Amit Daryanani: Got it. And then Jeff, if I just go back to the discussion you had around the impact from the UAW and I totally understand what you have an outsized impact on your operating profit line in the December quarter. Is it fair to think that, that should reverse back, i.e., the incremental margins should be much stronger as those revenues potentially come back in the first half of the year?
Jeffrey Cote: Yes, definitely. So as that revenue comes back, it will absorb the overhead we have associated with that, and we would expect the incrementals to come back just like they would go down in the fourth quarter. So without — we’re guiding to around 19%, midpoint of guidance on operating income. We’d be at or slightly above what we had originally guided, if not for the UAW strike. So yes, we’re focused on making sure we show continued progress toward our operating income index target.
Operator: And our next question comes from Steven Fox at Fox Advisors. Please go ahead.
Steven Fox: Hi. Good morning. I had two questions as well. First of all, with regard to sort of the EV supply chain. There also seems to be concerned, especially on the semiconductor front with the level of inventories that some of the OEMs were sitting on as EV demand has kind of slowed a little bit here. Can you talk about how you inventory OEMs and how you think maybe your inventories sit there? And then I had a follow-up.
Jeffrey Cote: Yes. So let me address it on our supply side and then on how we deal with the demand from our customer side. So I’m hesitant to claim the end of supply chain challenges. It’s been a very challenging couple of years, but clearly, things have abated considerably in terms of the overall availability of parts. That’s not a universal message because I think when you talk about electronics, there are certain types of electronics that are still scarce and short on supply versus other, but generally, we’re in a much better place and we feel as though the inflationary pressures that were driven by that supply-demand dynamics are starting to balance out a little bit. So that’s on the supply side. On the customer side, as we’ve talked about, we’re — we make to the order, right?
We’re a just-in-time inventory model. There was a point in time when customers would quite literally take anything that we could produce to make sure that they had parts available to them. We feel as though that’s reversed pretty dramatically due to changes in the market, but also because we feel as though we’ve been there for customers. So we have a proven track record of being able to deliver when they say they need it. So, we — I think we had estimated it’s very difficult to estimate, but I think we had estimated there’s still maybe $15 million to $20 million of inventory. Our parts in warehouses or in partially completed vehicles, but it’s not a meaningful number anymore in terms of the long-cycle OEM market, where we have more visibility, given the just-in-time inventory modeling that our customers have.
On the Industrial side, more short-cycle business, it’s much harder to get a really good bead on that. And clearly, some of the decline that we’ve experienced during 2023 in that market is not only market but destocking that’s happening, but that will have a positive impact when restocking does occur. It’s been a tough year for that market. But specific to EVs, we don’t see customers cutting orders because they have components specific to our — their EV production with Sensata, I think that we’ve stabilized in terms of shipping the parts they need to make the product for their customers.
Steven Fox: That’s really helpful. And that leads me into my second question, which was on industrial markets. It seems like these markets are getting worse, but everyone defines industrial differently across the supply chain. So can you sort of talk about off of these year-over-year declines that you’re seeing, like what is sort of a path to recovery or whether we’re not even in the recovery phase yet?
Jeffrey Cote: Yes. So we do a lot of modeling. We have a long history in these markets that we serve to understand based on PMI metrics and other third-party metrics to the demand for our product globally across the individual regions. Clearly, 19%, that’s accelerated from where it was in the third quarter. So I’m not claiming that the bottom has been achieved on that. But it will hit at some point. My hope would be that the fourth quarter would be the bottom of that and then going into 2024, we’d start to see that recover. From a revenue basis standpoint, our Industrial business is pretty flat. Q3 to Q4. So from a sequential standpoint, it looks like it’s stabilized, and then we’ll start to see a recovery on that. Last point I’d make there might be the obvious, but that’s a very hard margin business for us relative to our auto and HVOR business. So when that comes back, that will create some leverage in terms of incremental margin for the Company as well.
Operator: And our next question comes from Luke Junk with Baird. Please go ahead.
Luke Junk: Good morning. Thanks for taking questions, and Paul best wishes, in your retirement as well. Jeff, bigger picture, you cited an increased pace of new business wins with local OEMs in China, including country-specific contactors. I was just hoping you can expand on the increased traction that you’re seeing there, specifically, I guess, within contactors, especially — and what — as we look out a few years from now, what a reasonable target might be for local EV content versus what your historical content has been with the multinationals on ICE platforms in China?
Jeffrey Cote: So some of you may remember that 2022 — no, it was ’21, late ’21, we entered into the JV right? Because what we had observed was that the vast majority of the vehicles in China, the electric vehicles in China that would be produced were lower voltage. So let me quantify under 400-volt systems whereas a lot of the newer systems in Europe and North America are above 400 volt. We didn’t — we had not invested in it. We didn’t have a great solution at the below 400-volt partnered with our — this this JV with Gerard, we’ve seen accelerated progress there around specifically contactors. Now, we’ve made some progress on that as evidenced by the fact that when you look at a local maker, a local OEM, we have 1.25x the revenue per vehicle on an electric vehicle versus on a combustion end, but a lot more work to do to get that to the equivalent in the United States.
