Magna International Inc. ($MG)

The next leg of our corporate series here. We're very excited to have Magna International here with us today. They've been great partners with this conference for many years. Magna is one of the most strategically important companies in the global automotive supply chain, over $40 billion in revenue, combining deep engineering expertise with a truly global manufacturing scale. I think unlike most suppliers, Magna operates across nearly every major vehicle system and is one of the few suppliers capable of designing and assembling complete vehicles, giving it a really unique partnership role with the OEMs. So with us from Magna, we have Phil Fracassa as well -- Executive Vice President and Chief Financial Officer; as well as Louis Tonelli, Vice President of Investor Relations. So thanks again for joining us today.

I guess let's start big picture. So many Tier 1 suppliers are specialists in powertrain or axles or seating, but Magna has such a breadth of products to really integrate the body powertrain electronics and seating systems into final assembly. I guess what type of advantage does this portfolio give you over the competition to partner with the OEM at early stages?

Great. I'll take that. Thanks, Alex, and good afternoon, everyone. It's great for us to be here. And as Alex said, I mean, Magna is one of the largest and most diverse auto suppliers in the world. We -- our product and systems breadth, along with that Complete Vehicles competency really does allow us to understand the interaction of systems and components in a vehicle in a way that very few other suppliers can. And we do believe that provides an advantage to us in the marketplace in developing technologically advanced systems and components for our customers. So as customers look for ways to enhance technology, reduce assembly complexity and cost, be quicker to market and improve their competitiveness, Magna can be that supplier of choice, if you will. In our Complete Vehicles business, which is about just over 10% of our revenue, that's more of a partner relationship and a supplier relationship. We do get pulled in early -- in the early stages of vehicle development, which does provide opportunities for us to find solutions, which often involve involving including other Magna groups as suppliers on the vehicle. And then with respect to the remainder of our business, again, it's the breadth along with deep capabilities, strong customer relationships across the enterprise that really enable us to compete and win even in a more traditional automotive supplier role, if you will.

So your team really has a unique advantage because of the breadth of the products that you have to really see how the market balance and shift is happening between ICE, hybrid and EV. It's really at the front of the table with these manufacturers. How are you positioned in each of those three categories? And what advantages could you help us be smart on of how this is evolving globally?

Yes. No, great question. So first of all, I think the advantage for Magna is over the vast majority of our portfolio, so I think north of 80% of our portfolio is agnostic to the powertrain configuration. So items like or components or systems like body, chassis, fascia, seats, mirrors, power systems, ADAS, et cetera, apply to all the vehicles, whether it's ICE, hybrid, EV. It's mainly the powertrain business that we have that tends to be more propulsion specific, if you will. And powertrain for us is really drive systems. So systems that take power to the wheels. So we're predominantly -- or we're a leader in ICE, that would be 4-wheel drive, all-wheel drive, dual-clutch transmissions. Over the past number of years, as electrification has grown, we've developed and invested in powertrain electrification. So fully eDrives for electric vehicles, hybrid drives, and we've won programs across the spectrum, whether it's components like motors, inverters, or systems like hybrid drives, hybrid dual-clutch transmissions, fully eDrives for electric vehicles. Another point would be our body and chassis business, where it's also powertrain agnostic largely, but we did see the opportunity to develop battery enclosure technology, which is a high-content system using many of our core technologies like metal forming. And that -- and right now, we developed that business organically, and we're now one of the most, if not the most capable supplier in the product category. And every EV needs a battery enclosure. So we know the electrification shift is happening. It's undeniable. But as it happens, even if it happens more slowly in North America, we're really well positioned across the portfolio to support the industry regardless of powertrain configuration. Another development, I think, has been favorable is the initial configurations were EV-specific, ICE specific. Now we're seeing a more balanced single platforms with both powertrain technologies or all three powertrain technologies, which again enables us to serve the OEM in a more balanced way. So I mean that's positive for us as well.

So 80%, you're agnostic on either side and the 20% that you're not, when we had primarily North American companies pull back in the EV, Europe, a little less so, but still a little slower growth in China, it's gangbuster still. How are you able to kind of modify your capacity? Were you able to get your refunds from some of the OEMs? Just give me an idea of how you kind of navigated that.

