Versigent PLC ($VGNT)

Welcome to [indiscernible] the Fast Lane. My name is Edison Yu, and I lead the U.S. Autos, Mobility and Robotics research here at the bank. We are recording ahead of the Deutsche Bank Autos Conference in New York next week, and we're delighted to welcome Versigent to the program. And joining us from the company, the CEO, Joe Liotine; and the CFO, Doug Ostermann. Thank you both for joining us today.

Edison, pleasure. Thanks for having us.

Yes. Thanks for having us, Edison.

For some background, Versigent is a leading global auto supplier with over 140,000 employees. It generated about $9 billion in revenue last year. Versigent actually has content on 1 out of every 6 vehicles made in the world and, within that, 1 out of every 3 battery electric vehicles. So a very large company with tremendous reach across the globe. To kick off, for those tuning in who aren't as familiar with the company, Joe, could you give us an overview on the main products and offerings you have? And generally, who are, sort of, the competitors we should think about in the same realm?

Yes, sure. Happy to. So as you mentioned, we're about a $9 billion business. Principally, our work is to design, engineer, and manufacture wire harnesses, and that's both low voltage and high voltage. So our revenue really is pretty spread out across the globe evenly, about 40% North America, 25% in EMEA and about 1/3 in APAC. And we're principally focused on all vehicles, irrespective of powertrain. So we're powertrain agnostic. So we'll produce and design ICE architectures, hybrid and BEV. And within that, really, we're always looking to design the entire architecture. And so if it's low voltage or high voltage, it's distributing signal or data or power, it really doesn't make a difference to us. We're looking to optimize all of those. So from a product portfolio standpoint, low voltage, principally on ICE, on hybrid, you have both. And actually on BEVs, you have both as well. And so really, the only product line part of our business is kind of the charge cords. That's a separate high-voltage only product for BEVs and for some hybrids. The rest of it really usually is done as an overall architecture, kind of mixing both low voltage and high voltage together.

Great. And I'll just provide a little context. Generally, I think the 2 competitors that often are brought up are, I believe, Yazaki and Sumitomo, is that correct?

Yes. I mean the way I would think about it is the landscape is kind of broken out in 2 groups, broadly speaking. One group is global competitors, the 2 you mentioned as well as Versigent. And then the remaining, I would say, are more kind of tied to either an OEM specifically or a region specifically or even a country specifically. And so they're using that at global scale, little bit different characteristics there. But the 3 you mentioned are typically thought of as the global players.

Got you. So myself having followed us for a long time, we obviously watch the -- what recently happened with the spinout. Can you just remind people perhaps not as close to the situation? What was the rationale? And what are your top priorities moving forward for the next 12 months?

Yes. So Versigent was spun out of Aptiv, greater Aptiv. And Aptiv essentially had 3 main business units: wire harness being one, connectors and some other businesses being the second and then software and sensing, ASUX, things like that being the third. And so when Aptiv looked at the overall strategy of the company, looked at the investor base and what they aspired to achieve and frankly, capital deployment, they realized there were pretty different strategies across the businesses, namely in the wire harness side of things, essentially, we had been, I think, a little bit maybe the second priority as the company looked to grow in software and other areas. And so as we discussed how best to really fuel our strategy, it became pretty clear that competing capital priorities was maybe limiting the ability for Versigent to grow. And so been discussed over probably many years on what to do and when to do it. And then ultimately, it felt like it was the right time for various reasons to spin off. And so for us, the exciting part really is a sharpened, more focused strategy regarding wire harnesses, low voltage, high voltage and the future that's coming, a sharper, more deployed resource set, both internally as well as externally. And then lastly, just capital, how to put capital behind some of these big ideas that we think are very value creating, in particular, things like automation and digitalization where we see really big opportunities. We already have quite a bit of progress in our China manufacturing environment. And we see what we could do with a little bit more precise strategy, a little bit more capital deployed to those ideas. And so that excites us. And so I think that really was the reason for the change. We'll continue to look for opportunities within Versigent to deploy capital to the biggest ideas, and we've already kind of demonstrated when doing so, we can generate more growth and frankly, better margins. And so that's a pretty big part of our story.

