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

Okay. So once again, I'm Ryan Brinkman, the U.S. Automotive Equity Research Analyst at JPMorgan. Very excited to get going now with our next presentation, which is from Magna International, which is the third or fourth or fifth largest auto parts supplier in the world, bigger than any other one that I cover. We have Pat McCann, Executive Vice President and Chief Executive Officer; and then Louis Tonelli, Vice President of Investor Relations. Pat and Louis, thanks so much for coming to the conference.

Thank you.

Thank you.

We're starting by asking a lot of the companies some standard questions. First one relates to the impact of tariffs, right, applicable to everyone. I'd like to know the impact on your company in particular, but also the industry overall? How do you manage the direct impact? And then what are your thoughts on the indirect impact in terms of the potential for demand destruction as automakers raise prices? Has it caused you to think any differently about normalized U.S. sales or North America production?

Well, maybe -- I'm not sure if this works. So I'll jump in on the first one, Ryan. So when you look at our tariff exposure, in May, we would have guided around $250 million. And we talk about our direct exposure, this is dollars where we're the importer of record. With a bunch of the changes that have been announced, that number has come down to roughly $200 million on an annualized basis. And in Q2, we incurred about $45 million. So year-to-date, we're about $55 million of net numbers that we've expensed. You're always working on, number one is trying to make them as much USMCA compliant as you possibly can because that way there, you avoid the tariff just in the first place. And that's a combination of working with your suppliers, working with your customers, resourcing, looking at different sources of supply and just increasing the North American content.

Yes. Just on indirect impact, really difficult to tell on this because the OEMs have to decide what they're going to do on price and that will have an impact on the indirect tariff impact. Our volume assumptions for '25 at this point basically excludes any potential impact from the OEM pushing on the tariff cost to customer.

And maybe as a follow-up, I'm curious how you foresee the tariff backdrop maybe evolving going forward. We've seen the tariff rates come down. The U.K. is now paying 10%; Japan, 12.5%, Korea and EU, 15%, yet Canada remains at 25%. Oh, Canada. How do you see that evolving? And then I realize your USMCA compliant parts are exempt from tariff, but would it still help you if the U.S. tariff rate on vehicles assembled in Canada were to come down, making those vehicles more competitive perhaps because as a Canadian company, you might be still somewhat disproportionately exposed to vehicles assembled in Canada?

Yes. It is an odd situation where you're dealing with a tariff that's higher than some of these other countries. But I think the big factor is the USMCA exemption. So it's really who's paying those tariffs when you look through it all is probably at a much lower rate. That being said, obviously, anything attracting a tariff rate is going to drive decision-making for perspective, just to level set everybody. We are a Canadian-based company, but we have $20 billion of sales in North America. About $4 billion of that is in Canada and of that $4 billion, only about $1.2 billion is for Canadian production itself. All that being said, you still want to avoid tariffs. It just doesn't drive a behavior that I think is appropriate. And to your point, Ryan, when you think about the way the tariffs are being enacted, we're disproportionately impacting our D3 customers, which seems odd when you're trying to support a U.S. manufacturing footprint and you're putting a heavier levy on Detroit-based customers, it's hard to understand. But I think we're going to work through it. Like I said earlier, focusing on USMCA compliance and just resourcing and becoming efficient. But all that being through with -- if you would have asked me, I think we met in May, it's incredible how smoothly it's been going. It's -- there's been a good communication with our customers, our suppliers, and we've been able to mitigate a large portion of our exposure.

That's great to hear. And well, of course, you're right about the USMCA exemption, that's been a huge relief. However, how are you thinking about ahead to July 2026 when USMCA comes up for renewal and renegotiation potentially? What could the potential impact on Magna there be?

I wish I had a crystal ball. I'll be honest with you. It's -- that's a hard one. I don't know where it's going to go. The administration -- the U.S. administration has been talking about doing a redo of it, which is odd because it was redone in the last term. We just have to focus on -- and maybe it's an education program, but like the auto pack going back to 1965 or whatever, the flow of goods between borders, it really developed, the industry is so interconnected between this -- forget about just the OEM and the Tier 1, but all the way down. And to pull that apart, I think, is going to be pretty difficult. We'll have to wait and see. Honestly, I can't even offer an opinion because we're just so far removed from it.

