Gentherm Incorporated (THRM) Earnings Call Transcript & Summary

Okay. I'm Ryan Brinkman, U.S. autos analyst at JPMorgan. Thanks for joining us for our next presentation, which is with Gentherm. I'm very happy to have with us here, Phil Eyler, President and Chief Executive Officer; as well as Matteo Anversa, Executive Vice President of Finance, Chief Financial Officer and Treasurer, a lot of hats. I don't know, Phil, do you want to start with any kind of opening remarks and move on to Q&A.

Sure. Be happy to. So for those who don't know Gentherm, I just did -- give a very brief overview. We are the global leader in thermal and pneumatic lumbar massage solutions for the automotive market and most people know our product by heated and cooled seats, interior, steering wheel, surfaces, cupholders, basically anything in a car that is heated and cooled that's not done so via the HVAC, central HVAC system. That's where we come in on the thermal side. And then lumbar and massage using pneumatic air bladders. Both of those, we're the global market leader and lots of other areas of growth in the company, which we'll dive into. I want to spend -- really focus just on a couple of things. One is around the growth thesis for our company. And really, there are 4 pretty unique areas that are growth drivers for us. And one thing that you would see kind of cut across all 4 elements is the transition to electric vehicles. So I think -- thinking about us, where we really get a lot of tailwinds from the EV migration over time. The first area of growth for us is our core thermal and pneumatic and lumbar business. So these are products and solutions where we lead the market today. The actual penetration in the market or in vehicles that are produced today is still fairly low. And I think as most of you probably know, the driver of differentiation in the car of the future is moving more away from vehicle performance and power and acceleration to experiences for the consumer. And certainly, our product, which really revolves around health, wellness, comfort and energy efficiency, is seeing a lot of benefit. So we're seeing pretty rapid increase in adoption of the thermal products and the pneumatic and lumbar products in new vehicles. So more new nameplates offering the solutions. We're seeing take rates rise in the vehicles where we already have our solutions. So more and more, a higher percentage of the cars that we have are offering the product and also looking at an increasing level of content in each vehicle. So more seats are applying heating and cooling and massage and lumbar plus new devices, neck warming, surface-level heating, steering wheel heating, all those are really picking up. And a lot of that is being driven by the movement to electric vehicles. The next item I'm going to talk about is ClimateSense, and ClimateSense is really a system that we develop that is a micro climate. So it takes the idea of these heating and cooling devices around the body and really is augmenting or even replacing the HVAC system in the car of the future, driven by our own algorithm and software that we've developed that basically takes the science of heating and cooling the body, translates that to an algorithm that controls the heating and cooling real time in the vehicle. The benefit is, of course, comfort, but secondly, pretty significant opportunities to reduce power consumption in the vehicle. Then a lot of people don't know this, but the second-largest drain on an EV battery is the HVAC system in the car. And if you think about it, it kind of makes sense, the methodology to heat and cool passengers, that's the standard now, is pumping hot or cold air into a pretty large space, the cabin of the vehicle. Our system, ClimateSense, kind of flips that around and focuses on each individual passenger. So we're only focused on heating or cooling the one in the seat and isolating that power consumption for those individual passengers at the level that they want to be heated and cooled. And that helps to really reduce the amount of HVAC utilization. We've done tests that have proven anywhere from a 50% to 70% improvement in power consumption, which equates to a 30-plus percent improvement in range. So that's ClimateSense. That's also driving more content of our core business. So it's got a nice cycle there. The other area we're really focused on is our new opportunities that are being unlocked with the combination of our thermal products and our lumbar massage around health and wellness. So there'll be more to come on that, but think about creating software-based treatments, experiences, et cetera, that can combine these features together. So one area we're looking at is lower back pain relief, massaging and cooling and heating in a very specific way that's developed by our scientists. There's also refresh modes. So you can kind of get the idea of some opportunities there. We also have a battery performance systems business, and that business is around heating or cooling the EV battery to help extend the life of the battery or improve performance. We also have some unique cell-connecting devices that are interesting in that space. And we're really looking at opportunistic ways to grow that business on top of the others. And finally, most people don't know this. We have a Medical business as well, where we're actually heating and cooling bodies that are under -- going through operations or intensive care. So we have a whole host of products there. The business is pretty small, but we really like the vertical. And on top of that, it brings a lot of synergies back to automotive. So the science that we learn and become experts on at the hospital, we can translate that right back to the solutions we're developing for the car. And it's a great differentiator for us. We can position ourselves in a different way with the car companies. So those are really our growth drivers. We laid out a growth plan between '23 and '26 that we believe will have us growing in the mid-teen compound growth rate over that time period and you compare that to the automotive market in total, which is low single digits. So we're really excited about the growth thesis that we have there. I'll make one point on our differentiation model, and there are others, but in order to turn it back over to questions. We are really -- we have a very unique go-to-market strategy in the space, in that we're the market leader and the innovation leader in our technologies, but we're also independent. And what that means is we have a very differentiated partnership model. So we can work with any OEM around the world, which we do, or we can work with any seat manufacturer around the world to truly integrate in a specific way that advantages those customers. But what we can do is we can scale our platforms across all of these customers. So we get great scale leverage. We can really get pretty terrific returns on capital investments by scaling it across all these customers. So we can talk more about that as we dive into the Q&A.