Excellent. We'll definitely come back to some of those points you made. Let's start talking about, I think, more about the company and what you're seeing. I think in May, a lot has happened this year, I think, in the industry. Can you give us just some insight, I guess, into what you're seeing on the ground, perhaps by region? It seems the dynamics are a bit different. But given your reach, given your scale and also given the kind of events that transpired just in the last couple of months, what are you seeing on the ground?

Yes, as you opened with, there's really 2 or 3 of us globally that kind of have that same perspective across all the regions. And so for us, the regional differences probably are the most amount of change we've seen in the last couple of years. And what I mean by that is, obviously, the geopolitical things related to tariffs and potentially conflicts and war, but also as it pertains to the knock-on effects to consumers. So in the U.S., the EV growth has slowed. It's still growing, but it slowed versus what people thought in a pretty significant way. And publicly, OEMs made certain disclosures about write-offs and changes of strategy and implications. So that was pretty big. I think at the same time, hybrids might be growing a bit faster in North America than people thought as a consequence of some of those things. And then if you contrast that with Asia Pacific and specifically China, the BEV movement has not slowed down. I would say it's probably exactly what people thought, maybe even continues to move in that direction. And whereas hybrids might not be quite as strong in its growth as we're seeing. And so I think that doesn't really surprise anyone, but it is quite different from the 2 regions. And then EMEA, I would say, from a powertrain standpoint, probably continuing on the trend that we're at, maybe a little different than what people thought, but pretty close. I think the bigger phenomenon that's taking place in EMEA is the export level from China to EMEA, really started probably in Q4 of last year, but it's ramped up and continues to ramp up with really no real end in sight. And I would say that's a pretty pronounced change when you're talking about 1/4 of the biggest country's production being exported to another region. There are obviously knock-on effects and consequences of that, that sooner or later will have to come through both to consumers, but also to the industrial footprint. And that might then drive another set of either geopolitical things or something else. So I think from a market standpoint, that's pretty big. And again, that was supportive. We were out in China just a couple of weeks ago at the Beijing Auto Show. And I would tell you, it was very consistent from all the local Chinese OEMs, the focus was on both export and on localization in outside markets. And that was consistent like for everyone. And I think when you start talking about the implications of that over a 1-, 2-year period of time, it's pretty significant. So from an industry standpoint, those dynamics continue to be quite large. And then I think the tariff question kind of floats in and floats out pretty quickly. And so if that changes again in any market, there's going to be implications of that.

I wanted to double-click a little bit on China. You obviously yourself had a very, very strong quarter there in the first quarter of this year. Can you talk about why you're able to do so well there? And on the export side, as being a German bank, we can see a lot of the Chinese automakers coming to Europe. How much or what do you think the next couple of quarters looks like? Do you think the exports will continue to be quite strong?

Yes. So just from the China market standpoint, we've been in that market decades, so a long time. Our team is really skilled, very much localized to the market, understands the elements and characteristics well from supply all the way to customer. And separately from China, but more for Versigent, we always look -- our strategy in market is to match the market. Whatever its composition is, we want to match that, generally speaking, because we know that insulates us from, I'll say, being out of place if things change. And so for us, we're typically looking in all markets, what is the most complex programs, where can we add the most value, where do OEMs need us the most help in terms of predevelopment, development optimization. So we're always gravitating toward the most complex programs. In addition, we want players at scale, and we want players that have global growth potential. So understanding OEM strategies around export and localization is also pretty important. And so the byproduct of that, the natural selection is we -- there's 100-plus labels or brands in China, local Chinese brands. We obviously don't do business with all 110 or 120, whatever it is, because there's high fragmentation. So our strategy helps us get to a natural selection point. We're kind of picking some of these individuals that have the most potential. And that played out both last year as well as this year, where, yes, the market is down almost 20% year-to-date, but we were really working with the biggest OEMs on the biggest programs that actually did the best, both domestically, but also via exports into other markets. And so we were essentially insulated from a lot of that downward pressure in China from an industry standpoint because of our process, our strategy, who we partner with and the mix of the programs that we're on. And so that was quite helpful thing, and that was both from a customer selection, program selection and it has a knock-on effect powertrain, right? Since BEVs are the powertrain growing so strongly, BEVs typically have more than 70% more content than an ICE vehicle. And so there's a little bit of a product mix within the customer and program mix as well.