Having said that, we are in every country pretty substantially, and we'll work with the customers to mitigate the impacts as best we can.

Understandable. Another question I had was about what your very latest outlook may be for vehicle electrification, including in light of some of the recent changes and the regulatory backdrop, such as the elimination of the $7,500 U.S. federal tax credit or the relaxation of the enforcement of greenhouse gas and corporate average fuel economy regulations. How has your outlook evolved? And what ways may you be running the business or allocating capital any differently as a result?

If we go back -- so a couple of data points. First part of the question is you think about our volume expectations and everybody keeps talking about EVs. It's really a North American EV issue in my mind. When you look at China, the EV production has been strong. It's probably higher than anybody would have thought 5 years ago. Europe has been a little bit of a decline, but in the low single digits of penetration rates. So really, it's turned into a North American issue. And the issues you're referring to, Ryan, are the newer ones, like the elimination of the IRA credit. So I think we -- our big reduction in volumes, we would have taken last year. We really saw the EV market start to come down really in the Q3, Q4 of 2023. That being said, our volume expectations were much lower than what IHS or other third-party data providers were saying. So we're going to continue to work with that. All that being said, we're still seeing some weakness back to the $7,500 when we move into '26 and beyond. But it's temporary. EVs are coming. It's just a matter of when and at what levels, and we're going to continue to work with our customers to balance that transition. All that being said, we talk about our megatrends. The vast majority of our products are agnostic. 80% of our products, whether it's seats, mirrors, latching, it's the same product that goes on different vehicles. So we're looking at can you come up with a natural hedge. We have a seating contract where we supply the seats on the EV and the electric -- and the ICE rather. So you have a natural hedge. The car is going to sell if you want an EV, you want an ICE. And we do that, whether it's body and white and mirrors and whatnot. That's really what we've been working with our customers. Is it perfect? No. But when you have that situation, I think that's the best outcome. So the last part of the question, just coming back to the capital, a lot of the capital spend is behind us. A lot of our capital spend that we did spike up over the past 3, 4 years is related specifically to battery trays. And over that period of time, that money was invested bricks, mortars, core assets, and that's behind. We're not going to have to respend that money. So as the volumes come, which they will, we'll benefit from that transition. But there's other little things you're working with your customers because everybody is suffering to a certain degree, can we share capital, can we come into fixed cost recoveries where we have it with our transmission programs or our Steyr business where we have a fixed cost recovery model. So it takes a little risk out of the business model just generally.

And Pat talked about the large portion of our business that is agnostic. The portion that isn't is our driveline business. But in that area, we've been really focusing on having a building block and platform strategy where whatever the customer needs across the whole portfolio of ICE, hybrid and EV, we can support them. And if you go back to this past quarter, we announced a hybrid transmission program -- dedicated hybrid transmission program that we've been awarded. Recently, we had another hybrid driver program that we've been awarded. So it just demonstrates our ability to help our customers. We have eDrive awards, we have hybrid awards, and of course, we're very strong in all-wheel-drive and transmission. So we really can cover the gamut in the one area that's most impacted by electrification.

And maybe to follow up on that, while less spending on megatrends is one of the avenues of margin expansion going forward, to what extent does maybe the deceleration in megatrends maybe help seemingly unrelated aspects of an operational improvement? Like I heard from a lot of companies during the chip shortage that it was just very difficult to focus on making your plant 2% more efficient when you're putting out fires every day. How do we keep the lights on and find some more chips or something? And you might be less distracted with perceived need to pursue semi-transformative acquisitions in this space. So what are your thoughts on the ability to get back to the nuts and bolts of execution if there's less megatrend transformation?

Stability is great. Like our industry thrives off stability. It's pumping out parts, whether it's at a -- if we go back to the chips, it was -- we're going to -- the customer would ask for this many parts and they take 0 or this amount. And then the next day, they'd want to -- it's just -- you can't production plan. And because you can't production plan, you can't then get your CIs to be effective. And when you -- we're operating at -- this year, we're projecting 14.7%, 14.8%. It's a very low number. This is near recessionary. But with that stability, what we're able to do is come in to your point and do the CIs, look at how can we automate a line, how can we put CIs. And across that board, we're expecting about 75 basis points between this year and next. But it's -- with that stability, you can now do your business plans. You can come into what part of the plant can I automate, whether it's with AMRs, whether it's with pick and place, all those really back to basics things you're talking about, we can do because we're not putting out fires and you can plan and I just think it's a better environment for the supplier, obviously, but the customer, our OEMs and even the consumer.

