Autoliv, Inc. (ALV) Q3 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Autoliv Inc third quarter 26 financial results Webcast and Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *1. You would then hear an automated message advising your hand is raised. To withdraw your question, please press *1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Anders Trapp, Vice President, Investor Relations. Please go ahead.

Thank you, Madeline. So welcome, everyone, to our third quarter 26 earnings call. On this call, we have our President and Chief Executive Officer, Mikael Bratt; our chief financial officer, Monika Grama; and me, Anders, VP of Investor Relations. During today's earnings call, we will highlight several key areas. Including our strong performance in a challenging market environment, ongoing mitigation actions to offset cost headwinds, we are going to give an update on the latest market development and our shareholder returns. And our full year guidance on the potential impact of ongoing geopolitical and market challenges. Following the presentation, we will be available to answer your questions. As usual, the slides are available on autoliv.com. Turning to the next slide. We have the safe harbor statement, which is an integrated part of this presentation and includes the Q&A that follows. During the presentation, we will reference non US GAAP measures. The reconciliations of historical US GAAP to non US GAAP measures are disclosed in our quarterly earnings release, available on autoliv.com and in the 10 Q that will be filed with the SEC and at the end of this presentation. Lastly, I should mention that this call is intended to conclude at 3PM Central European Daylight Saving Time, so please follow a limit of 2 questions per person. I will now hand over to our CEO, Mikael Bratt.

Thank you, Anders. Looking on the next slide. We delivered a strong third quarter in a tough environment. With adjusted operating margin exceeding our earlier indications and reflecting disciplined execution across the business. The progress we achieved during the quarter reinforces our confidence in further profitability improvement through year end. Together with strong customer partnerships, and ongoing efficiency initiatives, we believe we are well positioned to continue delivering value for our stakeholders. Our positive sales momentum in Asia continued during the quarter. In China, we once again outperformed light vehicle production driven by strong growth with Chinese OEMs. where our sales outperformed by almost 20 percentage points. In India, we grew sales by nearly 30% organically, reflecting mainly the trend of increased safety concerns in vehicles in India. Adjusted operating margin reached 9.7%, ahead of earlier indication. Reflecting strong operational execution and higher engineering income. I am pleased that our cash flow was strong despite working capital buildup due to strong sales in September. In the quarter, we repurchased over 1.2 million shares for $150 million US, and paid dividends of 63 million US dollars. Based on what we know today, we reiterate our full-year 2026 guidance of flat organic sales with continued significant outperformance of light vehicle production. Both with Chinese OEMs and in India. Following the first 9 months, of the year and continued raw material headwinds, and higher logistic costs we have narrowed down our adjusted operating margin guidance to be around 10.5%. Which is at the low end of the range of around 10.5% to 11%. This reflects the effectiveness of the mitigation actions outlined later in the presentation. Operating cash flow guidance remains unchanged. CapEx is now expected to be around 4% of sales compared with the previous expectations of less than 5% of sales. We also have several positive developments to highlight from the quarter. Both in terms of our footprint and our product offering. Expanding in China is key to strengthening Autoliv's innovation global competitiveness, and long term growth. To support this and our growing partnerships, with Chinese OEMs, we have opened our second R&D center in China. We also launched the human body model safety suite a virtual safety development platform that helps automakers evaluate occupant protection through advanced crash simulations. By helping customers improve safety performance earlier and shorten development time, It strengthens Autoliv's value proposition and growth opportunities. Looking now on the next slide. Third quarter sales were virtually unchanged despite light vehicle production declining. This was due to outperformance relative to light vehicle production including tariff related compensation and favorable currency effects. Adjusted operating income for the third quarter decreased by 3% to 262 million US dollars. The decline reflects 15 million supplier compensation which benefited the third quarter of last year. The adjusted operating margin was 9.7%, 30 basis points lower than last year. Operating cash flow was 239 million US dollars. A decrease of 19 million US dollars. Looking now on the next slide. We continue to deliver broad based operational improvements. Our positive direct labor productivity trend continued during the quarter. Supported by the execution of our strategic initiatives including automation and digitalization. Gross profit decreased by 26 million US dollars with the gross margin declining from 19.3% to 18.4%. Approximately half of the year over year decline was attributable to the noted supplier compensation recognized in the prior year. Looking ahead, we expect fourth quarter gross margin to develop favorably compared to Q4 2025. RD&E, net, expenses decreased year over year. Driven by higher engineering income. As previously communicated, the increase in engineering income was primarily related to the timing of specific customer development project. SG&A expense remained virtually unchanged. Both year over year and sequentially. Turning to the light vehicle market development in the third quarter, let's move to the next slide. According to S&P Global's October forecast, global light vehicle production declined by 1.9% in the third quarter. Approximately 20 basis points below the expectations in July. The weaker than expected production environment was primarily driven by lower volumes in China among global OEMs, as well as softer production in North America and Japan. This was partly offset by stronger than expected performance in India and South America. The regional mix of global light vehicle production was approximately 90 basis points unfavorable during the quarter. Mainly reflecting stronger production growth in lower content market relative to other regions. Despite these market headwinds, our sales remained virtually unchanged. Year over year. Supported by our continued outperformance relative to light vehicle production. Favorable currency effects and tariff related compensation. We will talk about the expected market development in the fourth quarter more in detail later in the presentation. Call off accuracy has deteriorated somewhat compared with the beginning of the year. Driven mainly by China, while other regions have returned to almost normal level. Maintaining high call off accuracy remains critical, as it enables efficient production planning, inventory management, and optimal capacity utilization. Across our operations. Looking now on our sales growth in more detail on the next slide. Our consolidated quarterly net sales was virtually unchanged despite market headwinds. Excluding currencies, our organic sales decreased by $30 million or by 1%. Based on the latest light vehicle production data from S&P Global Mobility, we underperformed the market by almost 1 percentage point globally. In Asia, excluding China, we outperformed the market by almost 3 percentage points. Driven by continued strong sales growth in India, where we outperformed by 11 percentage points. Japan also contributed to the outperformance as we outperformed in Japan by almost 4 percentage points. In China, we delivered outperformance of around 1 percentage point mainly because our sales growth to Chinese OEMs exceeded their light vehicle production growth by almost 20 percentage points. As a result, Chinese OEMs accounted for 58% of our sales in China in the quarter compared to 46% for the same period last year. While performance in Americas overall was in line with light vehicle production, North America delivered stronger results outperforming light vehicle production by 2 percentage points. Globally, Cherry, Suzuki, and Niu were the largest drivers of sales during the quarter. Despite last year's production decline in China, China accounted for 20% of sales, Asia, excluding China, accounted for 20%. Americas for 34%, and EMEA for only 26% due to the summer shutdown. Moving on to the next slide. The third quarter of 2026 saw a high number of new launches, primarily in China, but also in America. The strong launch activity in China reflects Autoliv's continued momentum in this strategically important market and support our ongoing outperformance relative to the market. Higher content per vehicle was driven in part by the adaptation of front center airbags across many of these new vehicles. As well as pedestrian protection systems. From a sales potential perspective, the BMW X5 and iX5 were the most significant launches during the quarter. Looking ahead, we expect a substantially higher number of launches in the fourth quarter compared with the same period last year. Making 2026 a record year in terms of launch activity. This record will not stand for long as we expect a new record launch year again in 2027. Let's continue with the next slide. I will now hand over to Monika.