And I would just add that our over-indexation with these exporters in China is really a factor of both our strategy and of course, the way in which we are positioned within the market. As we talked about, there's only a handful of truly global players in this market. And I think our customers recognize that those that are focused on export, they recognize that we can help them as exporters. And then as they localize in those markets around the world, we can also support them there. There are only a couple of competitors who can really provide that type of support. And I think that really makes us quite attractive to those companies.

Let's dive a bit more into the operational aspects of the business. I think we've got a pretty good sense on the market. As we as we know, but I don't know if everyone knows out there, wiring, wire harness, the process is very labor-intensive. Can you walk us through the milestones for some of your automation and some of the initiatives? And what percentage do you think of your backlog is -- sorry, backlog is on these kinds of new automated efforts?

Yes. So it's a complex topic that has a lot of potential. So it's obviously very important to us. The first thing I would say is automation is a piece of it, but the readiness or the enablers in order to really leverage the benefit of automation happen well beyond that. So the engineering design work in terms of bill of process is really important. So you can make it as efficient as possible to be manufactured no matter what the design is. And that's something we do quite well. In addition, process standards, we have something we call enterprise operating system. How we really just do our work every day, all day long is really quite robust, and it's something that was first established in the Delphi days. So we've evolved it since then. And so really lastly is automation. So if you don't have excellent bill of process and you don't have excellent process work and you don't have digitalization already contemplated in your plants or in your workflows, then automation is essentially going to automate like a bad idea in isolation as an island. And it's really not going to have the network power that it could have if these other things are foundationally there. And so for us, China is our most advanced location where we do quite a bit of both, all the process work and digitalization work, but also the automation work. And so really driving toward that is important to make it beyond just theory and beyond a PowerPoint slide, but in practice. And so our plant in Shanghai is actually quite automated. We've taken those learnings and started to build essentially like a plan of record of what we want to do globally. And then we're now rolling into kind of a phasing or feasibility of how do we roll those things out. Now it's not as simple as saying we do it in China, so let's do it everywhere else because the business cases, the labor wages, the incentives, the architectures all have different characteristics. So you're really optimizing like a set of data to say what makes sense. And for us, we're really focused on automation that sits on top of a great foundation, a, and b, that has really good paybacks. Two years or less is kind of the general take for us. If we can identify those and execute them 2 years or less, we know that's going to be value-creating for us and value creating for our customers. So we're kind of focused there. And so that road map varies a little bit by region. It can vary by product. The complexity of certain architectures has different characteristics on how automatable it is with the right kind of efficiency. And so all that is contemplated. And what we've said publicly is 0.5 point of our 2-point margin improvement over the next 3 years comes from automation. Now that will vary across the regions. It won't be a static percent in every place. But it really is kind of the goal for us. And then you referenced our -- you said backlog, but maybe I'll correct and say bookings because they're actually not orders, but bookings, we can automate low voltage or high voltage. We can automate ICE, hybrid or BEV. So that's not really maybe as big a differentiator as people think it is. They sometimes gravitate toward BEV is the only thing that can be automated. That's not exactly right. Smaller harnesses can be, the periphery of the plant can be. There's lots of things that can be automated irrespective of the architecture characteristics. And so for us, we're tackling, I would say, the plant environment first, and the architecture second because, a, we control the plant environment. So we should control our own destiny, waiting for architectures to evolve or demonstrate characteristics that are automatable essentially waiting for someone else to create our strategy. We don't want that. Now we'll always take advantage of that as architectures evolve, as there's simplicity that gets presented and if they can be automated, we'll absolutely do that. But we don't want to wait for others to dictate our strategy. So we're really going to attack the entire perimeter of the manufacturing facility, first and foremost. And so I would say early days today, mostly in China with some specialization in some other areas in Europe and North America, but then a road map to get us to this 0.5 point of margin improvement by the end of the 3-year window that we laid out.