Yes. Well, especially, as you mentioned, I mean, China is continuing to see strong EV growth. Europe is continuing to grow EVs, again, maybe a little bit less than before. But North America was really the big impact. We invested a lot to be prepared to support the EV market in North America as that has kind of pulled back. It has resulted in discussions with customers for recoveries for investments that we made, which has materialized. We had a recovery we talked about in the fourth quarter, north of $400 million. We're continuing to dialogue with our customers for additional recoveries that we're working on in 2026. But that did allow us to derate some lines, repurpose some lines and enable us to reuse equipment to a level we've really never done before, which resulted in lower CapEx in 2025, and we're planning for below, call it, long-term average CapEx again in 2026 because we invested a lot in '23 and '24 and we're now able to...

Silver lining there, right? The CapEx...

We've managed through it really well. Obviously, we'd rather have the volume than the recovery, but the recovery does enable us to at least recapture some of our costs and repurpose some of the equipment.

And I'd add that if you look at the powertrain side, those facilities rather than, let's say, having a brand-new facility to do, let's say, eDrives, we are producing the eDrives in the same facility as we're producing a 4-wheel drive system. We're producing the hybrid DCTs in the same facilities that we're doing the traditional DCT. So we're utilizing the same capacity, utilizing the same labor source. So that gives us flexibility to move things around if volumes are higher or lower one of the things...

Exactly fungible, yes.

Perfect. I guess given the global uncertainty we've seen in the high-pricing vehicles, we're trying to ask many of the suppliers that are here with us. Just how do you feel about the overall automotive industry in 2026 from a demand standpoint?

Yes. So if you look at where we gave our outlook last month, and we were calling for relative to 2025, a little lower production in North America and a little lower production in China and a little bit higher production in Europe. If you look at it on a net basis on a Magna-weighted basis because we're stronger in North America and Europe, our business is bigger, we would be down about 1%. Obviously, global events have kind of had an impact on oil prices and economic uncertainty. So that could have an impact overall on demand. But I'd say at this point, we're not seeing it. I mean, so far, so good after a couple of months. We're going to have to look at it as we give our update in Q1. We have to look at what that might mean to production and adjust if there's a need to adjust. IHS at this point hasn't really made many changes to our key markets. So that's helpful for us at this point. I think we've shown over the last number of years, our ability to flex both the cost side and the capital side where production has come in less than what we expected. So we expect we're going to be able to continue to do that.

Yes. So I would just add, as Louis said, we're monitoring it, not a lot to report on at this point. But as you said, so far, so good 2 months into the year. And then again, whether it was COVID or semiconductor chips or hyperinflation, I mean, I think the business model that we've developed and implemented and managed at Magna has really enabled us to kind of deal with whatever comes our way. And I think we're running a very similar playbook or we will, if need be this time around.

Maybe segue into margins a bit. So you guys are one of the companies that are driving margin improvement. I think that you are expecting 40 to 100 basis points of EBIT margin expansion in 2026. How are you able to achieve that in such a tough market? And what are some of the drivers behind it?

Sure. So just to level set everyone, when we provided our outlook in February, we did indicate we expected adjusted EBIT margins to be in the range of 6% to 6.6%. So at the midpoint, that's up 70 basis points from 2025. And over the -- and that's really going to be driven by operational excellence initiatives across the enterprise. We started that a few years ago. And through last year, we've generated around 150 basis points of margin expansion from net operational excellence initiatives. So think of that as continuous improvement, cost savings, big initiatives like Factory of the Future, and that would be sort of net of normal course customer price concessions. And then with 2026, that would get us closer to 200 basis points over the 4-year period. So that's a big driver of the margin increase. And that's kind of volume indifferent, if you will. At the midpoint of the guide, it would assume -- so of our 70 basis points, call it, half or a little bit more than half would be net operational excellence, the other half would be good pull-through on the higher revenue that we expect because we do expect a higher revenue year-over-year, as Louis talked about. And then within that range, it really depends upon how the volume and mix kind of play out as we move through the year. We do expect a little bit higher equity income this year as well. But overall, those are the big drivers. And I think really, if you go back 3, 4 years, margins did compress at Magna like they did at many auto companies and suppliers with the inflation that came through beginning in 2022. So this is really our ongoing journey to get the margins back up to where they were. And this margin improvement, I think we really feel like we're in the early innings, and it's something that can continue for the next few years and as we continue to work our way back up to our historical margin levels.