Thank you, Mikael. I will talk about the financials more in detail on the next few slides. Turning to the next slide. This slide highlights our key figures for the third quarter of 2026 compared to the same quarter of 2025. Our net sales were $2.7 billion representing a 0.5% decrease. Gross profit decreased by $26 million and gross margin decreased by 90 basis points. The driver behind the lower gross profit was mainly the 12.5 million supplier compensation in 2025 as Mikael mentioned, as well as higher costs for raw material. This was partly offset by positive FX effects and supplier cost reduction. The adjusted operating income decreased from 271 million to $262 million and the adjusted operating margin decreased from 10.0% to 9.7%. The reporting. The reported operating income of $254 million was $8 million lower than the adjusted operating income mainly related to capacity alignment activities. The adjusted earnings per share diluted decreased by $0.13 to $2.19 The main drivers were $0.16 from higher taxes, $0.09 from lower operating income, partly offset by $0.11 from lower number of outstanding shares diluted. Our adjusted return on capital employed and adjusted return on equity were solid, 24%, 25%, respectively. We repurchased shares for $150 million and paid a dividend of $0.87 per share. Looking now on the adjusted operating income bridge on the next slide. In the third quarter of 2026, adjusted operating income decreased by $9 million year over year. Operational contributed $34 million despite slightly lower sales primarily driven by cost reduction activities. RD&E and SG&A, net, had a $17 million positive effect mainly reflecting $26 million higher RD&E reimbursement. This includes $2 million of unfavorable foreign exchange translation This was partly offset by the $15 million supplier compensation that positively impacted last year's result. Raw material costs had a gross negative impact of $42 million in the quarter with nonferrous metals and oil related components accounting for the majority of the increase. During the quarter, we achieved customer compensation covering more than 80% of tariff costs. However, tariff related headwinds still reduced our adjusted operating margin, by around 35 basis points, including dilutive effects. Looking now at cash flow on the next slide. Operating cash flow decreased by 19 million to $239 million compared to the prior year, mainly because of lower net income. Trade working capital in relation to sales was 13.5% at the end of the quarter compared to 13.9% a year ago. The improvement was mainly driven by higher payables in relation to sales while inventories and receivables to sales were relatively unchanged. Free operating cash flow was a positive $124 million compared to positive $153 million in the prior year. Capital expenditure net increased by $9 million year over year. Capital expenditure as a percentage of sales rose to 4.3% compared with 3.9% in the prior year. Mainly reflecting increased investments in production and RD&E equipment. The cash conversion was 80%, in line with our target of at least 80%. Year to date, operating cash flow decreased by 15 million to $598 million compared to the prior year. Now looking on the next slide. Over the years, Autoliv has consistently demonstrated its ability to generate strong cash flow across a variety of market conditions. Over the last 12 months, we returned approximately 760 million US dollar to shareholders through dividends and share repurchases. Looking at the past 5 years, we have returned a total of $2.9 billion directly to shareholders at the same time strengthening our balance sheet and improving our leverage profile. This includes more than $1.7 billion in share repurchases, and nearly 1.2 billion in dividends. During this 5-year period, we reduced our outstanding share numbers of approximately 18%. As of quarter end, approximately $1.9 billion remained available for repurchase under the current board authorized share repurchase program out of the total of $2.5 billion original authorization. Our capital allocation decisions are guided by a disciplined assessment of our balance sheet cash flow outlook, leverage, credit rating, and market condition, with a continued focus on delivering long term shareholder value. Now looking on our debt leverage ratio development on the next slide. Autoliv's balanced leverage strategy reflects our prudent financial management enabling resilience, innovation, and sustained stakeholder value over time. Our leverage ratio was 1.3 times at quarter end compared with 1.2x 1 quarter ago. The increase was driven by a roughly $64 million increase in net debt during the quarter combined with a modest $6 million decrease in trailing 12 month adjusted EBITDA. Despite the quarter over quarter increase, our leverage remains at a low level and well within our targeted capital structure. On to the next slide. I will now hand it back to Mikael.

