quickly go through those buckets. And now that you have at least have had a little bit more sort of access to some of those manufacturing facilities. If you could like let us know any update there? Is this sort of just leave you sort of more comfortable with the opportunity you sort of laid out? Or are you sort of beginning to sort of find elements of potential upside there?

Okay. You know, this is an exciting topic. And just to kind of frame as you mentioned, $300 million really falling into three main categories, and we'll talk about each of these, but 30% of that is, call it, in the public company, SG&A, engineering type, call it, redundancies that we can control. About half of our synergy estimates is through the purchasing and procurement arm, and we'll dive into that in a moment because it's not just direct purchasing. We have a lot of vertical integration opportunities here for us, which I think is unique for these two companies combined, which is one of the things we really liked about it. And then the last bucket, 20% was valued for operational improvement. So that would be a common operating system as well as some plant capacity optimization over the footprint validation. But before we get into the details of that, the teams, I would tell you, have been working very diligently now over the last -- really since the June time frame, and we continue to gain momentum and speed. We have an IMO office setup really focused on the value capture for this the broader teams anywhere from 80 to 100 combined between the two companies are meeting multiple times a month now to really get us in a position so hitting day 1 from a just a pure close perspective, a pure system perspective, but also from the value capture on the synergies, getting out of the chute as quick as we can. But if you think about some of these $300 million of synergies, clearly, that first bucket of SG&A and public company costs, very common duplication we'll get at relatively quickly. The R&D spend, both companies have a sizable R&D spend. Both of us are investing into electrification and similar type of elements. This brings a great opportunity from a synergy perspective to come together and optimize engineering spend, part of that almost size and scale theme of being able to spend better to get an outcome for even greater products going forward. On the purchasing side, look, the size and scale will drive pure, I would call negotiation with the supply base to get lower prices. But I think unique to the combination of these two companies is today, Dowlais, for example, purchases a lot of steel forgings on the outside. We are the largest steel forger in the world on the American Axle side. They don't buy a lot from us today. The ability to integrate and vertically integrate many of these components. There's some real capture of margin, if you will, as part of that. The same on the powdered side. So we are in the powdered metal business. We buy raw powder, some from them, which they manufacture and some from other suppliers, we can obviously vertically integrate that piece into ourselves as well. So it's not just a negotiation with the supply base. There's a real true vertical integration element to the combination of these two businesses.

How much of that bucket purchasing, how much would you say the vertical integration is?

So the purchasing bucket is half of the $300 million. It's probably in the, call it, 20% range.

20% of the 50% or 20% overall?

20% to 50%. A rough number in terms of some of that opportunity. And that will obviously -- we have to do -- you have to in-source part and you need to get customer approval for some of these. So you have to kind of work through some of that pieces. And then the last bucket, which we're most interested in from an excitement standpoint, of the optimization of the factories because now we've been able to go through some of these factories and you're seeing how this can play out with a common operating system, a best of the best, the AAM operating system, the Dowlais operating system and how we can drive improvements in their factories and our factories as well. When you commonize some of these elements. So we think potentially this is an area where I think we overperformed when the MPG acquisition we did back in 2017. And our view is, look, this is an exciting area for us. This is the sweet spot of American Axle. What we love to do is the operational side. So that...

And is that also the area that probably takes the longest out of all the buckets you just mentioned to sort of start to see the benefits?

Yes, absolutely. The first bucket of SG&A and that pretty quick within one, you get most of that. The purchasing side. There is some cadence of timing when you're renegotiating with suppliers, maybe new prices started on Jan 1 or something to that effect. This one, the operating system, look, you can get at quickly, but you have to install it across a fleet of facilities, which will take time. And then, of course, the plant or footprint optimization, that's probably the longest because you have to really fill out a detailed plan to do this. In some cases, you may need customer approval to do some of these movements. That would be the longest tail in this piece. But also could have the biggest bang for the buck.

On the vertical integration portion, like you mentioned, powder metal would you be able to sort that exclusively internally? Or do you still need to go to...

There's different chemistries of raw powder that you buy. So we would have to obviously want to balance some of that and make sure that they do all the chemistries that we would require. But we believe there's a significant portion that we would be able to work through.

