Magna International Inc. (MG) Earnings Call Transcript & Summary

Thanks, everybody, for coming back. Next up, we're very happy to have Magna, which is depending on the year one of the top #1 or #2 supplier in the world. They're averaging about 2 or 3 right now?

Top 5 for sure.

Top 5 for sure. Okay. Top 5 supplier in the world. Typically, Magna is a tech leader. They traditionally are not viewed as a tech leader by many of the skeptics out there. But when you look at all the parts of the car that they operate and they bring a lot of technology, whether it'd be on structural parts, to ADAS, to electrification over time, which we can talk about. But they are viewed by many as a metal -- a simple metal former. And it's even on the metal forming side, they're very sophisticated and generate a lot of profit and cash flow. So that misconception is something that drags on the stock over time. I think the company will have a lot to say about that today. But we're very happy to have from Magna, Pat McCann, Executive Vice President and CFO; and Louis Tonelli, Vice President, Investor Relations. Louis and Pat are very helpful with everything and understanding the company. So thanks very much for joining us today. We really, really appreciate you guys making the trip.

Thanks for having us.

Always good to be here.

So there's a lot going on in the industry. But let's kind of -- if we can maybe organize and start sort of from the top down, from a macro perspective. As you look at 2024, I think you guys came out with a reasonably conservative, at least in my opinion, guide on global volumes. A lot of folks in the industry are flat to down, I think, almost 2%, which is not too inconsistent with what S&P Global Mobility or the former IHS is talking about. I'm just curious, in the early days of this year, and we're only through 2.5 months or so, approaching 3, what you're seeing has actually happened? What you're seeing in schedules? And then also maybe the vacillation in volumes split between ICE and EVs as far as what's happening in your expectations versus the beginning of the year?

We use the word balanced. I wouldn't say conservative. So we take a balanced approach, I would say. You're right. It has been 2 months. We go through monthly reviews with our groups, and we haven't really seen much variation from our expectations. Regionally when you look, whether it's Europe, North America and China are big markets. As far as -- we are seeing a little bit of portfolio shift EV versus ICE. So our expectations were lowered on EVs 6 weeks ago versus 12 months ago. But we are still seeing some shifts, but it's primarily with -- through discussions with our customers, and it's more -- it's not necessarily related to '24, but more in some other -- they're longer term or near-term plans, I would say.

We're not saying really much on the schedule side relative to what we expected. I mean usually, our divisions are getting scheduled to look out 13 weeks. They're giving the details of all the programs. We're typically looking on a quarterly basis. As we look at our next forecast or next outlook, how does that line up versus what we're seeing on our own. So -- but nothing really to note in terms of forward schedules that we've seen at this point.

Got you. I mean -- and the line of demarcation between EVs and ICE, I mean is it clean? Or are some of the EV volumes even versus what you were seeing towards the end of last year being pulled and bring in a little bit and ICE vehicles arriving sort of backfilled on that? Or is it just kind of a little bit more conservatism on the EV volumes and not any sort of net increase in...

Like we're not seeing a switch out for an ICE versus an EV in the short term. And I think that's what we would be saying. I think it's more where we're -- what you're discussing with your customers, well, I'm sure we'll talk later about our capital expenditures. But how do you manage that spend when you're working with your customer if we expect the polls to be lower. So we're having those discussions now, but it's more -- not what's going to happen in March, but what's going to happen in '25, '26.

I mean -- and one of the great things that was occurring in the industry in the last couple of years, at least for you guys, is commercial settlements and recoveries were running fairly well, particularly when there was volatility and inflation but now inflation is a little bit more tame and volatility is down. Just curious how those conversations are going early -- towards the end of last year and into this year? And particularly also on the pricing side, are you also -- are we back to normal on pricing of down 1% to 3% and there's no real relief on that? So I'm just curious on the sort of the commercial discussions and the pricing environment?

You can start, and I can jump in.