Thank you, Monika. I will talk about the outlook for the remainder of 2026 more in detail on the next few slides. Turning to the next slide. S&P Global now expect global light vehicle production to decline by 1.9% in 2026. Almost 2 percentage points downgrade from its January forecast. Primarily driven by weaker outlooks for China and The Middle East. As we enter Q4, the industry continues to face the effect of the conflict in The Middle East and soft demand in China. Partly offset by resilient vehicle sales in other markets. For the fourth quarter, S&P Global forecast global light vehicle production to decline by 4.5% year over year. The expected decline is largely driven by lower production in China, where softer domestic demand is only partially offset by continued strength in exports. As a result, S&P Global has reduced its fourth quarter outlook for Chinese light vehicle production to a 9% decline. In The Americas, light vehicle production is expected to decline by approximately 2%, reflecting inventory adjustments in North America. In Europe, production is expected to decline by around 1% as automakers continue to face increasing competitive pressure from Chinese manufacturers. In contrast, S&P Global has significantly upgraded its Japan outlook to 2% growth from a 12% decline. This is driven by production recovery following Q3 plant disruptions caused by natural disasters and continued strong exports of fuel efficient hybrid vehicles to The US and Europe. Despite the expected year over year decline in global light vehicle production in Q4, Production is forecast to increase sequentially by more than 1 million units or approximately 5%. Now looking on the fourth quarter development more in detail on the next slide. As we look ahead, to the remainder of the year, we remain focused on managing a dynamic external environment. We are closely monitoring the potential impact of geopolitical developments in the Middle East, which continues to affect supply chain, raw material cost, and overall, vehicle demand. Despite this uncertainty, we expect our financial performance to strengthen. In the fourth quarter versus the third quarter. Margin expansion is supported by higher sales volumes, increased engineering income, and customer compensation related to raw material inflation. In addition, our ongoing cost efficiency initiatives including greater optimization and digitalization across our operations are expected to further enhance profitability and operating leverage. Combined, these actions are expected to result in a meaningful stronger margin profile by year end. Despite market headwinds, we expect strong free cash flow generation to continue throughout the year. Supporting the ongoing execution of our share repurchase program and dividends. Looking at our full year guidance, there are several factors expected to weigh on the adjusted operating margin. Throughout the year. We have taken proactive measures to mitigate the additional headwinds impacting 2026. These are presented in more detail on the next slide. When our original full year 2026 guidance was set in January, our assumptions reflected a significantly more favorable cost environment than what we see now. Since then, the business has faced additional headwinds amounting to approximately 170 to 180 basis points. To address these headwinds, we have taken a broad range of commercial operations and cost efficiency actions including improving direct labor productivity through optimization, and continuous improvement initiative. Accelerating value engineering and value analysis, initiatives implementing SG&A cost reduction measures, and tighter spending controls. Securing raw material recovery through customer negotiations, and indexation. Delivering savings through commercial negotiations with suppliers, through disciplined execution of these initiatives, we expect to offset most of the incremental headwinds. As a result, the net impact on our full year adjusted operating margin is expected to be limited. Demonstrating the resilience of our business model and our ability to proactively manage a challenging cost environment. Looking now on the next slide. This slide shows our full year guidance, which excludes effects from capacity alignment and anti trust related matters. It is based on no material changes to tariffs, or trade restrictions that are in effect as of 10/15/2026. As well as no significant challenges in the macroeconomic environment or changes in customer call of volatility or significant supply chain disruptions. We expect to out outperform light vehicle production by around 2 percentage points. As our organic sales is expected to be flat while global light vehicle production is expected to decline by 2%. The currency translation effect on sales is expected to be around 2.5% positive. While market headwinds have prompted a slight adjustment to our outlook, The change is relatively minor. The guidance for adjusted operating margin is now narrowed to around 10.5%, at the low end of our range of around 10.5% to 11%. Operating cash flow is expected to be around $1.2 billion. We expect CapEx to be around 4% of sales compared to previous guidance of less than 5%. Our strong cash flow generation and disciplined capital spending support our continued commitment to delivering attractive shareholder returns. We expect a tax rate of around 30%. Looking on the next slide. This concludes our formal comments for today's earnings call. And we would like to open the line for questions from analysts and investors. But before I do that, I have to make a small correction there to my comment when it comes to the sales growth and regional sales split in the Q3. I accidentally said that we underperformed the market by almost 1%. It should, of course, be. We out outperformed the market by almost 1 percentage point globally in the third quarter. So with that correction, I will now like to hand it over to Madeline, our operator.