And vice versa on the casting.

The Forging Steel. Yes, absolutely. Same concept.

Yes. Okay. I guess the other part of investment that we could sort of see as sort of -- that you might need to make? And again, sort of going back to sort of the stand-alone business is some of your customers and you sort of alluded to a little earlier, like not only is GM changing over to sort of a new platform, but they're also increasing capacity. Ford likewise, is ramping up in Canada for some of the super do. So how do you sort of evaluate your footprint and be able to sort of supply those additional factors.

Yes. No, it's a great question. Clearly, we work closely with our customers on these topics, starting maybe in reverse, you talked about forward expanding inside of well, Canada in terms of the Super Duty platform. In our last earnings call, we had a little announcement that we won some heavy-duty truck business. We can't name who that customer is aligning with some of the expansion of supply components into that vehicle very exciting for us. And as you know, sort of what we were talking about earlier, the demand for those heavy done products. But clearly align the capacity, winning new business and expansion to support them. The key is just obviously being cost competitive, which we are and then working with them to supply their needs. On the larger driveline systems, our customers source us well in advance of when they're going to launch. They have -- these are long programs, they take delivery at our docs, so they generally direct traffic to where they want these products built and source from and we'll just work with our customers to support their needs throughout the North America region.

And does that require additional lines or your facilities? Or is it just more over time? Like how do you fulfill the additional demand?

Yes. So they set up the -- and this is true for all customers, right? They put us on contract for certain capacity requirements, and we go through, I'll call it, a quotation and commercial process with them to put in place what they need. In some cases, you may be able to just cover that capacity requirement through like a 6-day or over time when they need it or flex, if you will, flex time. In some cases, they want permanent capacity in place for the need of their particular product. It depends -- it's product specific. And you work with the customers and reach a commercial arrangement with them on that. But they will tell us which they would prefer generally speaking.

Okay. So going back to the vision of the combined sort of pro forma company, right, you put together two strong EBITDA performing businesses, you could layer on over time, another $300 million in it sounds like there might be some capital that needs to be spent, maybe some restructuring as well once you sort of under but it stands to sort of follow that the result in free cash flow this combined ratio can also be quite strong going forward. I know it's sort of a leverage neutral sort of transaction. You talked about China and completing the sort of permanent financing. How do we think about the uses of that cash for the combined company going forward? Because I think before this deal, there was sort of, I think, a path to your sort of trying to sort of take leverage down. I guess it's still probably the plan, but maybe sort of just talk about what you see as the use of that cash flow. And to the extent you can sort of talk about the cash flow dynamics of the pro forma company.

Yes, certainly. Well, first and foremost, our objective from a balance sheet perspective is to continue to reduce the leverage ratio of the company. both standalone American Axle and I think we've made great progress on that. but also as a combined entity, that is our objective. And we'll talk about some of the cash flow dynamics in a moment. However, from a pure capital allocation perspective, what we have articulated that is after close, we'll fund organic growth, we'll fund our R&D. But our primary use of the cash flow that's generated from the business will be to reduce our outstanding indebtedness until we're about 2.5x levered. And once we get to 2.5x levered, the thought process there would be we would have a more balanced capital allocation playbook. What does that mean? We'll continue to pay down debt, but we'll also then focus some of that cash flow generation on to, I'll call it, shareholder-friendly activities, whether it's a dividend or buyback that would yet to be determined. But more balanced where you've seen us now over the last really since 2017, be almost exclusive on debt pay down, we'll transition that once we cross the 2.5x threshold. I would expect from that standpoint going forward, we would still want to reduce our outstanding leverage to get down below 2x. With that balance of capital allocation, close to 2.5x. From a cash flow perspective, look, our objective is 5% of sales or greater adjusted free cash flow performance of the company. I see over the next couple of years, how does this play out? Clearly, after close in 2026, we'll have a few things to fund. We'll have to fund the -- again, the organic growth in R&D of the business. But we'll also have to fund or make an investment in the amounts required to capture these synergies. So we've estimated, as we've talked about, $300 million of annual run rate synergies, our expectation is we will have to fund about cost to achieve those synergies, whether it's plant relocation or severance costs and a few other type of pieces that would fall into that area. Both companies will continue to have, I would say, their base business, some level of restructuring activity going on, like we do today and Dowlais has been spending a fair amount of cash over the last couple of years doing that, but I would expect their amounts on a stand-alone basis. come down, and they publicly talked about they're reaching the end of some of their core restructuring inside of their business. So that would be positive for us as well.