Next question relates to the growth of domestic Chinese automakers, how you're adapting to their rise. I had the pleasure being with both of you in China in each of the last 3 years. And then thinking back on some of those conversations, I felt like you were a little bit late to the China game. And maybe when you got there, people had already cozied up to GM and to Volkswagen with their JV partners and maybe you had the domestic Chinese to fall back on. That has allowed you to grow a lot more quickly than others. I think at one point, you said you may be the largest supplier of seating into some of the domestic Chinese despite the fact that you might only be like the fourth largest seating supplier there. So maybe talk about how you've grown with them. And at the same time, we're adding a little bit of a nuance to the question this year of how you're levered to the domestic Chinese. Like is there a negative to it, too? Because I've even heard you talk about and Frank O'Brien talk about the manner in which they pay you on a lagged basis and maybe not even on time. And I think that they're commanding a very favorable price downs and accelerated price downs upfront because they know everyone is trying to lever to them. And you're levered to these guys, you are levered to Xiaomi, Xiaomi doesn't like their suppliers to make any money, they told us. So just what is your thoughts there?

Our North American and German customers say the same thing. So that's fine.

Your margins made [Sergio Marchisio] and his blood boil. Nothing new or is there something different over there?

Yes. We've been in China for quite a bit. Maybe it was a smaller piece. I think our -- we have a lot of wholly-owned operations in China relative to JVs. So our growth was primarily via greenfield, brownfield. We have done some competition. You mentioned the seating. We grew that business via an acquisition. But just broadly, whether it's in Canada, U.S., Mexico, Europe, we're always looking at what is a hard part to make. So you never want to be competing. So when we purge you, Ryan, in China, it was through a metals facility. And when you go through that metals facility, you're not trying to compete with low tonnage basic parts. How do you make a cradle? How do you do hot forming? How do you do high-pressure die casting? And that way there, you're shrinking your competitor pool. And what we've seen at the same time is with the C-OEMs they're increasing their expectations of spec. So a very -- in the old days, it was a very decontented low-end vehicle, but we're seeing those specs come up. So we've been able to benefit from that piece of it. And we're well represented across our product categories other than our exteriors business, but that's on purpose. It's a very competitive, low-margin, high investment type business. So when you think about the C-OEMs, we've been able to provide basically a superior product, and we're competitive. And I'm not taking away -- it is a very, very competitive place with the margins. As far as the commercial piece of it, C-OEMs have always paid very delayed terms. They could be up to 150 days, and they pass IOUs around. So if anybody -- they don't actually deliver cash, they give you a note that's -- you can cash in a bank in 6 months. That game isn't new. And if you know that when you're coming in and you're quoting, it's a level of expectation. What's happened in the last little bit, and there's been some push has been the extensions of the payment terms, and it's been a little bit more controlled in our spaces. We're trying to focus on what Louis, 10 customers -- there's still a long, long list of customers in China, and we focus on BYD, Geely, Great Wall, Chery. Those are the ones. So we know what we're getting into with that relationship, and they're much more sophisticated companies. And then lastly, I think with the C-OEMs, is there a negative to it? There's a pendulum, right? So at one point, they're not good. They're not a customer you want to deal with. Now everyone wants to deal with them. It's a long road. We're dealing in a business where you're making capital decisions that last 5 to 7 years. And you have to look through that sometimes and play the long game. So you don't want to put all your eggs in one basket, and that's kind of the way we focused our business.

And just to level set on -- in China, our sales last year were about $5.5 billion and about 60% of it was to the domestic OEMs, and it's pretty much the OEMs that Pat mentioned. So I think there's a good set of customers and a pretty strong position with the growing company there.