I wanted to go through growth over market and the guidance this year. The growth over market guide, pretty impressive, 0% to 3% this year. I think excluding Complete Vehicles, plus 1% to 4%. I think one of the better sort of growth over market sort of embedded in 2026. Can you just maybe help us with the building blocks of what's driving that? Is it new programs coming online that maybe people aren't thinking about? Just maybe walk us through sort of the growth over market in 2026?

Yes. So I mean, our business in 2026 is essentially 100% booked. So our sales reflect really our assumptions on volumes for every single program out there. And that's kind of the mix impact and the launch impact. We do have a lot of launches that are going on all over the world with multiple customers, and that's definitely a big contributor to our growth this year. If you look at what's happening in Complete Vehicles, it's declining. We come to the end of production on the BMW Z4 and the Toyota Supra, but volumes are actually up overall. because we're launching on the XPeng and the GAC business. It's just that the revenue is such that you may recall us talking about the outgoing programs being on a full cost basis, how we're accounting for that and the incoming programs with the Chinese are on a value-added basis. So net-net sales are down, but our volumes are up in that business.

So basically 100% booked business and then will trend in line with sort of the production assumptions in the guide?

Yes. I mean it's really driven by -- if we have a lot of content on incremental launches, that's a big driver of that content.

And I really think you got to look at kind of growth over market over a period of time because it is very much launch dependent. So last year, we were -- we talked about it for the full year, we were -- I think we were minus 1% growth over market as we anticipated, very much launch and some of it was geographic driven in China relative to what we saw in 2024. Moving into this year, the 1% to 4%, excluding Complete Vehicles is again, driven mainly by the content on the launches coming out. And over a longer period of time, we continue to target low single digits growth over market across the portfolio and very confident that we can continue to deliver that.

I may touch on -- want to hit cash flows. I mean to all the auto companies I cover in the supplier world, I mean, I think you've got the highest free cash flow. If I got it correct, $1.6 billion to $1.8 billion is a range for 2026. How sustainable are those levels? And then we'll probably -- once we get through the cash flow a bit, we'll talk about some of the priorities of using that cash.

Yes, sure. So it was -- so you're exactly right. Our full year outlook was for $1.6 billion to $1.8 billion, so call it $1.7 billion at the midpoint, actually down a couple of hundred million. We actually have a very strong free cash flow year in 2025 of $1.9 billion, aided a lot by some of those customer recoveries I talked about in the fourth quarter. But the point on free cash flow, I think it's really important. The free cash generation capability in the business is very good. We do expect that level in terms of conversion on net income. The guide would be roughly -- a little bit more than 90% of adjusted net income at the midpoint. And I think we expect that we can continue at that level. And you look at it, it's really the walk, we are down a couple of hundred million from 2025, but it's mainly -- we have higher earnings, which are helping. We do have higher CapEx. As I said, last year, we did have lower-than-normal CapEx or lower-than-expected CapEx levels because of some of the repurposing of the equipment we were able to do and some of the programs that got pushed out. So despite higher CapEx, despite slightly unfavorable working capital, which includes some of the customer recoveries I talked about, we're still going to generate very strong free cash flow at $1.7 billion at the midpoint, which is enabling the next step, which I'm sure we'll get to around capital allocation. So the cash generation is quite good. We expect it to continue to be very strong with working capital management, managing our CapEx within long-term averages of around 4% to 4.5% of sales and then continuing to grow earnings should set the table well for continued capital allocation for the benefit of the shareholders.

So maybe we could just roll into the strong free cash flow. I think you said you had a goal to repurchase all 22 million shares available under the current buyback plan in 2026. And also, you'll -- I mean, of course, have money to invest in the business, but also we have some credit investors that have talked to you. We wanted to maybe a little color on the balance sheet and your high rating and how you feel about the rating relative to your peer group, which is typically much lower rated.