Yes, absolutely. I look forward to asking you a lot of product and technology specific questions. I think you do have a lot of unique and interesting technologies. I find it more interesting to talk about than shocks and [ slots ] and steering and suspension. No offense to those suppliers. But we have been starting with some sort of broad industry overview questions because we have 32 CEOs and 30 CFOs here, it's, I think, going to be interesting to sort of collate and collect and compare their responses to broad industry questions. The first one is about demand. Demand has been stronger this year, right, especially in the U.S., stronger than most anyone expected. Just curious if you could comment on how you would characterize the strength of the different end markets that you participate in around the world from a demand perspective and what your outlook might be going forward?

Well, I think we're really -- we're happy to see some stability in the market this year in the first half, which has been -- has really helped everyone in the space to level off a little bit from some of the extreme gyrations of the last couple of years. So that said, I think if you look at the entire year -- and our markets primarily are North America, Europe, and then in the Asian markets, for the most part, China, Japan, Korea. And all those have seemed to stabilize somewhat. There are some puts and takes in each region. But if you look at our -- the S&P Global forecast for the remainder of the year, it says mid-single digits, kind of in line with exactly what we're hearing from our customers too. And again, there's some regional variation in it. So we're feeling pretty good about the stability in the market. And thus, we've been maintaining our guidance for the year that was built around some of those same assumptions. We're certainly cautious though because there are still some risks in the economy, we believe. Interest rates are a little bit of a challenge for consumers in the space and still some geopolitical volatility out there that we have to watch, whether that's Ukraine or China or other areas. So we're cautiously optimistic for the rest of the year. Longer term, though, I think if you look at the last 4 or 5 years, vehicle production has still been fairly depressed from where it was back in the '17, '18 -- 2017, 2018 range. And so I believe that -- and then also, you look at the aging vehicles. I think it's reaching a very high level of years of age on the vehicle. So I think there's -- within the next year to 2 years, I think we're going to see some expansion there as things start to stabilize economically.

Very interesting. Maybe sort of a similar question, but on the supply side. Where are we in terms of the semiconductor chip shortage? I think you had some company-specific impacts, right, with the GM seating elements, maybe in some of your electronics business. Have you mostly cycled past that? And what about your customers, the automakers? Are you seeing improvements there? And maybe some of the other supply chain bottlenecks too. It wasn't just chips, right? Port delays, et cetera, what are you seeing out there?

Ryan, I think the situation is definitely better than last year. No comparison. Things are much, much more stable. We are seeing sometimes some issues with some of the OEMs, for some reasons, ran out of -- run out of semiconductor and then shut us down. It happened to us with a couple of the OEMs in Asia in the second quarter, but overall, it's pretty limited. And on the freight, you've seen the results. I mean, there's no question that last year, we were shipping semiconductors on jumbo jets. This is no longer the case. Our premium freight cost significantly reduced year-over-year, which is also one of the reasons why we are starting to see some nice margin expansion as we compare to last year. So things are -- we are cautiously optimistic based on where we are right now.