From my point of view, I don't -- people view inflation as normalizing. But the reality is when you look at our numbers, we have a $550 million impact of inflation from 2021 to when we ended up in 2023. You look forward through our guidance, and we're expecting another 30 basis points, roughly $100 million of headwinds. And that's net of customer recoveries. And it's primarily being driven by labor, and we see some above historical trend labor pushes. It's a constant battle, John, where we have to do this. You're in a situation where inflation is embedded. We do have experience dealing with -- it started with chips and then it moved into labor, then it moved into energy and then moved back into labor. So we've been pushing on that front. I think we did a really solid job in '23. We expected $100 million of headwinds. We ended up being neutral effectively. And this year, we're expecting another $100, it's primarily labor. On the second part of your question related to the 2% to 3% on givebacks. There's a lot of credit to that model when you think about just how programs launch and you become more efficient as you go through productions in years 3, 4, 5. In the short term, in '24, that's not my expectation. I think we're the LTAs or the givebacks are part of the solution, but we look at it from our point of view that we have a $550 million impact to our business that we have to deal with. And if LTAs are part of the solution, that's what we'll do.

Got it. I mean, but as far as the conversations right now, I mean, what happened last year that you actually outperformed your expectation. Was it internal execution? Was it slightly better recoveries in negotiations with your customers? I mean...

It was probably a combination of those 2 factors and 1/3 being we did have expectations for energy in Europe. So we would have done our guidance effectively in January of 2023. Energy markets in Europe were still very heated. And we saw through -- it was a warm summer in Europe. So a lot of the energy costs came down. That was part of it. But I think, more importantly, was the internal coordination and the level of data that we're able to go back to the customers and show them. So it was a very coordinated out of the gates early working with the customers to come to a solution.

Got it. Okay. When you look at the business, these headwinds are going to persist and you're going to be dealing with this stuff, what kind of major cost actions do you think you guys can take going forward? Does this include automation? I mean, what are the -- or say, go to your plant managers and say, giving them tools to work on things locally. I mean how centralized, decentralized is it? And how much of automation can you bring it to [indiscernible]?

I think, if you look at what we said in the last year, we had 75 basis points of improvements from operational excellence activities and expect another approximately 75 for the next couple of years. And that's a combination of, as you said, accelerating automation, the benefits of restructuring actions, it's fixing underperformers, its continuous improvements, all of those things, digitalization programs that we have going on, all those are helping to offset the impact.

The higher input costs.

Those 75 basis points are cumulative for the next 3 years or that's annually you think you can [indiscernible]?

Over the next 2 years, another 75 from where we were at the start of the year.

75 in '23 and then 75 for '24, '25. But I think on the automation piece specifically, I was in Europe a couple of weeks ago, and we're looking at some of these automations. So it's exactly what you're describing. So at corporate, we have an R&D group coming up with a standard toolkit that people can use for automation. You're over -- when you bring it into a certain division, bring into a transmissions facility, they're able to just tweak the last little piece to make it specific to their use case. So you see a lot of automation on material movement, but also a lot of pick and place type products. And that's really sort of corporate to try and come up with a standard that you can scale and then once you have that standard, you just scale it across the 350 divisions.

Got it. I mean -- and this is literally robots, right? In a lot of cases, right?

Smart robots. Yes.

Smart robots, right, that are -- in pick and place.

On the pick and place there -- but they're -- a lot of them are camera-based as well. So the old days you called it metal bash either or whatever vending. It's an easy part to pick and place because it's always fixed in a certain location. If you come into now with a bin with nuts and bolts, robots can now come in and they're smart enough to pick it, picking up the right way and place it into the equipment as needed. But it's being driven by labor rates, but also labor availability, versus which is an issue.

So one place that -- and Lear was up here earlier talking about their automation efforts as well, which we've always thought was potentially not possible for robots as cut and so or in seats. So I mean, I'm just curious on the seating side, if you have the same sort of experience about being able to automate basically the entire process on seating, which seems really tough to me. And -- but they're kind of talking about the ability to do it and starting to execute on that. In other parts of the processes, I mean, are we getting to a point where, I don't know, I mean, labor costs are 10%, 15% of operating cost, give or take, you could confirm or deny that. But they could come down dramatically, and we see D&A go up as you amortize these robots over time.