Yes. I mean I would say capital allocation at Magna really starts with the balance sheet. It always starts with maintaining a strong balance sheet. Why? Because that enables us to drive the strategy, invest, take advantage of opportunities in the marketplace through cycles. That's always been a hallmark of the company. So it starts there. The solid investment-grade ratings has always been part of the capital allocation philosophy. We're currently A- rated across all three rating agencies, and we would endeavor to keep that rating. Our leverage is right in line with where it needs to be. So that does create the ability with $1.7 billion of free cash flow after dividends to allocate all of that -- basically all of that free cash flow toward share buybacks and maybe a little bit -- even a little bit beyond that. We have some cash on hand as well. And -- but again, it starts with the balance sheet and then it goes to investing in the business to support growth, support margin expansion, that's R&D, that's CapEx, winning new business, growing the business. And then beyond that, it would be continuing to pay a competitive dividend, a dividend that we can increase as earnings grow, and we've increased our dividend 16 years in a row now. And then where there's excess capital, we don't really see the need to do big M&A at this point, maybe a tuck-in here or there. It does free up the bulk of that excess extra cash flow or excess capital to share buybacks while still keeping leverage on side and well within the rating.

Really helpful. I'd love to shift a little bit and go through the segments and do a dive into each segment. I guess, first, what factors contributed to the expected margin expansion if we start with Body Exteriors & Structures in 2026?

Sure, I'll take that. So Body Exteriors & Structures or BES is our largest segment. It's about 40-ish percent of total company sales. We do expect margins to range in 8.2% to 8.8% EBIT for 2026. That's up from 8.1%, so call it, up around 40 basis points at the midpoint year-over-year. And that's despite revenue -- expecting revenue to be kind of flat to up slightly, flat to up 3%. So what's really driving that is good pull-through on the revenue growth, number one, and then continued contribution from operational excellence initiatives as well. And both of those would offset. We do expect less contribution from commercial recoveries in BES this year than we had in 2025. So net-net, continuing to expand margins there. And that's a business where we have strong positions in both bodies and structures as well as exteriors in that segment.

I guess just rolling into Power & Vision. So really, really 5% to 7% weighted growth over market. I think it's the strongest segment for this year. Can you just talk about what's driving that growth if we just isolate that segment? And then maybe walk us through sort of the margin profile of that business this year.

Yes. So I mean, I talked about it a bit earlier, like in terms of the launch of -- I'd say it's really launch and mix, launch of new programs as well as just mix overall being strong in that segment in 2026 relative to 2025. Margins, we're expecting between 6% and 6.6% this year versus about 4.5% last year. And I would say the big drivers are really the pull-through on the higher sales given the growth of the market. Operational excellence continue to be strong in -- across all of Magna segments, but certainly, Power business contributing. We had some commercial hits last year and some warranty late in the year. We expect some returning or rebound from there. So commercial should be a positive. It's neutral for Magna, but it's positive in Power & Vision and warranty should be positive as well in Power & Vision. And then lastly, equity income is up across Magna. It's -- most of it is in Power & Vision, and that's also contributing to the margin expansion.

Maybe we'll transfer over to the Seating business, one of the top manufacturers in Seating of all different types. How are you navigating the ebbs and flow in Seating? What are some of your core competencies that put the moat around some of the best parts of your business?

Yes. So I mean our Seating business is a very good business for Magna. We do expect in '26 for sales to be down a little bit kind of mid-single digits, if you will, due mainly to the end of production at a roll off at a Ford program, the Ford Escape in Louisville as that plant goes down to get retooled. That's probably the biggest single impact to the top line for us in 2026. That's a high-volume program, so we got a lot of content on it. But later in '26, we will launch some replacement business and other high-volume programs, including with the European OEM that we've talked about for some time, like the importance of us, we've been working on the margin. We are going to launch some replacement business with a European OEM that should have better economics or will have better economics than the program it replaces. And that will provide some benefit in '26, but a lot more in 2027. So we expect -- so despite revenue being down kind of mid-single digits, we expect to hold margins reasonably well. Margins will be down slightly, call it, 35 basis points, and it's mainly the operational excellence. Again, it's a recurring theme at Magna. But in Seating, we are kicking -- we've kicked off a lot of operational excellence initiatives to mitigate the impact of the lower revenue and it should enable Seating to kind of hold margins pretty close to prior year levels despite the volume impact. And then as new programs come back on, including some of the replacement business with Ford in 2027, I think we'll be in a really good position to continue to expand margins as we go.