Very good to hear. Next, I wanted to ask on the like overall backdrop for operating margin for suppliers generally. EBITDA margin for the 12 companies we -- the top suppliers we cover averaged 11% last year, and it might hit 12% this year, but it was kind of like 13%, 14% pre-pandemic. So just when you think about all of the macro and industry factors that roll up into the backdrop for supplier margin, the aforementioned level and stability of customer production, but also the commodity and noncommodity inflation and the recoveries for that inflation, the needed spending in R&D, sometimes ahead of revenue to support industry change. Where do you think we are on the path back to normalized margin? Or is there maybe a new normal with higher input costs structurally? Maybe investors should be looking at ROIC as a performance metric? Or what do you think about that?

I just start it off. So let me try to unpack it. I will focus fundamentally on Gentherm. I don't want to talk for the others. But -- so for us, in terms of how we are dealing with inflation, I think starting last year, we took a pretty holistic approach. We started to, first of all, collecting all the information. So we maybe wait a little longer than some of the others to go back to the OEMs to have the full picture of the situation. And once we've done that, we have been able to recover the cost of the spot buys, the premium freights that we incurred last year, and now more sustainable in that when we talk about the more inflation, the material, but fundamentally, the materials side, we have been pretty successful in achieving a good amount of customer recoveries. If we look at where we are year-to-date, we basically achieved almost 70% of the target that we have for the total year, which is between $20 million to $25 million of recovery from customers. And this comes fundamentally in the form of increased price or reduced annual price-downs that are part of the contract. In addition to that, you have to think about this as important for Gentherm as we are now integrating the Alfmeier acquisition, all the awards that we are getting now have the higher cost embedded in, so the higher prices. And this is important as we look at Alfmeier because this is -- Alfmeier has been running in the past at a lower margin level than the legacy Gentherm. So now all these awards that we have on massaging lumbar are coming at the Gentherm type of gross margin. So that's a nice lift as it pertains to the future on the EBITDA margin rate. Beyond that, I think we laid out a pretty clear path on how will go back to the high-teen EBITDA margin rates by 2026, right? Volume is a big component. We -- as Phil said, we are expecting to grow in the mid-teens CAGR, '23 to '26, and we're outpacing quite substantially the production volume, thanks to all the awards that we have been securing in the past few months. We're expecting margin expansion coming from manufacturing productivity, from value engineering, so taking cost out of the bill of material, leveraging automation and lean best practices across our manufacturing network. And then another 100 to 200 basis points coming from sourcing excellence and really working with our suppliers to continue to reduce cost. So that's kind of our path that we laid out in the strategy discussion that we had back in February.

Great. And could you comment on the pace of those new awards? It seems to have picked up pretty notably as of late. You had $670 million in the second quarter, bringing the year-to-date total of $1.2 billion. That's already 2/3 of the record $1.8 billion you did last year in just the first half of the year, right? What's behind the uptick? Does it relate more to Alfmeier, to the traditional climate control business or the combination of Alfmeier and the traditional climate business or maybe to Battery Performance Solutions or what's driving that uptick?

Yes. It's a little bit of all those, but if you look at the thermal business, for the reasons I pointed out earlier, higher adoption on new vehicles, higher content on electric vehicles, especially some of those big drivers are helping us to grow the value of wins. And then there's some conquest wins that have happened on the thermal business, too. So thermal is doing really well. What's been a very positive development for us is around the pneumatic lumbar massage, the Alfmeier product. We had a thesis when we acquired Alfmeier last year that Alfmeier was a small private company in Germany with mostly German customers, that we would take their best-in-class technology to our network of customers and especially North America customers and Asian customers. And that's proven to be successful, faster than we even expected. So we've won 6 conquest awards since the acquisition closed. We've expanded with existing customers that Alfmeier had. So the pneumatic and lumbar product, if you look at that pathway to 2026, we expect that will grow at the same level or faster than the thermal business based on the award cadence that we've had.