That and your MOH labor would increase as well. Because you need a different skill set to maintain them. Right. But I think the concept has always been a harder, more structured parts easier to automate. When you get into a seating operation, you're absolutely correct. It's the -- there's still a whole bunch of high-quality tactile touching the foam leather.

Okay. So you guys have not gone that far on seating as far as cotton sow?

No. On the cotton sow I wasn't at a cotton sow, but at one of our jet facilities. When you have steamers as well to take out the wrinkles, we are automating those types of stations now, which is a new use case that we're working on.

I guess as we get into sort of the -- one of the hottest topics is EVs and the slowdown that's occurring there. How is that impacting: one, the business on an operating basis in the short term; two, cap allocation, particularly around battery trays, if we can get into the issues and the opportunities there; and three, just really how you think about the business more broadly. So operating, capital allocation and then sort of long -- mid- to long-term strategy, what you're going after?

Maybe you jump in.

But I think on the operating, it's kind of ahead of us. So we had sales of about $400 million in battery trays last year. So the operations aren't -- like it's $400 million, but it's not -- they're growing to $2.5 billion by 2027, for perspective. So I think a lot of the operations are ahead of us. And in a certain sense, it helps that you have more of a ramp phase to really lock down the actual processes around it. So I think the operations, if I have to rank them, would be the third biggest concern. The capital is obviously the big issue. And how do you contain the capital, how do you scale the capital. But the reality is if the capital is CapEx or if it's even engineering on a E-drive or an ADAS system, you still have to spend it. But our view of EVs are coming. It's just a matter of when. So when you look at, are we scaling the capital? Maybe we work with customer X, Y, Z to say, we're going to put 3 lines in for you. Why don't we start with one line? And then as we'll grow our capital spend when you grow euros. Because unfortunately, what ends up happening in the worst-case scenario is, you put all 3 lines and you don't run 2 of them, then you turn around and ask for a volume claim, low volume claim. So really, it's working with our customers to come up with the right solution for everybody involved.

But some of the capital that we're talking about, it is a business that we want to get in the ground early, and we believe once we're established early, we're likely to win multiple generations like we've seen before on the frame business, where we got in there 25 years ago and some customers. And 25 years later, we're still in the business because we established ourselves, we did a good job, and it's a lot of capital, and it's not easy to move that type of business. So getting in early is very important in some of those areas.

So when you think about the CapEx for the battery trays, which is a bit of a weight on the free cash flow. I think through '25 and '26, there's a little bit of a relief of spending coming down and hopefully revenue and profits coming up. There is no real significant change that you foresee through '25 on that CapEx, that could get pushed out to '26 or '27 in any significant way?

That's what we're working on. It's exactly what we're trying to do is how much can we push. So if you're going to build a footprint, John, that's big, the building is the building. You're never going to change the size of the footprint. But maybe we can, instead of buying a press, for example, why do we put it into sister divisions, put the strokes out on the street to start. And then when there's more scale into the business, then start buying capital, so effectively pushing it into '24 into '25, '25 to '26 and push, push. But it's not going to be pushing $500 million.

So if you're thinking about the other big draws on CapEx going forward, I mean, is that really the big step up in CapEx? And when we get to '26 and that eases we're kind of clear or there are other things that are going along with EVs and AVs on the CapEx side and spending that are a bit inflated in '24 and '25 at ease in years to come?

Well, we do have -- we still have a significant amount of business awards. So in 2022, we had business awards of average annual sales of $12 billion. And last year, we had $11 billion. So we are growing significantly $6 billion over a planning period, just over half of that is related to mega-trans ADAS and EVs effectively. So there is still capital going into the ground for other pieces of our business. But I think the reality is when we come through '25, '26, '27, you're getting more into the traditional CapEx as a percentage of sales. It's very similar, John, to what we would have seen in 2016, '17, where we're really scaling our business and then it comes back down. But it's really dependent on the cycle of program awards for our customers.