Thank you. To ask a question, you will need to press *1 and *1. On your telephone, and wait for your name to be announced. To withdraw your question, please press *1 again. We are now going to take our first question. And this question comes from Tom Narayan from RBC. Please go ahead.

The first 1 is on the EMEA underperformance versus the market. I know you mentioned there were some shutdowns there, but I guess would think that would have impacted the market as a whole, not just believe perhaps it was related to the Chinese exports into Europe. I am not sure what your indexation is to those, but just some color on the EMEA underperformance in the quarter. And then I have a follow-up. Sure.

Thank you for your question.

No, I think, first of all, I would say that, I mean, yes, you, Europe is--it is a challenging market. And here, we have some swings between the different OEMs. So, I mean, there are elements of customer mix from our point of view. I think we have said before here that our market share ambition globally is protect the market share we have. And if you come to the more, I mean, mature markets, you have more of a stable situation there. And then when you see some chips between the customers, of course, it gets a bigger impact than normally if you are in a growth mode or so. So I should not read into much into those things you see there. And I would also say that, of course, you are impacting this also when you see export from China coming into Europe. But since we are on most of those vehicles, also, you have maybe seemingly a minus in the in the European business, but we have a plus in the China. And that is come through when you look at the numbers region by region like that. And that is why I would say it is not--that is why. But it is 1 reason why maybe we emphasize more the overall market share development and outperformance here. Than the regional shifts. But, of course, key here is to grow for us with the OEMs that are growing and taking market shares globally, which we are doing here and I think the strong outperformance with Chinese OEMs in the quarter here is another evidence of it that and we had India. Yeah.

And for my follow-up, you described raw material cost increase resulting in the basis for the guidance cut,, and I believe it was a 10 million impact to the 2026 numbers. And I know you are not giving 2027 guidance today, but just curious how we should think about the raw material cost increase bleeding into 2027. Is the expectation that you could get all of that with recoveries in the year? Or is this a similar dynamic that there is a kind of a bleeding that happens to forward periods. Like, I guess, how should we think about this, please?