Interesting. And you mentioned -- in the opening remarks, you mentioned ClimateSense. I think you've got your first launch coming up here in the fourth quarter with the Cadillac CELESTIQ, low volume, right? But nevertheless represents a milestone for the company, given it will be the first production vehicle to feature ClimateSense. What can you tell us about this upcoming launch with the CELESTIQ? How does the content per vehicle you might generate with a ClimateSense vehicle compare to your more typical suite of climate control seat offerings, et cetera?

Yes. We're super excited and very focused on that first launch with the CELESTIQ. We've pointed out that ClimateSense in general is 2 to 4x the content of our typical CCS system or Climate Control Seat system. This one's going to be -- the CELESTIQ is very contented. So it's on the high end. We're really excited about it. It's going to be a very prominent feature of the CELESTIQ when it launches. And we're in those final throes of finalizing the installations and the performance, and it's going quite well so far. And of course, we have a second win with GM that is soon to follow.

Yes. GM has an event this evening for the unveiling of the Cadillac IQ, the battery electric version of the Escalade. I've been hopeful or suspicious that maybe it's that vehicle and we'll hear more because I remember when GM debuted the CELESTIQ that they mentioned Gentherm in the press release, and it was one of the only branded suppliers right along with the tires or whatnot, right? And so I think if it is that vehicle, we'll probably find out because GM will probably talk about it.

Well, I think I can tell you right now that ClimateSense technology will be on that.

Fantastic. Yes. Yes, I think you front run it by only a couple of hours, so you'll probably be okay. I don't think Mary Barra will hold it against you. That's going to be fantastic. Yes. And I'm real excited to learn tonight whether that replaces the Escalade entirely. They're just moving entirely battery electric sort of like the Macan is thought to move to battery electric. And it's sort of like I was talking with Paul Jacobson earlier, this could be a sink-or-swim moment. They can't afford to just have that vehicle trickle out. So yes, that will be really interesting. And maybe a follow-up there is because in your intro remarks, you talked about kind of 2 reasons to buy -- to use ClimateSense. One reason is comfort. It's enjoyable. It feels good. And then the other reason is the economy or it helps the range of the vehicle, et cetera. I mean, the CELESTIQ is a $340,000 vehicle. So I don't think that they're trying to put in a Rolls-Royce, it's going to be for comfort and luxury, right? So what do you think is the bigger driver there? Is it the luxury aspect of ClimateSense? Or is it the economical range type aspect or a combination? Or how should we think about that?

I think there's going to be a continuum over time as ClimateSense is rolled out in the market. And it's probably going to lean early on more on the comfort side with the side benefit of range extension. And I think there's going to be a little bit less content as it starts, I'm talking about industry-wide and then more content over time. And in that case, it's going to have a much more dramatic impact on range. ClimateSense, the benefit we're seeing, as we present this to our customers, is we're getting more content of our core product, too, because you can kind of start to stack up all of our devices and we've helped OEMs do this. You can create an equation for range extension based on seat heat; add in CCS, you get a little bit more; add in steering wheel, you get a little bit more; add in the ClimateSense software algorithm, you get a little bit more; add in more seats, you get a little bit more; add in neck conditioning, you get a little bit more. So you can kind of see this build. And as you can imagine, the full ClimateSense system is a lot of added cost for the OEM. So as they're transitioning their HVAC strategy to scale down HVAC over time, that's going to allow more and more content. So I would view it as kind of a continuum over time.

Very interesting. And beyond these 2 awards that you're now able to talk about, how do you imagine the progression of future awards might occur? I'm curious if maybe it could start to accelerate once there are some vehicles out there in the marketplace. I mean once the Escalade has it, the Navigator needs it. Do you expect the launch of these vehicles to like raise awareness and, I don't know, consumer pull or automaker, competitor desire to engage still more conversations with you?