Is there any kind of cool example or interesting example you can maybe help us visualize the automation and work? Anything worth calling out?

Yes. I mean the cool example, I mean, it depends on what you think is cool. I think all this is cool. So I can do this all day long. I think when you've seen a facility that's high velocity and everything is moving in the facility, like material movement, I mean, specifically with AGVs, with big robotic grocery stores, everything is getting packaged with big transfer lines, it's really quite amazing to see. I think that's kind of more on the general footprint. As it pertains to actual wires, when you see like taping automated, it's pretty impressive because the speed in which this thing is happening is quite fast. And even the fidelity, you're talking about very small spaces to engineer robotics in, and they're able to navigate in these really high-fidelity spaces and do things very, very quickly. That's pretty cool to see. I think the other piece I would talk about really is more on the digitalization. Like what we're able to do now with digitalization and some, I would say, early days AI in terms of sequencing in the plants, really timing all the operations to be as efficient as possible, potentially identifying micro stoppages to really extract out inefficiencies. The amount of power in that data set is not like it ever was before. It would take you days to do some of this analysis. Now it's being done for you. So we think the potential there is actually quite significant.

Incredible. Okay. Well, yes, we'll definitely -- we'll have to get some videos from here or something at some point to showcase. I wanted to move on to the content side. We talked about sort of the automation and some of the initiatives. But I think one question that often comes up is, look, there's varying types of content depending on the powertrain and some are higher and some are lower. How do you think about balancing this going forward? And I would also say that in the context of there are architectures kind of, I think, emerging that are trying to reduce the amount of content, but maybe not the value of the content. So how do you think about by powertrain the content and also some of these trends on next-gen architectures that are looking to, I guess, reduce the weight and the cost of the content?

Yes. It's a really complex evolving domain area. And the thing for us is our differentiation, the reason what makes us great is engineering capability and proprietary engineering toolkits. That really is the reason why we're able to generate almost 2x margins. It's the reason why our revenue, 75% of our revenue, is on architectures we influence or help design in some capacity. It's the reason why our growth over market is better than competitors and has been consistently over the last, let's say, quarters and maybe years. And so that expertise -- that capability is about solving problems. So anything that's complex, we don't really care if it's low voltage or high voltage. We don't really care if it's ICE, hybrid or BEV. Actually, we don't even care if it's on an auto, commercial vehicle, battery energy storage or robotics. So for us, it's about applying a set of capabilities that are unique and differentiated that are better than others that people seek us for in solving their problems and doing it in a way that creates value for our customers and hopefully value for us. So that really is the goal. And then when it comes to content, I think there are some things that are may be misunderstood. First and foremost, we love complexity, and we want to solve it as smartly and as efficiently as possible. Second, the secular trends are not going to subside. And what I mean by that is there's -- every vehicle that's launched in the future, doesn't matter what powertrain it is, will have more autonomous features, period. Every vehicle that's launched in the future will have more in-cabin features and entertainment and connectivity. It's not going to slow down. Every new vehicle that's launched is going to have some migration toward hybrid and EV greater than today. Now it might vary by region. It might vary by BEV versus hybrid, but it's still more. And both those are always more content per vehicle. So like second bucket is content per vehicle is only going up. There's no headwinds there. Third is maybe like a 2A, I guess it is, when people talk about optimized zonal, things like that, a couple of things to understand. One, it takes a lot of engineering to move to those new architectures. Two, they only happen on clean slate, new programs, new platforms. No one is doing that on an existing platform. There's only so many of those that happen each year, every couple of years. They need help to get to those zonal things, which is us oftentimes, and we can create a lot of value in that predevelopment development journey with OEMs. And then what does come out oftentimes is copper. And copper is a pass-through for us. So it's not that meaningful to us if we're reducing copper because we don't really get paid on it anyway. Now there's some small dilutive aspects to it when you do it over time. But in general, the tailwinds, combined with our ability to participate in that design, far outpace or exceed any of the potential reductions on content or zonal. And really, I think everyone gets this wrong. The data is super clear. Like if you look at the data, data is clear, there's no new architectures that are left, either because of BEV or hybrid or autonomous or in-cabin features. And everything in a car or any vehicle, a sensor, a massaging seat, a screen, any functionality that's put in the car essentially needs either low voltage or high voltage to bring it from A to B. It's not going to get there on its own. Now you can make it more elegant, you can make it more optimized, but it still needs to go from A to B. And we're only creating more and more A to Bs, not less over time. And so I think for us, and we've depicted this in a couple of different examples, but without maybe trying to have a crystal ball to say how much everything grows because we don't know. But all we know is, for sure, it's a net tailwind, not a headwind. And I think that's really important to understand why our growth over market has been so strong. Well, it's not because we're taking production share. It's because the content is growing at a faster rate than production is growing, and we gravitate for the most complex vehicles with the most content per vehicle. So it's natural to see us grow a bit faster than everyone else.