Yeah. No. I mean, that is that is a that is a common thing. I mean, we do not give any details around 2027 yet. it is in connection with the earnings call for Q4. But I would say that, I mean, when it comes to raw materials, I would say that we expect it to be as challenging in 2027 as it has been in 2026. So I would say that is as much as we can comment really on that specifically. So I would say no headwind or tailwind coming from that. But, of course, we are seeing 2026 as a very challenging year that translates and moves into 2027 when we get there, but more details to come. Alright.

Thanks, Tom. Thank you. We are now going to take our next question. This question comes from Emmanuel Rosner from Wolfe Research. Please go ahead.

Oh, great. Thank you so much. Maybe first question focusing on the implied fourth quarter outlook implied by your guidance. So this would obviously be a very high margin around 14% or so. Can you maybe give us some sort of sense of how much visibility and confidence you have in some of these drivers of margin step up, and in particular, to the extent the recoveries there, are those already secured? Is that. You know, where are you, I guess, in that negotiation process?

Sure. No. I think, first of all, I mean, Q4 is the stronger quarter in the year, as you know. And I think with the with the full year guidance here, we are confirming that is also the case this year. And, of course, 1 part that makes it stronger is engineering income that will be a part also this year. We have alluded to the higher sales. And also as S&P Global says here now also another 1 million units in Q4 compared to Q3. So support us in the sequential development there. Otherwise, I mean, it is to really drive here the customer compensation and tariff recovery. With what we have done throughout the year and others, we have a good momentum there. We. I would say, the difference maybe this year compared to other years is that the. And which is a part of the guidance, of course. it is nothing on top of there. But as we understand that the full year impact here is supposed to be cost pressure continues throughout the year here and makes it very tight to also fix the full effect in the in the year. Which more speaks to that we are in the lower end of the range than anywhere else in the in the range there. But, I mean, we move into the fourth quarter here with confidence. I think the team has done a great job maneuvering through this. And as you saw here, I mean, the additional headwind on top of what we expected in the beginning of year I mean, 1.8 percentage points more, it is it is it is quite meaningful, I would say. That we have, to a very large extent, absorbed here through price compensations and also our own cost out activities here. And that also in. Includes material cost optimization, and also, of course, that we do our cost there. So I think we have a good activity plan for the fourth quarter. Okay. I appreciate the color.

And then as a second question, maybe focusing on China. So I appreciate the color on the breakdown between. You know, on your performance between global and Chinese local OEMs. Can you maybe comment on, you know, what is you know, what portion of your business in China is geared towards exports and you know, any thoughts on to the extent there are some measures being you know, put around the world to, say, limit some of these exports, whether they would be you know, a good thing for you or, you know, on a relative basis or a bad thing, something that we should focus on?

Yeah. No. I think, first of all, I think that the. At the starting point, the export vehicle tend to. I mean, we do not have a separate supply chain for the export vehicles or the domestic vehicles. For our respective customer in China. it is the same models, and then the specification might differ, but it is in most circumstances. I mean, it is the same type of product. We do not really see that difference, know, which vehicle goes where in that regard. But as I said, we are managing these dynamics in a good way. Thanks to our global presence and high market share in the total market. And we have talked about that before that we have a fairly strong diversified portfolio with a widespread representation among the customers. So if it moves in between, we are on the platforms that also are gaining. it is some traditional or losing, you could say in all this. And if there would be more let's say, restrictions coming up between the regions on, you know, you cannot export, you need to localize. With our footprint, we can support a customer that then wants or for. Or forced to localize rather than export from another region. So I think that is really a strength with Autoliv is that we can offer a lot of flexibility And, I mean, if you talk specifically about the Chinese OEMs exporting from China versus Europe and if they want to localize in Europe, I mean, today, we are already, you know, part of the China supply chain for them if they have that set up with CKD, for example. Or if they want to localize them, we can support them with local production. So I would say we are well prepared for whatever comes in terms of that dynamic. Thank you.

Thank you. Thank you. We are now going to take our next question. And this question comes from Christian McNally from Evercore ISI. Please go ahead.

Thanks so much, team. I just wanted to follow on Emanuel's question. Maybe just put some numbers to it. We are all trying to figure out this Chinese algorithm, right, which kind of gets a little bit more the numbers just become less dramatic Q4 and next year. So for the implied Q4, are you expecting that China organic growth will go sort of back to positive and then again for 2027? it is early, but we all kind of know that the exports will be up, whether that is 10 or 20%. Mean, we all can, you know, debate, but is the expectation that we will still have Chinese organic growth given your sort of customer mix?