I do. And we still have several development projects going on, and we added a few new EV manufacturers just this year in terms of doing development projects. So each OEM is going through their own learning phase and absorption phase of the technology and trying to determine how it fits in. So I -- the way I would kind of picture the landscape is, we'll get a few system-level ClimateSense, full system-level wins over time. But probably what you're going to see a lot more of in the next couple of years is the phase-in approach. And we've purposely designed ClimateSense to be modular so that every device that we produce can be controlled by the ClimateSense algorithm independently. And it can be either embedded. The software can be embedded in the controller for the device, or it can be up-integrated into a larger domain controller in the car. So it's very flexible architecturally. And so I think all the -- we're going to see a lot of different benefits that come out of this over time. Going right to the full ClimateSense is probably taking a little longer than we expected, which is why we're kind of opening up discussions with EV manufacturers and others that maybe it's a little easier to change the full architecture in the car around the HVAC system.

I think it was about exactly a year ago that you closed on Alfmeier, August 1, maybe, 2022. You had high expectations for it. It kind of came out of the gate with a lot of quick proof points, right, with that sort of combined award that almost must have been worked on ahead of time, too. And I don't know if that was ever disclosed to be Tesla. I'm remembering we suspected it was. I'm not sure if you've identified that customer. But you talked about the customer introductions going really well. Do you have a win with Stellantis recently? Maybe just talk about the traction that, that improved kind of go-to-market strategy is providing for you?

Sure. Well, there's -- I would say, I'll start with what's happening in the market with the pneumatic lumbar and massage. We see a really nice take rate increase in vehicles for the pneumatic lumbar and massage. So there's a big benefit that's happening as we integrated Alfmeier at the same time. Number 1 is consumer demand for pneumatic lumbar massages taking off or any kind of lumbar massage in the car is really taking off. OEMs also want to differentiate their vehicles with it. So -- and that also applies to the higher-end massage, which is actually a very low take rate in the market right now. More and more vehicles are using that as a differentiator to massage the whole back. The rear, the side bolsters, the whole thing, we've got a pretty extensive scalable model there. The other thing that's happening on the lumbar side, in particular, many of you have probably experienced this, a lot of the current production lumbar systems are mechanical or electromechanical, which means there's a pretty hefty device that's embedded in the seat that has to expand and contract using motors and mechanical features. Those are heavy. Those take up a lot of space. So there's a transition to replace those, which are the most prevalent in the market, with pneumatic systems because our pneumatic systems are basically thin bladders, if you will, almost pillows, that are embedded behind the seat. So they're very flat, and they expand based on pressurized air. So that's also happening. And then the last for us uniquely is we have -- obviously, we've built our reputation as a very trusted supplier of thermal systems over years. And now that we have this technology, it's a very fast go-to market. Generally, the OEMs have the same purchasing groups that handle both the lumbar massage and the heating and cooling. So we've just latched into those relationships and found opportunities to win on these new vehicles and also some important conquest wins.

I remember at this conference relating to the investors, just how comfortable the neck conditioning is on a cold day. Now I can come to them and say, after we visited you last December for the first time, I felt when you combine the heat and the cool with the massage, it's like a whole another level. Right? It's -- I don't know, it's like a personal masseuse. And it's almost like a medical aspect to it, too, right? Yes, I'm definitely a believer in the synergies of that. Maybe moving to the Battery Performance Solutions, could you provide maybe an overview starting -- cell connecting aside for a second, the battery temperature management business within that. Your website, I saw, makes mention of thermoelectric warming and cooling, but then also air cooling and liquid evaporative cooling. Is there a rough breakdown that you're able to provide? Like how much of your business is in the area of thermoelectric versus air versus liquid? And then maybe there's a sense that thermoelectric would grow the most quickly. But I saw that you won a battery cooling award with Hyundai in air cooling in the most recent quarter too. So is that kind of a growth business also? And then on the thermoelectric side, sorry, for the 3-part question, I think traditionally, this is thought to be more applicable to like 48-volt or mild-hybrid. But just curious if -- with the advancement of technology, if that could maybe grow to encompass at least smaller-sized battery electric vehicles, what was previously only done with liquid, et cetera?