And I would only add, Edison, that we do have a number of customers globally who are pretty far down that path of zonal architectures, particularly in China. We have a number of customers who have moved to that. And those are still extremely feature-rich vehicles with a lot of wiring content.

Yes. No, that was great. I think that was a great breakdown. A couple of follow-ups to that. I think everyone agrees that the feature set of content is growing. I guess can you provide some -- maybe some real-life examples of how -- or instances where, to your point, like the wiring or harness content goes down and then you provide A, B, C, D that actually increases the total value of the program? Like is there some easy examples you can maybe bring up?

I mean, to Doug's point, we're in second, third generation of BEVs that have, I'll say, some zonal aspects, not complete, not perfect because there's consequences of that. And those vehicles generate a lot of content per vehicle for us, a lot, and they're growing, they're not shrinking. We have other examples in North America, where there are certain aspects of zonal in certain architectures and yet the content per vehicle is quite high for us even with those zonals in there. And so I think the A to B part is important. What do they optimize in some of these zonals? It might be more processors, it might be more ECUs, it might be more software, but you still got to get from A to B. And so that might be more elegant because at some point, you can't just keep stacking one more idea onto this architecture. So it does require a little bit of reengineering, rethink to optimize, but it's still net more. And again, if you look at just the heuristics, hybrids have some optimizations in there, they're 50% more content. BEVs had some zonal and other optimizations in there. They're greater than 70% more content. And so the role of high voltage is really power. It doesn't do anything besides power. The role of low voltage does everything else. autonomous connectivity in cabin, massaging seats, whatever it is. So high voltage as a product is only power. Low voltage is literally everything else. And so as all these things grow, I think people sometimes take this shortcut of BEV is high voltage, not really, like there's way more low-voltage content than there is high-voltage content, and they have different roles in the architecture. They're not substitutable.

Understood. Understood. Okay. Just thinking about just the -- to your point, right, you have some OEMs in China who are -- who have kind of gravitated more to zonal. But I think outside of China, maybe outside of, call it, Tesla and Rivian, the adoption, I believe, I guess, we can call next-gen architecture is still fairly low. Is that picking up? Are you getting any sense that's picking up at all?