I do not know if I would like to give a number, but what. I mean, as you said, I mean, the light vehicle production according to S&P Global is negative in China. Sorry. But with that said, I have great confidence in our, I will say, future development of continuing to grow with the Chinese OEMs as we move forward. So yeah, I think we are on the right track there. it is the LVP that gives the delta, so to speak, at the end of the day here. But I think I have to wait to see what the net number is. But we are on a good trajectory with Chinese OEMs and expect it to continue to grow. that is my comment on that. Sorry. So to paraphrase, is that the growth over market should remain a significant driver. You are focused on the light vehicle, which is obviously pretty negative in Q4, so maybe that is an unfair question. And then 2027 is a little bit easier. Okay. Perfect.

Then if we could just zone in on the inflation. Right? The 180-basis-point headwind. You have so many pass throughs. Right? The timing we all. We all know. That will be somewhat of a pressure into next year. But I was curious of the 180 basis points how much was actually the Thailand flooding and logistics? Right? We heard from GM this week that logistics was a headwind in Q3, Q4. Typically, those would not be compensated. So I am just curious if you can call out either or as a bucket sort of those 2 because those are kind of 1 off.

Connected to the Thailand flooding, we see we can call it not material impact in our results in Q4, Of course, this is considering coverage for from our property damage and business interruption insurance. And then connected to the logistics cost, we see indeed in some of the divisions double digit cost increases, especially in the North America. To offset this, we have taken logistic optimization initiatives to reduce the mileage. That is partly compensating the cost. As you well know, this is the cost very difficult to pass on. So there is a limited impact that, to a large extent, we are looking for other compensating effects to recover and not per se 1 to 1 in the same area. Okay.

Excellent. Great detail. Thanks so much, team.

Thank you. We are now going to take our next question. And this 1 comes from Winnie Dong from Deutsche Bank. Please go ahead.

Hi. Thank you so much for taking my questions. Wanted to just follow up on the year. I understand that you have narrowed the margin to the lower end. Was there anything that is more specific I think you have talked a lot about costs already, but anything specific that pushes you to the low end of that range? And then to a certain extent, what sort of things do you think carries into 2027?

No. I think, I mean, as we have alluded to here is higher than expected cost pressure that we have seen across the board here. I mean, we have had on 1 of these slides. I think the team has done a great job to offset such a large portion of it that we still can be in the range. So good job there. I think what is more, you know, moving into 2027 is really what we talked about here before. Connected to the raw materials. I would say that we expect that to continue to be some headwind So I think that slide is really good summary of why it is the lower end and not the upper end. Got it. Thank you so much.

Separately, I kind of want to ask about mobility safety solutions, specifically I think there is a product in terms of safety switch outside of vehicles. You are kind of marketing them for, battery energy storage, et cetera, which it seems like 1 of the few ways to get growth that is not tied to LVP. So just any initial takes on how to frame the opportunities there?

No. I think, it is, as you say, interesting opportunity here in the light of the electrification that is going on in society. So we are having a dedicated team here, of course, to develop that business. And here, we are talking about both you know, the high voltage and low voltage, to see what we are doing there. And, I mean, we have interesting leads, and we are also growing this business as we speak. Then we have decided and elected not to give too much details and numbers at this point in time because we believe that it is more meaningful to come back to you when we have meaningful volumes around that and can talk more in-depth detail. it is a little bit of a you could say, startup phase right now, but interesting opportunities in the midterm for sure. Great. Thank you so much.

Thank you. Thank you. We are now going to take our next question. And this 1 comes from José Asumendi from GBM. Please go ahead.

Thanks so much. 2 quick questions, please. Hi, Mikael. Can you talk about the level of activity in 2027 versus 2026? Just broadly, if you see more product launches coming up in 2027 versus 2026. Related to this, whether you are seeing any substantial production stoppages in Europe in the months of November. And question 2 is just simply a confirmation that when you think about the raw material negotiations you are having, that you are not in the camp of seeing spillover and negotiations of going into 2027, that you are you are confident with the with the raw material discussions in 2026. We heard from all the suppliers. You know, that we are still seeing some spillover of these discussions into 2027. Whether you are confirming that 2026 raw materials will be negotiated and closed. Thank you.

Thank you for your question.