Yes. I'll kind of give you the whole overview of our product line. I'll start with the thermoelectric-based heating and cooling, and that is targeted at 48-volt mild-hybrids and it's very successful for us so far. We -- certainly, back in 2018, the expectation was by 2025 that I think 35% of the market was going to be mild hybrid. That never really materialized. So there's going to be limited growth on that. It will really be targeted around the mild hybrid, although we're still seeing traction in mild hybrids. So it's -- that's our largest revenue generator as of now in the BPS space. And that's -- we've got a very innovative and proprietary product there that we really like, but it is limited to 48 volt. And then we have air cooling. Air cooling is -- it's fundamentally for hybrid vehicles. That's where it really becomes the most effective. The power generation for a full high-voltage EV is probably not enough typically. It can be used for spot cooling and things like that, but we see that with 48-volt as well, in certain applications. And the Hyundai award you just mentioned, we'll actually cover 80% of all hybrid vehicles for Hyundai with that award. So we're excited about that. I think air cooling is very important and will continue to grow. We're very happy with our position. And it actually dovetails nicely with our interior heating and cooling business because it uses these, I'll call it, intelligent blowing -- blower devices. And we produce 20 million-plus blowers a year out of our business. So we're very, very competent in that and it's fitting very nicely.

You use that in the seats too, right?

We use them in the seat. That's what I meant, interior. Yes. And then on top of that, we have resistive heating and cooling that uses a proprietary thin flex foil circuit that we've basically invented at Gentherm, and we're using this machining to etch in a circuit that will allow the heating circuit to work effectively and warm the battery cells. So with that, we've won a handful of nice businesses. It's really a problem-solving device whenever there's extreme cold spots that the OEM has trouble warming. We've got business with -- also with Jeep on that actually. And through Samsung, we've got some business there in LG. That product, then you're going to ask about the cell connecting, was we kind of had a spin-off of that thin foil product into cell-connecting devices. And so this is probably the fastest-growing opportunity we have in all of our Battery Performance Solutions. And it's basically taking that same concept of etching a circuit and using it as the communications connector between the cell devices and then linking that back to the battery management system. So really is a circuit that's created there. The idea is that, that would -- that can replace the current state of the art, which is chemically etched devices.

So is the cell-connecting technology, is that complementary to a battery management system or...

Yes. It can -- yes, it's complementary to battery management system. That's right.

Very interesting. I've got a few more questions, but are there any in the audience?

Good question I think at this time. What's the TAM of the [indiscernible]?

It's about $2.5 billion. So it's a sizable space, and that's our addressable market in the space. Of course, we're below $50 million for this year. So our aspiration there is to turn that into roughly 10% of our business over time. It's a great little business. It's been a struggle in the last several quarters because the U.S. market is our largest market, and hospitals have been under tremendous stress financially. And what's happened there is 60% of our business is capital equipment. So there's been a huge constraint of capital spending at the hospitals, and it's created a little bit of pressure for us. The other thing that's happening is a lot of labor turnover and flux in the hospitals. We typically -- selling through nurses is a big process for us. And those have been very difficult. So our U.S. approach to the market had been direct with our own direct sales force. We're actually pivoting now to work on large partnerships. We've realized in this last couple years that, that will be a better approach for us to more quickly reach that space. We have a great portfolio of products. In fact, we have the largest breadth of modalities in the industry. So we have air-based body warming devices. We have liquid-based, so it's kind of a liquid circuit that can heat or cool the body. It's especially used for cooling the body under -- when a body is under intensive care or trauma. And we also have a blood heating and cooling device. And then finally, we have a resistive device that uses -- it's actually the same technology we use for heating and cooling the seats to heat and cool the body. So we're really excited about the product and the expertise that it brings us back to automotive. What we learn, when you're in a hospital and you're improving outcomes in procedures, you have to understand the science of thermophysiology. And we take that scientific knowledge and the same people, bring that back to the automotive product. Huge differentiator for us with our customers in automotive.

Yes. Go ahead. Sorry.

And actually talking about the [ RP ] top line, what were the assumptions made around [indiscernible]?

Pretty modest. We use mostly the scalable increase in content that's built up in there. It's pretty modest in terms of full system wins between now and '26.