Great. Maybe to dig in a little bit on these operational excellence initiatives that you expect to materially benefit margin, execution seems to be improving. I think, by these initiatives, your EBIT dollars and EBIT margin both rose year-over-year in the quarter just completed despite lower sales and the impact of tariffs. But it seems like you're counting on a lot more. Your last guidance for '26 using the midpoints called for a $700 million year-over-year increase in EBIT on a $2.1 billion increase in sales. It's like a 31% contribution margin. We're used to seeing suppliers like half that kind of 15%, maybe 20% range, so you -- including Magna, so can you talk about how these various different cost drivers sort of independent of sales are expected to hit the bottom line? And what is in the bag do you think for the back half and into next year versus where have you still got your work cut out on the execution front?

I'll start and you can jump in, Louis. So your numbers are bang on, right? So when you think about that sales growth at 2.1%, the only thing I would always ask people, when you look at the Magna business, we do have a CVA business that is very significant that doesn't move margin. It's basically a fixed cost recovery model. A very important part of our business, but it's a fixed cost recovery. They're down $500 million. So our actual sales increase is closer to about $2.9 billion and you get back into that range. So I think when you look at our businesses, they are distinct or segments. I would say, Power & Vision, BS, you're probably 20%, 23% incremental margin in that range. Seating, depending where you are, 12.5% to 17.5%. And Steyr, like I said, is probably just going to pull through at 2% margin. So I think the incremental at 31% is probably somewhat lower. And a lot of that growth is just pure sales growth that we're seeing. And part of it is going to be related to the EV we talked about earlier. Now all that being said, how are we driving the rest of the business? We talked about stability, but it's coming into these plants and executing against that margin improvement. So we were expecting -- we've executed what we've done, what we've said. We've executed against it over the last 2 years. And it's a combination of traditional CIs, just finding 2% here and there. But it's also what we've been doing is restructuring the business more quickly to a bigger extent. So that benefit is coming through there as well. And then we also have more of the newer work where you're consolidating -- not consolidating plants, but you're doing Industry 4.0, let's call it. And it's -- when people would have a different definition of what that is, our world that talks about automation. So what are we automating? We're automating AMRs. So when you look at a facility, we had a facility, I think it had 48 tuggers and forklifts last year or 18 months ago, and today, it has 0. So those are benefits when you have a part that's been 0 value add, and we can take those out. So how do you scale it? Magna's benefit? I think we're third biggest, not fifth. But if you look at a company that size, how do you scale it? You put it into one facility, you perfect it and then you scale really quickly. And there's that piece of it, there's pick and place, and there's also logistics, whether it's inbound or outbound. So all these pieces come together, and that's really what's going to drive that 75 basis points that we see in '25 and into '26.

Yes, 75 split roughly equal between '25 and '26. And you mentioned in the bag. I mean, it's not in the bag, but I mean we have detailed action plans around all the numbers that we're talking about there, and we've shown our ability to execute as we have in the last couple of years, and we're going to continue to do that.

Sorry, I'd just add too, and what's interesting, we toured you in our Cosmo Shanghai facility. That was 2 years ago. And that facility -- so this isn't just a North American, European. A lot of our innovation is coming out of China. So if we went back to that plant and walked around again, you would see no forklifts, no tugger. In 2 years, they've all disappeared. When you were there, they were all automated. So basically you go in and it's -- you have a digital twin of the factory and you say the operator or the machine will say, I'm going to need parts in one hour. All the AMRs go in automatically pick and deliver parts as needed. So it is accelerating, but it's a need to because of what we've been through. And when you think about inflation, we're still fighting with that. Now you have tariffs. we just need that stability we talked about earlier, and then we can start implementing these improvement plans.

Interesting. Next, maybe you could provide us with an update on your outlook for M&A. Having already consummated a number of acquisitions to increase your leverage to the industry megatrends such as the establishment of the joint venture with LG Electronics on the electrification side and the acquisition of Veoneer on the ADAS side. And with the -- as mentioned, the megatrend growth now somewhat less rapid, do you expect to potentially acquire fewer companies going forward or to focus on smaller tuck-ins or do you continue with the M&A focus, but maybe look elsewhere than megatrends such as your core metal forming business or something like that?