Perfect. And then I guess, not to go off track, but before we go to Complete Vehicles, you've used the term operational excellence quite a bit. And I think it's a pretty important margin driver across all of the segments. Can you just help us understand exactly what you're doing there that's driving that level of margin improvement even in some of your segments that are softer this year?

Yes. I mean I would say it's always been a core competency at Magna. But I do think as you've seen in the last 3, 4 years and again, in 2026, we're stepping it up. And I would put it into two main buckets. Bucket one would be your normal continuous improvement initiatives across our plants. We've got over 350 plants around the world. Each plant will have a double-digit number of CI initiatives as they call it, to generate savings in the division, which then roll up into the company, and that's a big component of it. And then the other piece, and that's a lot of little things, literally thousands of initiatives every year that add up to be a pretty big number. And then -- and we do have some larger company-wide initiatives, if you will, around Factory of the Future, automating our facilities. We've got 140 of our plants now on a single digitized architecture where we're able to monitor what's going on in the plant kind of real time across the company. I think that will ultimately lead to less downtime, more predictive maintenance, et cetera. We're also employing a lot more AMRs, automated material handling in the plant. And again, so Factory of the Future automation would be the kind of the big project that's kind of going along with the thousands of other projects. And anything you'd add, Louis?

I think you got it. I guess let's just go through Complete Vehicles then. So I think expected to be a bit softer in 2026. Maybe just walk us through how you're thinking about that business, both this year and longer term. I know there's some program roll-offs like the Ford Escape, for instance, that's pressuring that business. But how are you thinking about that business this year and then longer term?

Yes, it's not Escape. Escape is seating in North America, but Complete Vehicles is as I said earlier, the Z4 and the Supra are rolling off. It rolls off kind of in the first half of the year, but we are ramping up with the Chinese OEMs. Net-net, sales are down because of the mix of full cost versus value-added. But net-net, it's down in sales, but not much impact on an economic basis. And our margins are holding in there. We continue to have discussions with customers about new opportunities. So I think it's still an area that we're pretty confident is going to continue to be a solid performer for Magna going forward.

And I think the wins with the Chinese OEMs were significant in terms of Chinese OEMs looking to get a little more local in Europe, so in XPeng and GAC, we're able to assemble the SKD, the modules form now in our facility in Graz, Austria. I think that was enabling sort of a bridge for those OEMs into Europe. And I think as that continues, that can create not only more opportunities for us in Complete Vehicles in Graz, but also other Magna businesses in Europe as well.

That's a good point, actually. We've always done well in terms of component and system content on the vehicles that we're producing there in Graz.

We know you guys are very global. We've kind of asked every panel this, how are you dealing with commodity inflation, potential supply chain disruption, whether it's DRAM or aluminum even steel. And of course, we have oil at, I don't know where it is today, but plus/minus 100. So it will affect resins, certain plastics that have derivatives of oil. There's a lot to navigate right now in the cost side.

No, no doubt, particularly in the current environment. But I would say we're managing it as we always have very actively. When you think about different commodities, steel and aluminum as an example, the majority of what we're exposed to is covered either under OEM resale programs or through annual contracts. So we don't see significant exposure there. We do have exposure to resins. Much of our resin buy is tied to indexes, so suppliers can adjust prices as indexes move. So if oil remains high for an extended period of time, that would be something we have to manage. We would see higher costs, and then we'd have to work with customers to recover those costs as we've done in the past. And then with respect to specifically DRAM, we do have DRAM exposure. It's not huge. It's -- we've said it's under $100 million, but we are coordinating with our customers on the issue. First and foremost, we're managing it such that we haven't had any disruptions nor have we disrupted any customers, but we do see the potential for higher costs. We're working to mitigate as we speak. It's a very fluid situation. And where we can't mitigate, we're working with our customers to get recoveries where we can. But we did include in our full year guidance in February, we did include a net headwind for the year in P&V or DRAM, but continuing to manage it. And again, I think if -- as Louis said earlier, I think if Magna has kind of proven anything over the last 5, 6 years, it's the ability to manage through situations like this in terms of avoiding disruption, maintaining high quality, high customer service and then getting recoveries where we're unable to mitigate cost increases. And obviously, there's lags involved in that sort of thing, but I don't view this situation as any different.