Yes. I love that go-to-market. I can imagine being in the sales pitch with the automaker, we understand thermophysiology, we're in the hospital operating room and what does this seat-heating company understand about it? We know it's so much better. On the medical business, you mentioned the difficulties in the industry. It seems like you've been pursuing some coping mechanisms, though. There was the Dacheng Medical acquisition. You mentioned a lot of what you do is like capital-related. My understanding was that, that might have been -- got you a little bit more like a reusable, little bit more -- maybe it's a little less economically sensitive. Maybe talk about that. And then also this relationship with SourceMark that you announced in the most recent quarter. I mean, how should we be viewing that? Is that going to help you more like drive sales growth better than a vertically integrated sales force could have done? Or is it more about like lowering your fixed cost base to allow you to be more profitable in industry downturns? Or is it both? Or how do you think about that?

It's both. I'll talk specifically about the idea of large partnerships. And our first big announcement was with SourceMark, and I'm really excited about that. Great cultural fit with SourceMark and they're a certified minority supplier to the hospital networks with relationships with virtually all the large GPOs, which we didn't have all those. So they really are going to open up the opportunities to take our product to market. That's first and foremost. But then as we grow the business, we will need very little addition of sales force as we do that because they're going to pick up the load on that end. And we're talking to other partners. And it'll -- they'll all be -- they're all a little bit different types of relationships. So more to come on as we're able to close some of those deals, we'll talk more about those. Dacheng has been great. Dacheng is actually -- their primary product is high-volume air blankets. So those are disposable actually in the hospital; use them once, you throw them away. And so that gives us really nice scale on the air side, plus a route into China. And China is much more in the early stage of adoption of patient temperature management. So we're really excited about having a really strong foothold in the China market. And every quarter, we're winning a lot of new hospital accounts. We just had 20 in the last quarter, new hospital accounts there. So we're pretty excited about that -- what that can do for us as well.

I was going to ask about if there's any kind of update on the greenhouse gas emissions credits that might be available to automakers as a result of using some of your systems, which could result in less draw on the HVAC system. But in doing so, maybe I could dovetail a question in, too, about General Motors because it was GM that conducted that study with you. And it's GM that is -- you're featuring the first 2 ClimateSense launches on. So maybe speak to the relationship with that automaker as well.

Well, GM is our largest customer and a very strategic customer, too. They're wonderful to partner with. They have great technology vision. Obviously, ClimateSense is our first go-to-market with them. And we have a great number of vehicles that we're partnering with them on. And it's a very holistic strategy that we have with GM when it comes to not just comfort performance, but it's scaling across vehicle lines to take advantage of economies of scale there. And of course, it's range extension. And it's also a support for their fuel economy as well. So all those are kind of part of the whole package of our relationship. We are seeing a lot more interest in EV range extension now, though. There's such a prevalence of hybrids and EVs coming out, and I'm speaking more generally, not just GM. So that's where -- we probably talk, it's probably 10:1, our discussions on range extension versus fuel consumption improvement.

I was interviewing the CEO and CFO of Adient earlier today, and they were speaking very highly of their relationship with Gentherm and just talked about how they can accomplish from a go-to-market strategy, anything that Lear can do, if not better, by partnering with Gentherm as opposed to trying to vertically integrate that. And they were also talking about the difference between their own profitability and that of Lear's and saying, one difference was Lear's got this lynchpin program and they didn't talk -- didn't mention it, but the T1, the GM pickup trucks and SUVs and that's Lear's largest program by far and I'm sure what they'd like to vertically integrate, but the thing is that GM loves you, right? So do you see your relationship with GM as validated from a ClimateSense perspective, from a GHG study perspective, as an indication that you're going to remain a Tier 2 supplier to them on their most important programs?

I can't speak for them. But we -- I can say that the relationship is strong. We're very focused. We take nothing for granted with any customer, and we know we have to deliver incredible comfort performance. We have to deliver a cost-competitive package and then we have to perform over time. And that means delivery, quality, et cetera. So I'll just leave it at that.

Okay. Fantastic. Please join me in thanking Phil and Matteo for all the great insight they shared.