I mean I think it's going to pick up over time. But again, I go back to like there's only so many clean slate architectures done annually. Like it's just -- it's like the opposite with the K curve, right? There's only so many that are -- and there's consequences. It takes a ton of engineering to do that. There are massive knock-on effects to many, many other things in the vehicle that need to be addressed. Although you can take out weight in copper and some other things, there's some costs as a consequence, more ECU because it's centralized. You need to get everyone on the same software library stack. There are other consequences that I think aren't as simple. And so people get a little enamored with the zonal concept. But as I said, it never happens in isolation. And b, there are other like very, very big consequences of those things. Not everyone can do that all at the same time without really, really big investments. And some of that investment is engineering. Some folks want to spend their engineering on powertrain or want to spend their engineering on performance. They don't want to spend all their engineering on what I would say, behind the green line architectures that may or may not be the most compelling feature for that brand to consumers, depending on what the brand is and the consumer use cases.

Understood. Understood. I want to ask about -- you mentioned the copper dynamics, pass-through dynamics. And just more generally, obviously, we've seen some pretty big moves in commodity prices. Can you just remind us how the pass-through mechanism works? And kind of what's -- what are you assuming and how -- what protections you have in place or hedges you have in place?

Yes. Maybe I'll turn this one over to Doug to help with that.

Yes. Thanks, Joe. Yes, as you mentioned, copper is our largest commodity exposure. And because of that, you'll find that around 75% of the contracts that we have with OEMs have a specific escalation clause within the contract that increases the price as we see copper step up. And so the issue that we have there is that roughly the delay factor, the lag between when the copper price actually moves and when the contract adjustment is made typically is around 3 to 4 months. And so we do see some impact from that. The other 25% roughly of our contracts that don't have a specific escalation clause, we do hedge. We hedge over a 2-year horizon. And really, that just gives us some time to have those discussions with the OEMs about the increase and how it's affecting our cost structure. Those conversations are fairly transparent. I mean they know how much copper is in their product. We know how much is in there. we can observe the various indexes and have a pretty productive discussion around what the impact has been and how to adjust for it, but it takes a little bit of time. And so that's really what we see impacting kind of the first quarter. We talked about the fact that, that was about a $28 million impact in the first quarter on a year-over-year basis, some of which we have built into our business budget and business plan. We plan for copper to be around $5.50 on average per pound for the full year. And we'll see how that plays out, but we do have hedges in place. And we look at really our hedge strategy, our exposure, our coverage rates on a regular basis. So we've been doing some adjustments as of late.

Go through a couple of financial questions since we're kind of on that topic and then have a couple of strategic ones after that, we can maybe close off with a little bit more fun and maybe a little bit more controversial. So on the financial one, I think one strong aspect of the story, I think your goal is to do roughly $1 billion in cumulative free cash flow by 2028. How do we get there? And are there any sort of assumptions that you would highlight that are sort of crucial to hitting that target?

Yes. I mean we've talked about a couple of things, $1 billion total free cash flow over the 3-year horizon. We mentioned that this year will be a bit more muted kind of in the range of $200 million to $300 million and that we expect cash flow to, of course, step up over the next 2 years. A lot of that step-up has to do, frankly, with kind of some onetime costs that we have as a result of the separation. So we talked a little bit about the fact that we have about $70 million or so of onetime separation costs that will hit in 2026. Most of that is related to just standing up our own IT systems. That number should drop to about half that figure next year and then disappear altogether. And so that obviously will impact the progression of cash generation. We've also talked a little bit about the fact that we expect to grow faster than market. We expect that vehicle production, just like IHS will be -- expectations will be a little bit down this year over the 3-year horizon, be a CAGR of around 1% growth. We expect growth in the 3% to 4% range because of all these kinds of content per vehicle tailwinds that we just discussed. And of course, we've talked about margin expansion. Joe outlined one of the drivers of that, which is the automation piece, but there are a number of drivers that we think will help expand margins. And so all that combined makes for a pretty powerful story at the bottom line in terms of top line growth, margin growth, reduction in onetime expenses. So you'll see -- we expect to see progression in terms of the cash generation over the 3-year period. But cumulatively, we're looking at about $1 billion.