Just to level set, other than the DRAM and Power & Vision, as still said, we haven't really assumed much change in our outlook that we provided in February. It basically was neutral on net input costs. So we're going to have to revisit that as we get to the end of the quarter and to see how that might impact us going forward.

As far as DRAM, there's a lot of fear of maybe a month ago before we had a lot of new problems, but -- bigger problems. I want to understand DRAM, the chips are available, just they got a lot more -- it's a price issue. This pricing, which is a lot different than -- because there are some big reports that were saying DRAM is going to end up in autos are in trouble again. And they kind of compared it to semiconductor shortage, which to me seems completely different than what we had during COVID. We just couldn't get chips, and this is like you can get them. They're kind of more expensive and you can navigate it a bit. But do you see -- it's a very different issue.

We do see it as more of a price issue than an availability issue. But one of the reasons the prices is going up is the data center market is pulling hard. But as semiconductors, I do think ultimately, the market will compensate for it. There'll be new players. There'll be new capacity that may take some time. But in the interim, we're looking to other sources of supply and then obviously working with our customers to get recoveries.

Sorry, can you -- did you quantify the DRAM cost impact?

Yes. What we've said on the -- in the past has been it's under $100 million of annual buy.

Got you. And that wouldn't be -- you wouldn't be able to pass that through to the customers at all.

Well, there -- that's the annual buy. So there'd be a price increase off that as we were talking about. And then it's just a question of can we recover some of that from our customers. And I think we will recover some of that. And then what we don't believe we can recover, we've included an estimate in our outlook for a net headwind for the year in P&V. So that P&V margin expansion that Louis talked about off the good growth, operational excellence, it's sort of embedded in there, and we're still able to expand margins...

It's not huge. If it was $100 million, you could double the $100 million then you reclaim half of it, it could be $50 million. I'm not giving numbers, but it's not a game changer yet.

Exactly. It's certainly at the company level.

Yes. Perfect. Well, I just want to do a quick pulse check and see if we have anyone in the audience that I'd like to get any in.

Thank you so much for the question. In terms of the battery enclosure, is there an opportunity for you on the BESS side? Or are your battery enclosure business strictly for automotive? Because LG is kind of repurposing their capacity into battery electric -- sorry, battery energy storage.

I would say we're primarily geared toward automotive, although I would tell you, if Swamy were here, he'd say, look, if we have the ability to utilize capacity to serve other markets, existing capacity and without a significant incremental investment, then we'd certainly be open to doing that. But I'd say right now, the battery enclosures business is mainly geared toward our light vehicle business.

When we think about your customer exposure, pretty diversified, obviously. But when I look over at Europe, a lot of activity going on there with plants reshuffling by the OEMs. And I just wondered, anything that you're going to be addressing or need to address in terms of utilization of your facilities, additional restructuring opportunities with pretty fast payback. Anything on that front that we should be thinking about in '26?

Well, that's -- I would say '26, yes -- I mean that's been ongoing for a few years now. European production is well off peak, which was 21 million units or what have you. So we've been doing a lot of restructuring in Europe for the last several years. I don't know exactly the count on facilities we've consolidated, but it -- it's quite a few, and I think that will continue. And typically, when we do that, it is a short-term hit from a restructuring standpoint, but then does provide longer-term benefits to us. But it's really more rightsizing, getting margins back to where they were as opposed to net margin accretive, if you will. But no, I think that's continuing in '26. And I think Europe is where we're seeing most of that.

And so if we think about '25, '24 and that level of restructuring, how is '26? More the same or...

More the same, pretty confident.

Any numbers you can share with us on how much you're spending on restructuring?

I think it's about $100 million this year. $100 million or less, expecting this year. And that's already in our outlook and our cash -- free cash flow expectations.

And from a utilization standpoint, have you -- I know it's 350 plants, it's a little bit...

It's tough to do utilization, but it's been improving.

And really, what I'm thinking about here is this something we should assume continues for the next couple of years. It's an ongoing challenge.