I've been at Magna for 26 years or 26.5 years. Most of our growth has been via greenfield, brownfield. I think we're really, really solid in that space. Just for perspective, over the last decade, we've spent about 20 -- the last 15 years, sorry, we spent about $20 billion of CapEx. That compares to about $2 billion net of M&A. So we're much more focused on growing organically, and that's been our trademark. That being said, we have done some acquisitions over time. In the 26 years, I can remember 2 that are over $1 billion for perspective. So we tend to do bolt-ons, whether we're going to get a small technology, a capital, a new customer, a new region. But I think we're at a scale and size now where it's hard to grow via M&A. Just -- you mentioned Cosmo, for example. We're already the largest metal stamper in the world. How do you grow? Your customers don't like it. Antitrust doesn't like it. So we're kind of boxed in. So we're focused really on how do we return cash to shareholders at this point. We've gone through our super source of quoting of CapEx of the M&A. We like our portfolio. We think it's been developed over years. Now how do we reap what we've sown and how do we give it back to the shareholders.

You mentioned $2 billion on net M&A because there have been some dispositions in there. You sold your Interiors business to Grupo Antlin, your fluid pressure and controls business to Hanon Systems. I don't expect you to name names, but are there other parts of Magna today that would be maybe more valuable to someone else. And so it could be ripe for sale or maybe could garner a higher earnings multiple valued on a stand-alone basis because maybe their margin or growth profile is so much higher than the conglomerate and the Magna shareholder could benefit by still owning them, but owning them separate, having been spun out. What are your thoughts on portfolio pruning? How often do you look at this? And is there any opportunity there?

I would say we look at it regularly. So we do go through our -- we report out 4 groups. Broadly speaking, we probably have 60, 80 products like in that range. And our operating groups are responsible for going through their own product portfolio. We do that annually. We actually just finished it in July. And we'll sit down in the coming quarter, and we'll sit down with our Board and say where are we going with all these products. You mentioned interiors. So let me back up. When you think about how do we evaluate them, we're looking at what's the market like? Is it a growing market, is it a sizable market? Question two becomes, can we make money in this market? Are we -- is it possible to make money? Then three becomes what's your position in that market? Do we have a strong position or a weak position or a [me-too] position? So you mentioned -- you go through that logic, and you do that 60 to 80 parts. But on the big, big ones, you mentioned interiors. Interiors, big market, and it failed to test on, there's money to be made. It wasn't a market that allowed margin. The second one you mentioned was the sale of our fluid pressure controls. Good-sized market, money was to be made. We were going to be pushed down into a [me-too's] position of being a Tier 3. So we exited in those cases. So if you apply that logic again, when you look at where we were -- so first thing is where did we grow? We grew a lot in our megatrends. We're going to grow in new products with battery trays. And then we see ADAS content outpacing the growth in a vehicle. So that's why we invested in Veoneer. So come to your question, when you look at the rest of our portfolio, it's well developed. We have a -- I think my personal opinion and jump in, Louis, is I think we're in the right markets. I think we have a strong position across those portfolios, whether it's regional or global. And then I think we're all profitable, like we're making where our expectations to be. I would say when you look across all of them, brutally honest, people always ask you look at our seating operation being undersized. I like our Seating business. It's a strong business. It's obviously suffered a little bit with some of the chips and all the crisis that we've been living through. But I think there's a path forward there. We see it in our guidance, and we're going to continue to execute. Now am I going to name names, I can't, right? So -- but it's always on the whiteboard.

Maybe turning to leverage and return of capital. I know you target 1.5x net leverage. You're a little less than 1.9x now. When do you expect to be within the target range? And what are your thoughts on capital allocation when you do reach the range? And then I know you've shown some appetite for repurchasing your shares even when above the range before, right? So when you got maybe some line of sight toward reaching it, for example, last year, when your leverage was 1.8-ish, you bought $200 million back. You did another $50 million in 1Q before the tariffs. Altogether, you might have bought back like 2%, well above the range there. So I understand you're focused on 1.5%. Just curious if -- as we continue to gain more clarity on tariffs, if the right opportunity presented itself with the share price as it might be right now, if you had line of sight to 1.5%, like November last year, you might be more flexible?

Well, I guess, first of all, we expect to be there in '26. So we're marching down. We were at 1.87x, excluding cash that what we were holding to pay down debt that's coming due. You mentioned net debt. It's actually gross debt as part of our calculation. So we want to get to 1% to 1.5% talking about the other.