I mean even based on our current outlook, we do expect CapEx to sales to come off in '25 and '26 relative to '24.

Got it. And when you think of all of that -- the business wins and that capital deployment, you're talking about growth above market of, I think, about 3% to 5% is, I think, what you're looking at your outlook for this year is the target. So we think in the next 3 to 5 years, we continue sort of your business planning, is that a rate -- is this something that you think is sustainable given the backlog of business and sort of this capital outlay?

Now we've been able to grow faster than the market for as long as I have been at Magna. So I don't see reason why it's going to depend on when awards and all that. But I don't see why we can continue to grow faster than the market over beyond just our current outlook.

Okay. And then when you think about this, I mean, there's an expectation that the margins recover, but certainly pre-COVID potentially even peaky -- not peaky, but higher margins than you've been in the past. I mean what is the kind of the expectation of the timeframe getting to your ultimate? I think you guys are talking about 10% to 12% on an operating basis or an EBIT basis? What's the actual -- what's the...

Just north of 7 at the midpoint [ in '26 ].

So 10 to 12 would be on the -- probably on the structure side of...

Yes, sorry. So I always look at it by segment because you're right. It's so different by segment, right? You contrast -- you have an assembly business that's $7 billion with 2.5%, 3% margins, right? It really puts a drag on it. So if you look at our BES segment, which is our metals and plastics business, to be long term, we could be pushing in that 10% range, I think. And we see some strong growth as we get out into '26 already. The P&V segment, I think long term, that would be a similar type margin profile. But what we're seeing in that business right now is on average, we're spending about $1.2 billion of engineering for sales that are coming in '26, '27 and '28. So once you start getting scale in that business and you -- we're holding our engineering flat, then you start getting incremental's on your pull-through on your margin. And seating's probably a 6%, 6% margin business long term because it's primarily jet that's vertically integrated.

Okay. On the complete vehicle business, complete vehicle assembly on the Magna Steyr side. I don't know how much you can get into this, given the events that are going on right now, but there's one large cut, well, small customer, right, they were never very large that appears to be reaching end of life maybe or at least in its current form. How do you manage that? And is there other programs that potentially come and backfill for what might have been even relatively low volumes at Fisker?

It was relatively low volume. So it's impacted our Magna Steyr business, as you said, primarily. We do have other content on the vehicle. It's across the board, is we have content in the various segments. But in the Steyr business, and it's a little bit more complicated because you know how the revenue contracts work that they're multi-tiered pricing. At the end of the day, with what they're going through, it's hard for us to comment. You're sitting there, you're watching it. The reality is what we're focused on is cash management at this point. And working with them that we do want a solution and the best solution is that, that, that platform is successful.

Got it. So I mean, as you think about that, if you were to talk about a traditional customer in Magna Steyr with complete vehicle assembly, there would be some level of essentially volume guarantees. And that misses would be trued up. Is that dissimilar to this situation? Or...

Same style.

Same style, it's just they have to have capital to true you up, right, which is probably the bigger question at the moment.

Correct.

Okay. But if we think about the capacity that was committed to Fisker, is that -- how fungible is that with any other programs that may roll on in the coming years, highly fungible, right?

There's basically 3 pieces of capital or capacity in the assembly facility. You have a body-in-white portion of your business, which is virtually dedicated to the platform itself, which is the smallest of the 3, you then have a paint line, which is completely flexible.

Used by all...

And all of customers, every product goes through that. The last piece is the assembly line itself, the GA and the GA for perspective is Fisker program was going through the same assembly line as the BMW Z4, the Toyota Supra and the BMW 5 Series. So that's where you have the flexibilities in those areas. The body-in-white, you'd have to rebuild, but that's probably the least of the 3.

And the gelandewagen is its online...

Separate.

They've got the same paint line.