I think 2027 launches here We expect to see a higher number of launches in 2027. So we see that continues to increase. And I would say we have a high activity level when it comes to closing new orders and new deals here. That gives us this effect. So that is a positive, I think, when we look out for next year and especially then I guess, in combination with the LVP outlook. That the S&P Global have indicated for next year as well. I think when it comes to the challenge around raw material negotiations here, I would not maybe say specifically raw materials alone. it is in general, the cost pressure that we see right now that has been throughout the year also continuing into Q4. But that is a part of the guidance we have for the full year. So the answer to your question is not changing that picture. that is important to remember. But that is a part of, as I said, the lower end of the range here is also the fact that it is difficult to finish those negotiations with the cost pressure that we see coming now in November and October, November finish that before year-end. But that is because it is continuing to increase. So it is no indication on more difficult or complicated negotiations. it is just that the regular time between the impact and the closure becomes shorter this year as it continues up. But the. It. Once again, it is embedded in what we have indicated for the full year, so it is nothing on top of that. Very important. that is super helpful. And on any major production stoppages in Europe, you are not seeing anything?

Or are you seeing any elements there?

No. Nothing to. No. Nothing to point out. I think, of course, we are always watchful for any activities there. And as you come closer to the year and depending on inventory levels, and so on with the OEMs. But we have no visibility or indications at this point in time. And I think also looking at the inventory levels in Europe as far as we can see is quite balanced also, so there is no indication for any abnormal things there. So yeah, we should be okay. But as an industry. Thank you.

We are now going to take our next question. And this 1 comes from Agnieszka Vilela from Nordea. Please go ahead.

Thank you. And hi, Mikael, Monika and Anders. Just 1 question from me, and that is on R&D. I think you mentioned that you received somewhat more in engineering income in the quarter than what you expected. Can you quantify by how much? And also, do you still expect a positive contribution from engineering income in Q4? And then maybe in relation to that, looking forward, what kind of net R&D cost do you expect into 2027, either in relation to sales or on a level.

Thank you, Agnieszka, for the question. Connected to Q4, Q4, as we guided, we expect a sequential improvement and engineering income increase is 1 of the drivers of this improvement. So yes, it is a positive contributor further in Q4. And on the long term range, we expect pretty similar RD&E net of sales as we had in the previous period. So it is no major change that we can we can announce at this point. This is pretty the trend that we want to maintain, and yeah. In line with our expectations. And on the kind of delta that you saw in Q3 specifically, I think you mentioned that it was a bit better than what you on the engineering income side. As mentioned, it was better compared to prior year. And in the first quarters this year, we suffered off a negative impact compared to prior year, and it was part of the phasing that we anticipated to a large extent. Thank you.

Thank you. We are now going to take the next question. And this 1 comes from Hampus Engellau from Handelsbanken. Please go ahead.

Just 1 question for me. that is maybe if, Mikael, if you could just share some color, if you know, of course, on the launches for 2027, are they are they, like, back end loaded? Are they front end loaded? Or should we, like, expect them, like, gradually throughout the year? If you have any view on that, that would be helpful. Thank you.

Yeah. I think it is not any dramatic phasing on it. Of course, not equally distributed between a quarter. There are some, you know, some quarters. I do not have exactly on top of my head the contribution there. But it is no dramatic You know, it is not it is not like it is half of them in Q1 or something that it is--it is it is, I would say, normal fluctuation as you see the previous year. Okay. So not very normal. That was expected to be. Fair enough. Thank you.

Thank you. Thank you. You are now going to take the next question. And this 1 comes from Stephen Reitman from Bank of America. Please go ahead.

Yes. Thanks for taking my question. I have 2 questions, please. First 1 is on your guidance for Q4. So your full year guidance implies around 400 bps of outperformance for the last quarter, well above the outperformance delivered in your previous quarters. And despite a tougher comp base. So what gives you confidence into this acceleration? This is my first question. And my second question is about your full year guidance adjustments. So now you are expecting around 10.5% versus between 10.5% to 11%. So should we read that as a floor? Or is there any scenario where the full year, yes, the full year performance could be below 10.5%. This is my second question. Thank you.