Yes. No, I think when you think about how we approach it, it is a difficult situation. Your numbers are bang on. We bought $250 million over the first -- basically over 2 quarters, Q4 and Q1. And we did it because we have a line of sight of where we think we're going to be. And Louis mentioned '26. And you work with the credit rating agencies, this isn't done in isolation. We look at it. We have a very strong relationship with the 2 large rating agencies, and we work through them. Our approach to capital returns hasn't changed. It's always, number one, strong foundation in your balance sheet. This is the 1% to 1.5%, and it's built to withstand a body blow. This is -- we know something is going to happen, whether it was financial crisis, COVID, chips, tariffs now. And the NCIB in Canada is a strong product where you can just turn it off. You don't need to use it. And we did that in COVID, we did in the financial crisis. When you think about that, you have that in place, then we want to grow organically. We mentioned the $20 billion. We're here to grow our business at appropriate returns. Then we have a dividend, roughly $550 million per year, and that's growing. We've grown it 14 years in a row. And then our outlet is NCIB or share repurchases. So our view is when you look at that it's an outlet. What happened when we started buying, we bought in Q4, bought in Q1, then tariffs hit. And the prudent approach is we're not going to be out buying shares when tariff exposures are out there. The numbers are significant when we talked about the 200 exposure. So we have all these pieces together. Now that being said, when you -- as Louis said, you get back into the 1.5%, we come back in, and you don't have to wait until you trick to 1.5%. You can do it beforehand, as you mentioned, and we're going to continue to evaluate that. We just need stability, just more macro.

We do have the flexibility because we have the NCIB currently outstanding until November.

I wanted to check in on your electrochromic auto domain mirror business, maybe particularly in China after there were some significant developments there with one of your competitors in the second quarter. And prior to that Cosmo tour, you mentioned, you also led us on a tour of your electrochromic mirror plant in China. And I learned on that tour that while Gentex had like upward of 90% share globally at the time, I think it's less now, that in China, their share was under 80% and you yourselves might have had 20% share and rising in China because you were willing to manufacture it in country, whereas they were maybe fearful of some intellectual property rights, et cetera, which maybe is a concern for you, too, but it's divided into a $40 billion enterprise, that doesn't keep you up as much at night. So they're exporting everything from Michigan. And when Trump imposed the reciprocal tariffs, China retaliated with its own 100% plus tariffs the exports ground to a halt. They took 10% of their revenue out of their guidance for the year, [indiscernible] is close to 0. Now there's a trade truth and it's come back and it's back in forecast. But there was a lot of havoc there for a period of time. And I was just thinking if you might have been able to make, hey, while the sun is shining, what is your share now, what happened during that period of time, what were discussions with customers? And might you continue to benefit even if we do have -- there's another 90-day pause today on the reciprocal tariffs with China, even if -- I mean, there's the potential that the tariffs could come back. And so automakers are going to be thinking about that when they source electrochromic auto-dimming mirrors in China. What's happening there?

Yes. The tariff noise has definitely made the OEMs investigate alternative solutions for sure. There's an interest in local sourcing because there's more capacity and there's more capability there. And we have recently installed capacity, as you mentioned. So we have been a beneficiary of that across a few of our product areas inside mirrors and DMS being too. We do expect to get closer to 30% in the next couple of years and growing from there. So we're definitely benefiting from that overall shift that we've seen.

I've got more questions from these guys, but are there any in the audience? One over here, please, a microphone coming.

Just a question on Ford's announcement yesterday. I mean, it's pretty recent news. But just -- when you look at how they're manufacturing that vehicle and some of the castings there, like to the extent the market goes greater in that direction, I guess, what are you seeing broadly? How are you positioned? How does it impact Magna?

Yes, go ahead, Louis.