Same paint line, okay. And the baby G-Wagon. I mean is that something that you guys have talked about going into Magna Steyr, no?

No.

No, we haven't commented on that.

But if you -- if -- so I mean if Mercedes said, listen, I need more of these G-Wagons because they're selling like crazy and there's plenty of people who want to pay $150,000, $200,000 for these things. If you responded to that ramped up capacity, that wouldn't be a direct backfill for something that was going on in the other line where Fisker would have existed. That would be a separate -- that would be a separate makeup that wouldn't be some place where you could backfill in the short run?

I could answer. The paint line, no problem. The body-in-white, you'd have to...

Would be unique.

You could probably run an extra shift, you could flex up. But if you -- but we already have the G-Wagon body-in-white area, so you could probably flex it up. Run 20% on the weekends extra, change your shift pattern. I think on the GA, I think that would be hard, to be honest with you.

Because it's a separate line. It's not like one of the other vehicles. Okay. Another question sort of just more generally, can you talk about your China exposure? And you guys were a little bit late to the game, caught up quickly. It seems like the home market is slowing, but the exports are growing tremendously. So I mean, how are you guys positioned in the China market from domestic versus international? And what is the opportunity as they go more into...

Yes. So our sales in China last year was about $4.8 billion, growing to over $5.5 billion by 2026. We had another couple of billion dollars on there for unconsolidated sales. So small for Magna, but that's a pretty big sized company just in total. In terms of our exposure there, if you went back, let's say, 10 years or so, we were probably almost all with -- or substantially with the international OEMs supporting them on global platforms, et cetera. We develop relationships over time with the domestics. And now we're closer to 50-50 between domestic and international in that market. So I think it's a good position to be in, and we have done a good job over the last few years.

And can you talk about the Magna Steyr position over there with BAIC and like ArcFox and how that's worked out? And if there's other opportunities like that in China or even internationally with Chinese players?

Yes, I can jump in. I think the volumes never materialized the way we had expected. So we had...

Great vehicle. It's a really nice vehicle.

Yes, it's a really nice vehicle. So there's 2 vehicles coming off the one platform there now. The plan is to launch 2 more in that facility in 2024. It's a situation where we're able to build the vehicles. We have capacity to build the vehicles, but they're not selling, right? So you have an issue where there's just a market acceptance issue on the car itself, but high quality, like you said, well built. But it's a joint venture, there's an engineering portion to it, and then there's the assembly portion. But it was a relatively small investment from Magna's point of view to enter into the Asian market.

And there is roughly flexibility to add non-BAIC vehicles into the facility. If the opportunity arises, we can add more people, more companies into that volume and that capacity.

And is there any discussion about that occurring right now?

Not really. It's more filling it with existing or new BAIC vehicles.

I guess when we think about the portfolio, it's leaning a little bit more in the direction of higher growth on EV and AV product. You did the Veoneer acquisition, that should help out on the AV front or ADAS front. How should we think about how the portfolio is going to develop over time? And I mean, do you have the breakdown of the higher-growth product versus the lower growth product and then the more stable? I know you guys have shown some really good stuff there, so people can understand.

We showed that back in our September event that we had the faster-growing areas becoming a higher proportion of our business. If you go to last year, our sales in the megatrend areas was about $2.5 billion, and that would be prominently powertrain electrification, battery enclosures and ADAS. We expect that business to grow by over $4 billion through our outlook period to 2026 and continue to grow into 2027. So that proportion of our business that's going to be in the faster-growing areas, which was very small, let's say, in '22 or '23 is going to be 20% plus in 2027.

And if you were to think about the margins and the returns on that incremental growth, is there opportunity? I mean that's part of the reason margins have been depressed more recently. You get out to '25 and '26, does that get to more -- I mean is that specific business get the closer corporate average?

