Frederic Lissalde: Emmanuel, we’re launching globally. It’s just not the North American OEMs. As we mentioned before, we’re launching programs — around 35 new programs that we’ve announced over the past quarters with 7 out of the 10 largest OEMs in the electrification area and a few others outside of the top 10. So the view that we have is a real global view. As you remember, we were pretty relevant in China and still are. We’re launching a lot of new products in Europe, and we’re launching in North America. But our view is very global.
Emmanuel Rosner: Understood. My follow-up is on hybrid. Can you just remind us, as part of this new product, how much is hybrid in terms of revenue contribution? And importantly, are you seeing any movements from important customers and automakers towards essentially maybe growing hybrids faster than previously expected as a way to better respond to market demand right now with the EV slowdown?
Frederic Lissalde: We’ve always been a player in hybrid powertrain, in essentially high-voltage plug-in hybrids, a few range extender programs in China. This product portfolio is absolutely relevant for BEVs and hybrids. And in hybrids, most of the combustion products that we had also see a path because there is no hybrid without an efficient combustion engine. Our content per vehicle on hybrid is pretty similar than the ones that you have on BEV. So electrification accelerates our growth, whether it’s BEV or hybrids. We’ve always seen a traction on hybrids, and we’re happy to be on some key platforms globally on hybrid powertrains.
Operator: Your next question comes from Luke Junk with Baird.
Luke Junk: A couple of bottom line really questions around eProduct. First one for me would just be how we should think about the trajectory of eProduct RD&E going forward. I’m thinking over the next couple of years, maybe. And how you might be able to manage that relative to the lower forecast volumes that you’re looking at as well as, I guess, the offsetting pressure from the continued high level of RFQ activity that you’re seeing in the market?
Kevin Nowlan: Yes. A couple of things on that. I mean one of the things that we showed in Investor Day, and it continues to be our plan, is that the pace at which the investments are growing is slowing for us which is why we expect to get the scale benefit flowing through the P&L as eProduct revenue ramps up. And you can actually see that happening this year, even while we’re seeing a year-over-year increase in eProduct-related R&D as we’ve talked about in that range of $60 million to $70 million. As you look at it sequentially each of the last couple of quarters, it’s actually been only growing about 2% to 4% the last couple of quarters. And it will be relatively flat to slightly up in the fourth quarter on a sequential basis, point being the pace at which we’re seeing the growth in the investments isn’t growing as quickly as the pace we expect revenue to grow.
And that’s the path to profitability. Now in terms of what we might do going forward, just — it’s important to keep in mind, we’re in the midst of our annual budgeting and long-range planning process right now. And as we’re going through that process, we will continue to look at what, if any, adjustments we need to make to manage the profitability of the business over the near term and the medium term, but importantly, balancing it to the point you made: making sure that we’re balancing it with the need to ensure we’re executing on the long term. Because we continue to believe that the long-term outlook and trajectory for electrification looking out through 2017 and beyond remains intact. So we’ll go through that process, and we’ll provide you more insight on how we’re seeing that when we get on the Q4 call in February.
Frederic Lissalde: One thing I would add is, as we presented in our Capital Market Day, with the scale that we have and the number of programs that we’re launching and developing globally, that allows us to really implement a very modular design approach that builds from from previous developments and also very flexible and modular production strategies. And that’s very important when we grow and scale up.
Luke Junk: And then for my follow-up question, just hoping you could speak to the flexibility in your manufacturing footprint protect margins given variable outcomes around eProduct. And I’m thinking specifically as you flex between foundation and EV products in shared facilities, just how much that can help to protect any leakage amid what looks like lower EV volumes from here, both maybe what we saw in the quarter and how that might look over the next couple of years.
Frederic Lissalde: Yes. And we are leveraging the existing footprint that we have. As we discussed before, so far, we are leveraging 25% of our existing facilities around the globe to launch eProducts. And that gives us some flexibility from a facility, from a four-wall perspective. But we also are focusing a lot on flexible manufacturing, where we’re not investing production equipment for a particular program, a particular customer but having several types of products flowing through production lines, whether it is power electronics-related, motor-related or, I would say, transmission- or iDMs-related. So we are pretty pleased with what we are doing as far as leveraging the existing capacities and capabilities, including human capabilities.
Operator: Your next question comes from Dan Levy with Barclays.
Dan Levy: One, just wondering on the ICE business itself. To the extent that that EV uptake is a little lighter in the near term than what some have anticipated and ICE is a little heavier, should we just think of the benefit to you as purely incremental sales flowing through at normal incremental margin? Is there any offset we should be thinking about that?
Kevin Nowlan: Yes. I mean, I think it’s fair to think about it in the short term much the same way we characterize it in the long term at Investor Day. I think we — with the content opportunity per vehicle that we have on electrification, as the pace of electrification accelerates, it provides us an opportunity to grow our revenue more quickly, but it probably puts a little bit more pressure on the absolute margin percentage that we’re delivering. But if electrification across the industry slows down a little bit, it probably slows the revenue growth, but it probably improves our margin profile. You saw that a little bit maybe here in the full year 2023 guidance that we have, but that’s consistent with our long-term view as well.
I think overall, taking a big step back, we feel like — that’s why we think our portfolio is really resilient from a financial perspective. Because whether EV adoption is accelerating or decelerating, the portfolio is positioned to deliver comparable levels of adjusted operating income over the long term under any of those outcomes.
