Operator: Your next question comes from the line of Joe Spak with UBS.
Joe Spak: I guess just to maybe follow-up on some of that comments — the commentary. I know, Sachin, last quarter, you sort of really tried to calm some concerns about the longer term sort of Ultium and EV trajectory in saying that you didn’t sort of bake in what your customers did. Do you think we’re sort of a little bit closer now to what they’re saying? And I guess what I want to understand from you is, clearly, when you bid on the business, you assumed certain volumes to be able to hit your return profiles. Like if those aren’t met, what type of recourse do you have with the customers?
Sachin Lawande: Right. And at this stage, Joe, what I would say is that, we believe that the ramp up that I talked about will continue and our customers as GM also in particular mentioned, they are not so much demand-limited themselves as they are supply constrained. And as they address some of the challenges they have in the module assembly and manufacturing of the cells, we expect that the demand to come up and the ramp up to really get into a level where we would be, I would say, pretty okay with it. So to me it really depends on some of the additional launches, not just what GM is doing, but some of the additional launches that we have next year. We always have in the business this challenge of matching capacity to demand and we go ahead and invest in capacity.
Now we always also apply our own judgment in terms of believe that, that capacity would actually come online. So we’ll have to see how next year develops. It’s too early to say whether we have to have any other discussion related to unabsorbed capacity. I certainly don’t hope that, that would be the case, but we’ll have to see how it develops.
Joe Spak: And then if I can, Sachin, one other sort of, I guess, big picture question. Like last quarter, you sort of talked about the growth you’re seeing in China and how you’re maybe a little bit underexposed to some of the faster growing OEMs and some of the efforts you are undertaking to sort of try to get better position there. One thing that’s become clear though in China is, right, like the velocity of the models and sort of what in terms of coming to market and even sort of what’s popular in the market is just much, much quicker. And it seems like it’s not sort of this typical, what we’re used to in the developed world or in the Western world of 7-year programs. Like, things are just coming up quicker and maybe burn bright, but then fall harder. And if that’s true, I’m curious, like, how does a company like Visteon sort of manage going after that business? Because it seems like it’s a little bit harder to underwrite.
Sachin Lawande: That’s a great question, Joe. And I think this is something that we all need to understand much better. But what you have described is effectively a result of a market like China that’s large, it’s also a very young market. The average age of the customer of our systems in China is under 35 years. In the more developed parts of the world, it’s much more than that. And therefore the systems that are being designed by our customers in China look very different for China than they look for rest of the world. And just because they are more advanced in China, it doesn’t mean that they would have the same appeal outside of China, where the demographics is very different. So, we have gone as an industry from designing products for the rest of the world, outside of China, the more developed markets first and then bringing them to China to where we have had to change our perspective and look at China as even a more advanced market for digitalization than the rest of the world.
Now, how have we done in that context? So if you look at where we were at in 2018, when this trend really started to slowly increase and then picked up momentum, about 15% of our revenues in 2018 came from domestic China OEMs. Today, if you look at this year, we’ll probably exit this year at about 40% of our revenues coming from that same channel domestic OEMs, not the global OEMs. And we’ve added customers like Geely and JMC and others that are some of the OEMs that are on the vanguard of that trend. So, we’re doing exactly what we needed to do to make sure that we don’t get trapped with older products that are not as attractive in that market, but that doesn’t necessarily mean that the rest of the world will follow exactly their lead. So we have to have this approach, which really does challenge our product development capabilities, but our platform approach that we have been talking about now for several years is really helping us develop these somewhat different solutions, very differentiated, but at the end of the day, are still using fundamentally the same technologies, especially when it comes to software.
So, I think we have done well in terms of addressing this changing dynamic and this has happened very quickly and that’s where we are seeing the proof of in the numbers. China this year will continue to grow for us despite the lower domestic production that we talked about earlier in the prepared remarks and we expect to see continued growth going forward.
Operator: Your next question comes from the line of Mark Delaney with Goldman Sachs.
Mark Delaney: I just wanted to better understand your comments around some of the macroeconomic trends and in particular, in Europe. You talked 90 days ago about seeing some slowing there, and it sounds like that’s continued or maybe even picked up a bit. Can you help us better understand the breadth of magnitude of the slower trends you may be seeing in Europe and how that’s progressed?
Sachin Lawande: Okay. So, yes. So let’s talk about how we are seeing the market develop. Now, when we talk about Europe in particular, we entered this year with the market essentially being a supply constrained market and they had, on account of the pent up demand, very strong order book that supported high levels of production in Q1 and Q2 of this year. And we had anticipated that this change from fundamentally a supply constrained to being more demand constrained would happen during this year and we started to see that in Q3. So, if you look at the third quarter, vehicle production at our customers is reflecting that slowdown and we see that going forward into Q4 as well. So, the order intakes, the consumers’ orders into the OEMs all through the year have been lower than what the industry had anticipated at the beginning of the year.
So that’s what is causing the slowdown, which we expect to have some effect, which is factored into our guidance for Q4 and we’ll have to wait and see how next year develops from this perspective. That’s what we’re seeing with respect to Europe. We also talked about China and the domestic market there being a little bit weaker, we saw that in Q3 and we expect that to also continue into Q4. And then there is the other dynamic that we have broadly discussed here, which is the slowdown of our EV-related production and sales. So those are the factors that I would think as the macro factors that we need to consider both for Q4 and then for next year as we start to think about next year.
Jerome Rouquet: And I would add Mark, for this year, putting things into context, and despite these headwinds, we are seeing our sales grow by about 14% to 15% for the full year despite these headwinds. So still a very healthy growth over market and definitely growth year-over-year in terms of our absolute sales.
Mark Delaney : And following up on some of the prior questions related to the intermediate to longer term outlook and some of the OEMs are recalibrating their product launch in schedules and mix tied to EVs? Just confirming there’s no change to your 2026 targets that you outlined at the Investor Day for about $5.5 billion of revenue and about 13.5% adjusted EBITDA margin?
Sachin Lawande: Yes. At this stage, we believe we are where we needed to be. I mean, if you think about where we are at, at the midpoint of our guidance, in terms of base sales for this year, we would have added approximately $450 million in new sales this year. And that’s pretty much what we need on an annual basis all the way out to 2026. So, although our sales has moderated a tad bit on account of the factors that we mentioned this year, we’re still pretty much on track as to where we needed to be.