Yes, I think on the -- I think if we take it by category, so the battery trays, I think the margins are pretty consistent with the rest of our frames business and our cars business. And it's because you're putting it on to the -- you're capitalizing your spend. I think the real difference when you look -- go back 5, 6 years in Magna's margins is the amount of engineering for ADAS and for electric drives is being expensed. That's the $1.2 billion after the acquisition of Veoneer. We're pushing to hold that number flat and what you want to do is come up with core technologies that you're able to resell, don't recreate the wheel every single time. So as your sales grow and you hold your margins flat, that's how you're going to get higher margin dropping down to the bottom line on incremental sales, primarily in the P&D segment. And then in seating, we have we have awards with on the EV side and same thing with mirrors or lighting, but it's more -- I don't think there is critical, like the way Louis was saying earlier. It's really more critical on high capital, high engineered products to get out on Gen 1 because our experience is we have to for Gen 2, 3, 4.

And when you look at the Power & Vision business, there's a push out sort of like what's going on with EVs, but maybe more -- even more extreme on Level 4 and 5 autonomy. And then there's a very significant push for the automakers to establish less expensive but very sophisticated and capable systems on Level 2 and 3. Is your phone ringing a lot more on these Level 2, 3 and now that the Veoneer acquisition has come through and your capability is going up, some of it's grown, some of it -- I mean, through scale, but some of -- there is some technology that's coming in with the Veoneer acquisition. But it seems like there's -- there are some folks that I think it's kind of a linear progression with your technology. Most people think there's kind of somewhat of a breakpoint between level 3 and 4 and 5. The way you guys are set up right now, it seems like you're at that -- you guys are kind of more believing in that breakpoint and can do good systems on Level 2 and 3 at scale at a good cost for a lot of automakers. I mean is that something that is now accelerating for you guys? Are you hearing a lot more on sort of incoming or RFPs?

I don't know about accelerating. We've seen the trend of the driver assist, which I'll call it sub-4. It's something that we've seen growing over the last number of years, and we expect that to continue to grow over the next decade or so. And that's why we're more focused on that area, driver assist. But we have really been focused on the higher levels of autonomy anyway. So the fact that that's being curved doesn't really impact our business in any meaningful way. So I think we feel like with the business that we have, the scale that we have now, we're really well positioned to capitalize on that continuing trend of driver assist. I wouldn't say it's accelerating, I mean it's just continuing to grow.

I mean when you look at that, I mean as far as the full system with software, is something you guys are going after? Or is it digital radar and camera is there anything else sort of in the parts? Or are you kind of coming through in all different directions, a full system to separate parts?

Correct, all of above.

If we do the components, so we can do some sort of -- we can do fusion or we can do the complete system, depending on what the customer wants.

And what's the receptivity to the full system, is that more coming from the guys in China or the automakers in China? Or...

No, we've seen it here. But the -- here, D3 and we've seen it with the G3 as well where you fuse the pieces together.

Got it. So the -- and that's for Level 3 -- Level 2 plus to 3 systems.

Yes.

And I mean what other pieces are you fusing together? I mean are you actually taking Mobileye chips and integrating them into your system?

So a lot of times what happens is the OEM will dictate which perception software, you're going to sit on, Mobileye, Arriver. But it we would -- we're quoting as they're a Tier 2 to us, so they're our supplier. We sit as a Tier 1, and we do drive policy and we'll write code on top of the perception. So you'll have signals coming in from your various sensors, whether it's a radar, digital analog, whether it's rearview camera, front cameras, and you basically stitch all the signals together. And part of that stitching together is what's coming out of the perception software. So that's really the drive stack is where we focus on, whether it's emergency automatic braking, lane assist, lane keep all the features and functions that go on to it.

And what are other -- I mean, we've got the battery trays, we got Power & Vision. What are the other segments that you think are going to grow significantly above market or product sets?

Electrification is driving, battery and closures driving, ADAS driving. But even like our seating business is growing faster than the market. I think there's still -- on the mirror side, we're seeing more technology in the mirror. On the pattern of the door, the latching side we're seeing more focused on smart latches and power door systems and things like that. So there's up-contenting in a lot of those areas.