Will you back out some of that restructuring from your adjusted free cash flow number?

Yes, our adjusted free cash flow is before restructuring. So you would have to then take the restructuring after that. But true cash flow generated by the company.

Understood. But then like -- let's sort of think about before some of these additional initiatives to sort of get at the synergies that sort of stand-alone ongoing restructuring just talking about should be at similar levels to what we've seen historically for American Axle.

Yes, it would come down. We're finishing up some items in Europe for us in terms of some plants. But I would expect both companies to come down to sort of some -- I don't use more nominal, but some lower rate sort of what you've seen us historically.

And then -- then we need to add in $300 million to sort of get to the end.

And I would expect the $300 million sort of spread out between '26 to '28, probably a little more front-loaded in terms of that activity because you need to make those investments to get those exit rates synergy savings, but that's how I would expect that to play out.

Right. It's really though $300 million for a smaller number because you don't need to spend capital for some of the SG&A, for instance, you talked about ...

Well we do severance costs and things like that. It's not capital.

Exactly.

But severance costs and things of that nature would be included to achieve some of those synergies.

Right. So we still seem that like the payback on that $300 million for the synergies that do require sort of capital spending is, what, probably 2 to 3 years or so? Is that a fair?

Because you'll exit out for this period of time with a much different fixed cost element structure that you would receive part of your $300 million.

Okay. I don't know if there's anything in the audience. But again, if you want to ask a question, please use the QR code, and I'll see -- I'll keep on looking over at this IPad to see if anything pops up. If not, I guess the other side of this acquisition is you're going to be a much larger company, right, more critical mass. And I think you also want to be -- but you still want to sort of focus on your core competencies. I think they're on stand-alone American Axle, there were some businesses which I think you were -- you have gotten out of some. I don't know whether that process was done in sort of the full evaluation of whether it will sort of be continued businesses that you sort of choose to walk away from or not. How do you think about it from the Dowlais side? I mean, again, I know it's early days, but are there potential divestitures that can also be sort of cash flow sources, if you will.

Yes. No, a great question. And this is something we've been evaluating inside of our own standalone American Axle now the last couple of years, and you saw us take some action here -- we exited a joint venture in China, monetize that for about $30 million. And then we decided to -- I won't say exclusively, but clearly double down in just being a light vehicle manufacturer, exited our commercial Vehicle Axle operations India and monetize it for about $65 million. So all in, brought in about $100 million into the company this year for some of these assets. What I would tell you is we continue to look at our product portfolio once Dali comes a part of the family when we close in the first part of -- first quarter of next year, kind of looking at it across the entire board. Now how do we think about that product portfolio longer term? What do we want as a part of our kind of go-forward basis for the next 5 to 10 years and absolutely open to thinking about are there pieces in here that may or may not make sense for us. And if we conclude they don't, we're obviously we would have a disposition process for those. And at this point, right, when we close, we're all -- it's all part of one and we'll go through a valuation process.

And obviously, it's a meaningful acquisition of a large size, and we'll take some integration efforts. But do you still think there is the potential for smaller tuck-ins to sort of round out the portfolio? Or do you think you have and are comfortable with what you need once the steel quote.

I think small tuck-ins and things of that nature. And there's nothing quite -- I mean, we're heavily -- we are focused on the acquisition -- so just to be clear. But if you look over the last 3 to 5 years as a stand-alone American Axle, we had some small tuck-in time to time to round out either maybe it was a supply chain challenge, we thought we could better manage inside the company or want to expand into certain products that's like we did with Tekfor. Look, I think that's always a part of the dialogue. But right now, our focus is solely on the acquisition closure of Dowlais acquisition.

