Mikael Bratt: I mean, we have a structure and approach where we sell to our customers in the regions where we produce. And of course, our customers can then return, export their vehicles to different parts of the world. But it doesn’t really change our supply chain to our customers here. So, we look at where is the vehicle produced and that’s the basis. And I don’t see that we are going to change that. I think this regional approach and decentralized operational responsibility is serving us well, and yeah, it’s something we’re going to continue to build on.
Jairam Nathan: Okay. Thank you.
Operator: Thank you. Now we’re going to take our next question. And the next question comes online of Agnieszka Vilela from Nordea. Your line is open. Please ask your question.
Agnieszka Vilela: Perfect. Thank you. I have two questions. So, my first question is again on the out of period compensations. These were quite significant in both Q2 2022 and 2023. I think you reached some $30 million each of these quarters. So, the question really is, will the Q2 this year be as important quarter for you to close negotiations and receiving payments? And also, do you hope to recover the similar level of compensations?
Fredrik Westin: Typically, when we have these negotiations, our ambition is to get compensation for sort of the full year. So, we would expect that there should be some retractivity back to January 1st with the negotiations we closed here in the second quarter. But how much exactly that will be remains to be seen. Our focus is to get the right height on the compensation and — yeah, that is more important to us. So, yeah, we’ll come back here in the second quarter of how much retractivity in that pricing that we negotiated in the second quarter will then be shown.
Agnieszka Vilela: All right. And just to follow up on that, are you already closing the negotiations or are they still proceeding into Q2?
Fredrik Westin: I mean, as I already indicated before, we have, yeah, closed negotiations and parts of negotiations already here in the first quarter. So — but also, I mean, the majority is still outstanding and those are the ones we’re targeting to close in the second quarter and third quarter of the year. But it is an ongoing process and it’s not always like you close all at once. You also can take it steps and we have already secured some of the pricing effects during the first quarter.
Agnieszka Vilela: Perfect. Thank you. And then my second question is on the R&D expenses. R&D to sales were at about 4% this quarter and that’s obviously a good improvement from if we look at the recent years being it’s at 5% to 6%. So, could you please remind us what’s driving the R&D cost efficiency? And also, I think, you’re right in the report that specifically in Q1, you had some maybe extra engineering income. So, if you could give us a bit more color on that.
Fredrik Westin: Yeah. I mean, we have already, I mean, even in the 12% margin target, we — and then the way to get there back in 2019, we said that we were striving for a better R&D efficiency and then that’s, I think, what you’re seeing coming through here now. In relation also to the 2000 headcount reduction target on the indirect side, there’s also a part of that allocated to RD&E and also some of those savings we do see come through already now as well. Then in this — the engineering income part is always a bit, it can fall in one quarter or the next quarter. So, that can always impact a little bit between Q1 and Q3 and then you know that we seasonally have a stronger recovery quarter in the fourth quarter. But I wouldn’t say that it was anything special here on the recovery side in the first quarter. It’s more again that the cost control and also headcount reductions we see come through also impacting RD&E costs positively.
Agnieszka Vilela: Thank you.
Fredrik Westin: Thank you.
Operator: Thank you. Now we’re going to take our next question. Just give us a moment. And the next question comes from Ross MacDonald from Morgan Stanley. Your line is open. Please ask your question.
Ross MacDonald: Hi there. Yes. Thanks for taking my question. Just to come back to India once more and link to that point around India supporting topline growth. Could you maybe frame how much growth you expect in India from a content per vehicle perspective in dollar terms? You mentioned regulatory improvements, but it would be helpful to understand where we’re starting from and how you expect that to progress over the next few years?
Mikael Bratt: Yeah. Thank you. I mean, today we are around $100 in India. So, I mean, they are significantly below, you could say, the mature markets average here. But we expect it to quite rapidly grow to $150 to $170 per vehicle here in the next coming year or so.
Ross MacDonald: That’s great.
Mikael Bratt: So quite a rapid increase here. And as I said, it’s driven also very much around the legislations. And you may recall that last year here, there was intention to put in legislations on a certain number of airbags in a vehicle, which later was retracted. But I would say the majority of the OEMs decided still to carry on with that ambition. So you see this increase coming through, and of course, that’s an important contributor to the $150 to $170.
Ross MacDonald: Excellent. Yeah. So some of that very strong growth, I guess, would be expected to continue with the market share and the…
Mikael Bratt: Yeah.