And then in the structures business for Cosmo.

It is steady. It's also growing, continue to grow. It's got a very strong market position. So it continues to grow even beyond the battery and closure business.

Do you have any questions?

I was just thinking about as we transition into more EV and we've got more capital requirements, you have done a very good job managing capital and you have probably the highest quality balance sheet that I cover in the auto supplier universe. How do you kind of envision maintaining the balance sheet and maintaining leverage and your rating in the context of this like EV migration?

Okay. I think we're just -- we're doing it, right? So when you think about our capital, it's prioritizing where you can spend. So number one is looking at -- it's not an open book. We don't -- we -- groups don't come and say we can just spend it whatever we want. So it is controlling it. So the #1 starting point for us is that we want to be probably 1, 2 notches above investment grade. And we lived through 2008, and we lived through COVID, and we're able to raise both times, for perspective. So it works. In the good times, people always say, put more debt on your books. But we're, I would say, more conservative. So we target that by doing a 1 to 1.5x adjusted debt to adjusted EBITDA ratio. It's the Moody's calculation.

You should be comfortably in IG.

And you keep it in worst case scenario, you get notched down one, you're still IG and you can still go raise. So once you get out of that concept, and our view is we're going to come back within our targeted leverage ratio in 2025. And so you're not always stuck at that 1% to 1.5%. You work with the credit rating agencies. And if you can show a plan that we bought [indiscernible], we spiked up over 2, but then we could show a plan that we're going to come back within expectations. They say you have, whatever, 12 to 24 months to work it out.

Yes. I think the word that kind of summarizes that is just discipline. We really focus on. We're not just going well early after every program that we -- that's available to us, right? We're trying to spend in the right areas, and I think even acquisitions in areas that we think are important. We have said in the past that we might go above that 1.5x if we see the path to getting back down into it, and now we're doing that. So I think it's a deliberate disciplined approach that we have always taken and continue to take.

Yes. It's core to Louis and I, its core to Vince and Dan, its core Swamy. So it's kind of our rules of engagement is this is how we're going to operate. And if we don't have the money, we don't spend it. So a lot of people prefer the debt. It's just not the way we're wired. We'd rather stay in that level, generate the cash you're talking about earlier. And if there's excess cash, we return it to shareholders through a share buyback.

I've got 2 more questions. Are any questions in the audience? Okay. We'll get these in the next 5 minutes or so. One of the things that seems to be changing with the automakers right now is because they have so much to do with their own capital, whether it'd be dollars [indiscernible] or human capital and just sort of time in the day, is they relying even more on the Tier 1 suppliers to be integrators. And they're -- I think -- have they creating a much greater degree of freedom on self-sourcing or are you guys specking the Tier 2 and 3 suppliers that you're working with. And for that reason, you can create very quickly an environment where you're delivering more system like products. And over time, you can probably even do more than that. Is that something you're seeing? It seems like the Magna is set up to benefit from that more than anybody else who might be a little bit more specifically focused. You guys are in so many parts of the car and such good integrators to start with, that it almost seems like they could unleash a giant to do what you do best. Is that something you're seeing right now? And how much of a benefit could that be over time? And is that even contemplated in the way that your outlook is set up right now because I actually don't think it is?

It's not included in our outlook, per se, if you said. But that being said, do we think the way vehicles are going to be agree with everything you're saying. I think there's going to be a push to even bigger modules. I think the concept on the supply side of it, we see that ebb and flow. And so if you think about seats, you see, you control the whole building of materials to your POs basically nuts, bolts and blah, blah, blah. I think we're expecting things to go is take responsibility for a whole section of a vehicle. So can we deliver a car with the battery tray with the seats attached? So if you think about the way they're trying to simplify the assembly of the vehicle. Can you start delivering, so we can do a battery tray, we can do the lids, we can assemble so we can put the seats on it. One good example would be our DMS. We had our mirror solution with an EC cell and we had a driver monitoring system a camera. We were able to go to the customer and work with 2 purchasing departments and have them come up with a one box solution. So that's a real life -- that would be included in our forecast. The concept of having -- it's almost like a rolling chassis we used to talk about years ago. Do you -- is it coming back? I think there's probably more of a push because there is so much complexity and there's an opportunity with the move to EVs. Can we really push to make a change in their manufacturing.