Thank you. No. I think it comes to the guidance for the fourth quarter, I just would like to come back to basically what I said earlier here, which is that we enter now Q4 with, I should say, the confidence of the fact that we have very clear activities lined up here for the fourth quarter to support the numbers here. I mean, starting. What we see here is on the sequence. I mean, first of all, Q4 is a stronger quarter. it is always the stronger compared to the previous quarters. Also this year, because there is a seasonality to it. What we see now also sequentially here is that, I mean, despite the, I would say, very challenging quarter that we have been in. The team managed to deliver slightly better than what we expected into. To the quarter when we were here in July. And that is because we are delivering well on our improvement activities that we have as incremental part of our strategy to have an earnings growth altogether. So, of course, when we have all these headwinds, those activities are helping us. So the highest sales is 1. The tariff compensation and customer compensation are other cornerstones that is critical here, of course, where we have a good momentum in this as we as we have seen. We have the higher sales of the 1 million vehicles when it once again, on the sequential development here. And that makes us, you know, see that we should be able to deliver on what we have indicated before. And, actually, it has strengthened the case for Q4 compared to July since we delivered so strong. Stronger in '3. So the momentum carries through into Q4 is our expectation. And that is why we have the confidence that you said here to make a step here. Then, of course, I mean, we do not guide for the future years here more than to say that I mean, the range for this year was a reflection of the uncertainty in the market and the volatility in the market that we see But I am really happy that we are able to stay within this range, and I think that really the sign of strength here. When we move forward here, I mean, our ambition is still and target is still to get to the 12. So our earnings growth is something we are working on very hard with the different levers that we have identified and communicated before. So that is still, like, as the foundation. Then, of course, if you come and fix the floor or not, I mean, it depends, I would say, of course, on the external circumstances here. I mean, if you have a pandemic year again, I mean, who knows? So it is a very difficult question to answer rather to say that we believe that we have an earnings growth built into our activity plans under normal circumstances. Thank you. Maybe if I can just add a follow-up question regarding the top line. coming back to China, can you please clarify why China turned negative organically in Q3? So you delivered outperformance. But when I look at Q1 and Q2, the market was very challenging, and you have delivered positive organic growth. So why you turned negative in Q3? And why you are more optimistic for Q4? Thank you. No. I think. I mean, what that is referring to is the light vehicle production development that is quite I think so far, we have been compensated with the with the export I mean, the domestic sales go down. Global export has gone up, and they offset a large part of that. I think we see that the export opportunities limits that offsetting factor and that is really the LVP growth. I think, as I said before, our own ability to continue to grow and out outperform with the Chinese OEMs, continue. So we will be comfortable in our own I would say, activities and outcome there. All right. Thank you.

Thank you. We have time for 1 last quick question. And this question comes from Itay Michaeli from TD Cowen. Please go ahead.

Great. Thank you, everybody, for squeezing me in. I will just do 2 quick questions. You have done a really good job of mitigating the 180 basis points or mostly mitigating the impact this year. But I am curious to what degree, if any, are some of these mitigation actions a pull forward from initiatives you were planning for subsequent years, and could that affect the kind of trajectory towards your 12% margin target?

I would say no. I mean, what we do is. I mean, we take. Yeah. I mean, you saw in the last quarter here, Q2 here, we announced the Turkey, which is. So an effort to also continue to strengthen our midterm and long term. So I mean, we constantly work with our activities plan to make sure that we have, enough activities to secure our growth journey as well as making sure that we can offset new headwinds that comes our way. So it is never done. it is constant work on all that. So I would say what we have done now is to offset this. it is really, as we said here before, even more strictly control SG&A activity, enhancing the productivity in our plants and applying new technology. I think that is also very, I would say, interesting and inspiring is also that when we are on this journey, I mean, with continuous improvement, you know, you are never done. it is always another 20%-25% potential there. But with the new technologies, we see that we also can take more leaps. Bigger leaps in productivity. Here, applying things that were not available technically maybe 2 years ago. But today, it is So the whole optimization journey potential grows as we move forward, and that is really the focus here to keep up a high pace on that to manage the headwinds and our own growth. that is very, very helpful.

As a super quick follow-up, maybe just talk through the drivers of the lower CapEx to sales guidance. This year and how sustainable that might be into next year?

So as mentioned, we are narrowing our guidance for. it is a phasing of activities we prefer to prioritize activities that have a higher payback, and we continue to invest now more accelerated in Q3. But it is pretty just phasing related to our investments. And the prioritization to the higher payback projects. that is helpful.

Thank you.

Thank you. That was the last question for today. I will now hand the call back to Mikael Bratt, President and CEO, for closing remarks. Thank you, Madeline.

Looking on the next slide, Before we conclude today's call, I would like to invite you to Autoliv's Investor Day taking place on the 26th and 27th of April, in next year, 2027, in Shanghai, China. The event will feature management presentations and visit to our operations, combined with a full day at Shanghai Auto Show 27. The world's leading automotive exhibition. Attendees will also have the opportunity to experience Autoliv's latest safety innovations and technologies showcased at the event. We look forward to welcoming you to Shanghai for an insightful and exciting 2 days. Finally, our fourth quarter call is scheduled for Friday, January 29, 2027. Thank you for your attention. Until next time. stay safe.

Thank you. This concludes today's conference call. Thank you participating. You may now disconnect.