You mentioned that both you and Dowlais or have been investing in R&D and sort of electrification. And look, that's a relatively small part of your business. And you are also, let's say, overexposed to sort of the North American market. So I guess, at least for your sort of stand-alone business, and then we can sort of talk about maybe what Dowlais might do. But you mentioned right off the bat, right? It's ICE stronger for longer. And I think that's mostly a North American comment for the most part. But -- and for some of your other products, maybe in some -- in the other markets for some of the vehicles you provide, I would agree. But does that then change how you sort of think about R&D or sort of is there -- or how you sort of go to your customers and sort of talking about what you could do for them? Are you requiring for them to fund more the developments upfront? Or because otherwise, you could sort of just continually sort of get caught in the cycle where you're spending and then you don't get the returns on that investment because the volumes.

Yes. And I think the industry has gone through that cycle here over the last couple of years. I think our approach over the last couple of years from American Axle stand-alone will continue in that same, I'll call it, philosophy going forward. I think we've been very selective and what we have decided to work on and pursue from an electrification standpoint, which I think has allowed us to be quite measured in terms of the R&D spend to support that. Now we dialed our R&D spend back. This year alone, we've reduced our R&D spend by nearly $20 million. That is a direct beneficiary of the changing landscape for EV in particular, in North America. But being sort of measured and thoughtful about where we make these investment dollars and where these may transition to in terms of growth opportunities is really top of our mind. I think we have, I would say -- rigid is probably maybe a little too strong of a word, but we have key financial metrics, key risk management metrics we think about when we're pursuing new business. EV is a part of that and ICE is a part of that, and we try to treat these the same. But we do see growth pools for our electrification business, we're experiencing in China today, some of our e-Beam axles. And clearly, we're experiencing it on our component side of our business to support the volumes that are in the marketplace today. Now those require far less R&D dollars than a big driveline. So we're able to sort of, I think, kind of play the middle road here in terms of growing in some key areas with limited investment and then in terms of components, but also making select R&D dollar investments in some of our drivers to support the marketplace. But once we combine with Dowlais, now you have twice the talent, you have twice the product set, you have a lot of capability in house to support the electrified market. And I think we can rationalize costs as well and still be offer a competitive product to what our customers need. So I think that sort of generally answered your question but we've been very measured in this and have not really gone all in, if you will. And I think that theme will continue. But our investments here. We just won this -- we announced the award with Scout, right? That's a great award for us. It's our electric axles. It's on a range extender vehicle. So we'll continue to perform, we believe, in that space on a selective basis.

Yes. Maybe a final question. I mentioned in the present last question, your sort of -- the vast majority of our business right now is North America. Dowlais obviously diversifies you geographically and a lot more into Europe. One of the investor concerns about Europe is that there just needs to be the automakers in Europe need to undergo sort of their own rightsizing because they're facing competition from right now, some China imports, but eventually sort of China localization. How would you sort of categorize your assessment of Dowlais footprint to be able to sort of handle that effect if that sort of trend continues? Have they been proactive with some of that? Or is that an additional source of potential restructuring that might need to take place?

Yes. I would say over the last couple of years, they've been quite proactive in addressing this in some of our comments earlier, they've made significant investments in restructuring dollars to really rightsize their European footprint to some degree, also their U.S. footprint as well, moving it from the higher cost to lower-cost countries, but they've taken a lot of action inside open marketplace to support that. I would say in addition, and maybe at the other end of this, they have a significant joint venture in China which is really how they participate in the China market. The 50% interest in this entity that sells the full suite of products the Dowlais or GKN manufacturers, and they've been growing their book of business there. It's almost 50% now with local China OEMs. So that will allow you to enter into that value chain through China. So we think between that element as well as the restructuring activity that they've done already inside of Europe, we should benefit from both of those sort of actions and activities going forward.

And competitively, that JV in China, as you sort of look out on the horizon you think can remain a player there? Or is there going to be more intense local competition?

Well, it's an intense competition in the China market last to begin with, but absolutely can be a player. We're very excited about it. We participate at American Axle stand-alone. It's about 5% of our revenues with sort of a niche product line there. But we have some unique products that we can work with the joint venture on going to market together. So we're very excited about participating in the China market through this approach.

Great. Well, with that, I think we're out of time. So Chris and Shan, thanks for joining us today.

Thanks, Joe. Appreciate it. Thank you, everybody.