And I would add, the industry is becoming -- it's always been competitive. It's maybe becoming more competitive even. And we really -- when we talk about the power of Magna, that's kind of what we're talking about is the fact that we develop all these systems, we create these systems, and we understand the complete vehicle puts us in a unique seat to be able to provide systems that no one else can do. And we believe that, that will be something that's in more and more in demand and that puts us in very good position. But to your point, it's not in our outlook currently, but we believe that's something that's going to be a better advantage going forward.

Actually, you I have 2 more. So magnesium castings, what's your take on them, what's the opportunity and what's the threat to your business?

Magnesium castings?

Aluminum.

No magnesium, like -- I mean, like -- I mean, the castings that Tesla is talking about as far as the full rear mirror...

The giga casting.

The giga casting.

But no magnesium.

No. Magnesium. The giga casting. No, I'm sorry. The giga castings that everybody is talking about is sort of the front and the back structures of the vehicle. I mean, so Swamy's got some interesting takes on this. But...

Yes, I'll give you my take. So it's -- we have about 40 high-pressure die casting machines in our portfolio, and they range between 3,000 and 4,000 tonnes. We don't look at the size of the machine. We look at what's the size of the part that's going to come out of it and what's -- so Level 1, 2, 3 and ADAS, 4, 5 with a giga caster, you're probably talking like 5 plus of the market size of the market. Our presses are able to do full front cradles. So if you think about a front engine cradle, we're doing one today with a 4,000-ton press, so you can picture the size of the shot. I think the battery tray is pretty complicated to do it a one-size shot just because the tolerances and you can obviously do the rear cradle. The way we're looking at it is we flipped the equation as opposed to instead of buying an 8,000-ton press, what size of -- what products can we build at what tonnage? And so our view is we're at 4,000, we're building complete side rails. We're building a front cradle. Maybe if we go up to a 6,000 tonne. We can do -- it's really the size of the shot and the length of the shot that increases. So how much aluminum, multi aluminum can you put into the biscuit that drives the size of the part that comes out of it.

At this point, we don't see huge tonnage versus being a big enough market to really justify the capital like that.

Okay. So you're not -- I mean, yes, I don't think Swamy is a believer, right? I mean -- consistent with...

We're believer in it.

Eventually.

We believe in the technology of high pressure die casting. Yes. But it's the cycle times, it's the size of the market to Louis' point. That -- and the capital cost of these things are incredible -- you're in the range of plus $30 million.

Yes. Well, I mean that's all well and good when you don't have a cost of capital, like some people kind of -- I mean, you have an advantage. Just lastly, on the stock itself. I mean you guys trade reasonably and expensively, at least relative to our view of the world of your earnings and cash flow profile. What's your take on your stock right now? I mean it seems like it's pretty inexpensive. You guys are buying back shares. What do you think everybody is the key factors that people are missing in the stock?

I think it's the credibility, right? It's -- we've come through a rough time. We'd be and the whole industry. So we have to gain confidence. We have to have credibility. So if you look at our guidance for '24 and where our expectations are we're alike. You go out 2 years, there's a disconnect, and we have to rebuild that trust and show people that the amount of cash we're generating is real and we're going to start returning cash to shareholders as we have done over the last decade.

And I think part of it is just -- there's additional variable. It used to be just like are volume going to go up or volume is coming down. You've got volumes and then the impact of EV like the mix impact and even the customer impact, there's a lot more things that I think investors have to think about that has people on the sidelines until maybe the smoke clears a little bit. That's kind of an additional factor, I would say.

Great. well, as always, we appreciate the time, guys. Thank you so much, Matt, and Louis for coming. We appreciate it.

Thank you.

Thank you.