Yes. I think when you -- I haven't seen their architecture. So I'm just going to talk just more broadly with what our castings capabilities are. So we have roughly 45 high-pressure die casting mold machines. globally. So we're represented in North America, Europe and in China with those machines. And generally, we'd be operating like roughly a 40,000 -- sorry, a 4,000-ton machine. But with a 4,000-ton machine, you're injecting rails, like big, big parts. There has been a push to move up into high giga castings and whatnot. Our focus has been where the market -- back to the original how we evaluate the market is we can make rails, we can make shock towers, we can do full cradles. I think our biggest shot is 23 kilos for perspective. So we do very complex parts. We're well represented, like I said earlier, on regions, but also with various customers in each of those markets. Is that okay?

I wanted to ask on your relationship with Waymo. First of all, you invested $100 million in them pre-pandemic. What has that carried out on your balance sheet today? And then from a commercial perspective, what kind of assembly fee -- I mean, this is very de minimis, right? There's only like 1,000 or 1,300 of these Waymos I think run around, but they're doing 1 million rides a month now, a lot excitement around them as well as Tesla robotaxi. Just curious what your ongoing relationship looks like and how you expect it to evolve going forward?

So as far as the investment, it basically bounces around between -- around 100. It's held in Canada, so there's some foreign exchange noise, but it's basically held at book. It continues to be the fair value, so in that range. As far as what we do with Waymo is we receive the vehicle. We just opened a new facility in Arizona and Phoenix and what we do is we actually upfit the vehicle with all the sensors. So it's done by our Steyr operation. They obviously have a lot of expertise upfitting cars. To your point, it's been pretty low volume. That being said, when you look at where they want to go with that projection, we actually had to move facilities into a bigger facility in the Arizona state just for the volume that we expect to come through.

So you kind of do have Steyr on all 3 major regions now?

There's no...

It's like 20,000, so what is the capacity?

No, it would be more than that, but it's not -- it's a different operation. So if -- I'm not sure if you had a chance to go to our Steyr. It's an OEM facility. This you basically take a -- we used to take the Jaguar I-PACE and you take the car and all you do is you put all the sensors onto it.

Or you actually make the Jaguar I-PACE...

We make -- so in Europe, we would put it through a press shop, we put it through a body shop, we put it through paint assembly and testing.

Is Magna the reason why they use the Jaguar I-PACE?

I don't know.

And maybe an update generally, we're running out of time, but an update on the complete vehicle assembly business. Last I checked in with you some of the sales of the vehicles that you assemble in China, ArcFox, for example, we're starting to do better. And then I'm curious about Graz. Actually, I heard from the CFO of Xiaomi that he toured your facility. So there's some interest in these Chinese automakers that are facing tariffs now. What do they do? And it takes a long time to build an assembly plant. It doesn't take you as much time to spool up. So is there any opportunity there? And then what other opportunities would you say might be out there given that post INEOS and you do seem to have some excess capacity. What's your confidence you can get that soaked up?

Yes. I think for China, you mentioned the China office. So we have a joint venture in China with BAIC or BJEV, and we produce the Arcfox. We have 4 models in there. The volumes are actually quite well. They've been increasing. The increase probably started about 15 months ago, and it's been pretty steady state at that point with further growth. So it's been operating well. Graz is our traditional business. And listen, Xiaomi toured the place. I bet every OEMs toured this facility because it's not a facility -- what we sell at Steyr is obviously quality, but it's speed to market and what we do is low-volume niche type production. The flexibility is amazing. So if you're a Chinese customer or you're a -- whatever type of customer, you want to have a quick launch into a region, you want high quality, you want flexibility, you don't want to build a whole facility because they're expensive, how do you have that flexibility? So I think at one point, we're producing the X5, Z4, Toyota Supra, Jaguar E-PACE, Jaguar I-PACE and the G-Wagon and 1 facility, 1 paint line, 3 assembly lines. That's what we sell. So it's pretty normal to have people touring the place because it is best-in-class. It was just awarded the best-in-class BMW production globally. So people want to tour it for a reason. So when you come full circle, what are we going to do with that volume is it's high quality. It's best in the world. Let us peak shave, let us work with your customers to roll out what's been really all-wheel drive systems, left -- right-hand drives, all those types of things that we can fill it. We're going to run about 75,000 units this year. Our pinch point is the paint line, which is about 150,000. So it goes up and down. We've cycled through it, and we're just going to continue to push them.

And we are talking to customers about additional business in there.

Okay. Very good. We are over time. So please join me in thanking Pat and Louis for the great color