Ross MacDonald: … EV expansion. That’s great. Thank you. And the second question is on North America and mixed trends in North America. There’s obviously a big debate around stretched affordability for consumers and whether that will weigh on mix in the future. Just be curious if you’re seeing any signs of mix shifting lower in North America, in order bank, perhaps from large SUVs into smaller SUVs or crossovers or any trends like that? Thank you.
Mikael Bratt: I mean, we see what you’re referring to here as well. But in our own numbers and in our dialogues with customers, we’re not really seeing that and we don’t expect that to have any real impact on ourselves here also. Once again, the diversity here in terms of our portfolio will support us in any transitions like that. So no, not really a concern from our side here.
Ross MacDonald: Thank you.
Operator: Thank you. Now we’re going to take the next question. And the next question comes from Jason Getz from Mizuho Securities. Your line is open. Please ask your question.
Jason Getz: Hey, guys. Thanks for letting me ask your question. When you look at inflationary pressures for this year, how should we think about that moving through the year? I assume the increases are still rising kind of year-on-year, but wondering more near-term how that’s trending. Is that starting to stabilize? Are we still seeing increases on a sequential basis?
Fredrik Westin: There will be still some sequential increases and that’s mainly on our material cost. So on the components that we purchase and then mainly on the labor content of those purchase components. On the labor cost side, the majority or the vast majority is behind us. I mean, that’s already happened. That all happened in the first quarter of the year. There might be some, yeah, a few further labor cost increases that we can expect in higher inflation countries, but that should not have a significant impact. So labor cost to a large extent is behind us with what’s happened in the first quarter, but we still expect some on the purchase material from our suppliers.
Jason Getz: Got you. And then when you look at the broader LVP for the year, how much do you think of that as vehicle inventory bill versus true sell-through demand? Do you think we’re seeing like kind of a larger inventory bill this year than we have in the past few years? How should we think about that moving forward?
Mikael Bratt: We don’t expect that. I think right now we are at the point where it’s quite calibrated between supply and demand here. I think the restocking to a large extent has already happened. I mean, in China, we are at normal levels of inventory. Likewise, in Europe. In the U.S., we see with historical measurements, lower level of inventory, but I would say it’s in line with what the OEMs have indicated where they would like to be. So no indications or any plans on bringing that industry inventory up. So short answer I would say is that no inventory buildup. It’s all about the demand from end consumer here.
Jason Getz: Got you. Thank you.
Operator: Thank you. Now we’re going to take our next question. And the next question comes to the line of Mattias Holmberg from DNB Markets. Your line is open. Please ask your question. Excuse me, Mattias, your line is open.
Mattias Holmberg: Sorry, can you hear me?
Mikael Bratt: Yeah. We hear you.
Mattias Holmberg: Hello. Oh! Yeah. Sorry. Thanks for allowing the quick follow-up. Just if you could, it would be very helpful to share any insights on how much cost savings you managed to realize in the quarter in the context of those $50 million you were targeting for the year?
Fredrik Westin: We — I think we said that we are maybe a bit ahead on the $50 million. We haven’t broken it down by quarter. It is coming. By design, the larger part will actually come in the second half of the year because so far we’ve taken out more headcount in the best cost countries than we have in high cost countries. So the impact here of Germany, for instance, is coming towards the second half of the year and even more so next year. So it’s fairly — it’s more the second half than first half and we are a little bit ahead of time in the first quarter.
Mattias Holmberg: Thank you.
Fredrik Westin: Thanks.
Operator: Thank you. Dear speakers, there are no further questions. I would now like to hand the conference over to Mikael Bratt for any closing remarks.
Mikael Bratt: Thank you, Nadia. The world is changing at an accelerating pace and Autoliv has launched a number of strategic initiatives to meet the needs of our customers, to enhance shareholder value and deliver safety solutions for society. I am confident that we will deliver a substantial increase in sales operating cash flow and adjusted operating income in 2024, supported by footprint optimization, structural cost reductions, cost compensations and a committed focus on innovation, quality and sustainability, and our most important direct contribution to a sustainable society, saving more lives. Our second quarter earnings call is scheduled for Friday, July 19, 2024. Thank you everyone for participating in today’s call. We sincerely appreciate your continued interest in Autoliv. Until next time, drive safely.
Operator: That does conclude our conference for today. Thank you for your participation. You may now all disconnect.