We got some debt holders who probably want me to ask this leverage. So I think you launched -- or you came out, I think you had to do about $2 billion, a little over $2 billion to fund the dividend to Aptiv. How does one think about the leverage ratio and how aggressive you will be with kind of early debt retirement versus reinvestment?

Yes. I mean right now, we feel pretty comfortable with the capital structure that we have in place. I think historically, there have been spins that have been heavily laden with debt. That's not the case with Versigent. We have a pretty healthy balance sheet, I would say, a nice credit rating as a highly rated high-yield name. And we're pretty comfortable with the ratio when you look at kind of net debt to EBITDA of about 2x. We've talked about a gross debt-to-EBITDA ratio that we'd like to maintain between 2 and 2.5x. I think that metric will improve over time, one, because we'll be growing EBITDA; and two, because we do have some -- a little bit of natural paydown in the debt structure. Part of the structure is a $500 million TLA that has an amortization of about $100 million over a number of years. So we'll have a little bit of debt paydown that is natural. But I think we feel pretty comfortable with the strength of the balance sheet at this point and where we sit from a credit ratings perspective. So I don't think there's a lot of work to be done there. And I guess the message to the investment community is at this point, I don't see a lot of change in terms of the ratios that we're talking about in terms of leverage and that sort of thing.

Great. I wanted to conclude with a couple of strategic questions. First, both of you have been in the industry a long time. I remember maybe 10 years ago, there was talk about maybe more consolidation in electrical architecture, so maybe some of the regional players. So what's -- I guess, what's the latest thinking on just the industry dynamics? Have we consolidated enough now? Do you think there's more coming? And if so, would you want to be the one to initiate that? Curious your thoughts there.

Yes. I mean I don't have a crystal ball on how others view it or what will transpire. I think there has been some consolidation, not so much maybe in Americas and EMEA, but more on the APAC side of things over the last couple of years. For us, we look at ourselves as we're the best or one of the best operators. We're growing faster than others. So we're focused on our strategy. We're focused on fueling that. I think there's implications if we're as successful as we'd like to be, if our competitive advantage really resonates the way we think it should and does. But for us, I think consolidation is probably more a priority for others than it would be for us to talk about because we're winning. And we think we have even more value we can create once we start fueling these strategies that maybe were a little bit under fueled in the past.

So I wanted to ask about some of the secular markets outside of autos. I think you mentioned battery storage before. You also had some announcements, I think, about robotics. How does one think about those opportunities and the time line into making inroads there?

Yes. So as we shared as we opened, about 10% of our revenue comes from non-auto. And much of that is commercial vehicles, heavy equipment on-road, off-road, agriculture. But growingly, we've better understood our engineering capabilities fully apply in those other sectors. They don't require any real change or incremental investment. It's really just the requirements or input change for us, which is easy to manage. Our manufacturing environments also apply quite well without big changes to that either. And so really for us, it's really about go-to-market and sales, which is a smaller, quicker kind of investment for us to really build up the team to better know the players, to better know the process and really be a lot more proactive. Historically, of that 10% revenue, all of it was essentially reactionary. Someone came to us and asked us to do it. But what if we were actually proactive? What if we were actually focused? What if we put resources behind it, what could it be? I'm assuming bigger than 10% if 10% is just us fulfilling requests. And so we're focused there. It's early days. Our first serial battery energy production was in Q1. We're in predevelopment on some more battery energy storage, and we're on predevelopment with a few robotics players as well. And so we think those areas will grow. The commercial vehicle is probably an easier extension for us because we're already doing it today. And then these other areas are smaller, more nascent sectors, but their CAGRs are quite strong. And so we're excited about that complement to our overall revenue profile for the future.

Fantastic. I think we could talk for another hour, but I appreciate both of you joining us today. It's been a great session. And until next time, thank you again.

Thank you. Good to see you again. Thank you.

Yes. Take care.