Yes. I mean I don't know, I would say for Magna, it's been a systematic thing. I mean we don't sort of sit around for several years and all of a sudden, you got $1 billion of restructuring. It really is something that we try to manage annually and kind of systematically adjust capacity where we need to. And so we do have an amount of restructuring every year that we plan for. It's been a little bit elevated the last couple of years, but I would expect that to continue to manage capacity kind of proactively, if you will.

Any more out there? So on the tariff recovery, can you just talk about how much tariff recovery you had in 2025, sort of what's assumed for 2026?

Yes, sure. So in '25, it came in midyear. So we talked about our kind of our tariff costs in '25 being around $160 million is the number we kind of talked about. We were able to recover most of that from our customers such that our net tariff exposure was around $30 million. So we talked about less than 10 basis point headwind for the year, and we hit that number. We're expecting a similar net impact in 2026, so call it, less than 10 basis points again or roughly that $30 million, if you will. And that reflects the annualization of tariffs off of '25 as well as higher mitigation as we look for new suppliers or look to localize activities and as well as some higher recoveries from customers as well. There's been a lot of action in the tariff front the last month or so, as everybody knows. We're still working through the Supreme Court case and how it impacts with IEEPA going out, Section 122 coming in, potential refunds, how that might affect customer recoveries, et cetera. But right now, I wouldn't expect a windfall for Magna. I think we'll probably be close to what we're planning on already, but we'll be in a better position in a few weeks with the first quarter call to kind of provide more color. But for right now, we're not expecting material change from what we've already assumed.

And then customer recoveries -- our customer recoveries for higher input costs expected to remain neutral year-over-year in 2026? Could you just maybe walk us through that?

Yes. As I said earlier, I mean, we're -- excluding the DRAM, we're expecting to be more or less neutral, and we'll have to look at it if prices remain elevated and may have an impact on the future oil prices in particular. So we'll have to look at that. But we're pretty much neutral in '26 versus '25 other than the DRAM.

And then I guess, multiyear contribution of the operational excellence initiatives. I guess, as you sort of look longer term, 2026 and beyond, can you just maybe walk us through sort of the cumulative impact?

Yes, sure. So we've really talked about it kind of this margin expansion piece of the operation. Historically, we've always done operational excellence to try to offset customer price concessions kind of be neutral for the year. It's really -- in the last 3, 4 years, we've generated this net margin improvement. So through '25, the 3-year period, '23, '24, '25, about 150 bps. So after this year, we'll be closer to 200 basis points. And again, I would tell you, I've only been with Magna 6 months now, but I've never seen as concerted an effort across an enterprise around operational excellence as I've seen here. And I do think if Swamy were here, he'd say, look, we're in the early to mid-innings and we would expect continued margin uplift from operational excellence for the next few years, if you will. And then again, that will help us ultimately get our margins back to where they were before pre-COVID.

So I wanted to end with a deeper dive into China. So I guess with 60% to 65% of the China revenue tied to Chinese OEMs, I guess, how does Magna expect to participate in the Chinese OEM export expansion that seems to be taking off?

Yes. I mean it starts first with serving Chinese OEMs in China, which we've done. If you look at our business in China today, our consolidated revenue, it's about $5 billion of our revenue or about 11% of our revenue is with -- in China, and that's about 60% to 65% of that is with Chinese OEMs. And if you include our unconsolidated JVs, so revenue that's not in our consolidated number, our China revenue that we manage "would be more like $7 billion." And again, with, call it, close to 2/3 of that with Chinese OEMs. So the OEMs we serve are the kind of the household names, if you will, Chery, Geely, Changan, BAIC, BYD. And those are the players that have been the biggest exporters, if you will. So serve those guys in China as we have. Also, as they export, we're supporting them. And then as they localize, we talked about earlier with Complete Vehicles, as Louis talked about, supporting them as they localize. So we believe we're very well positioned to serve our customers, both in China, outside China as they grow. We grow. And when we talk about growth over market, that will be a huge component of our growth over market longer term because we've got strong share with our Detroit Three, German Three customers. We want to maintain that and then really continue to outgrow the market in China with the Chinese OEMs.

Perfect. We are exactly at time. So I want to thank the Magna team, Phil and Louis, for a great conversation, and thank you all for joining us.

Thanks, Alex. Appreciate it. Thanks for having us.