Jerome Rouquet: Thanks. I will take the first question and give the second to Sachin. So in terms of recovery, that’s a very good point. In fact, we are seeing a reduction in recoveries in 2024 as well, all the way to 2026, generally, we are not assuming any negative P&L impact, largely because the two reasons for the decrease in 2024 are the fact that we’re going to buy less open market purchases, and therefore, we’re going to recover less, so it’s neutral. And the second reason I gave earlier on is the fact that we have this positive mix, in some cases impacting us in a favorable way, and therefore, the associated recoveries are matching as well the reduction in cost. So there is virtually no P&L impact on that side as we go into 2024. We have assumed a normal level of pricing like we normally give to our customers. That has obviously an impact on P&L, but not the reduction in recoveries per se.
Sachin Lawande: Thank you, Jerome. And regarding this topic of content on ICE and perhaps hybrid vehicles, which are expected to grow in the near-term as ICE, sorry, — as full electric, perhaps slowdown in their growth, we are extremely well-positioned to take advantage of that, right. We have a very good digital cockpit portfolio of products that’s already engineered and launched on many of the programs that are going to benefit from the extension or introduction of new models. And the content increase that we’re seeing is not just restricted to EVs by the way. We are seeing a general increase in a cockpit content, even on ICE vehicles. That has been, if you look at the last couple of years, the major driver of our growth over market, right, we have had 18 consecutive quarters of growth over market, driven largely by the content increase that is happening in the cockpit and mostly on ICE/in hybrid vehicles, where with our customers we are extremely well represented.
One data point is our digital clusters growth, right, if you look at 2023, roughly half of our shipments of clusters were all digital, compared to about 30%, 35% for the industry. So there’s a lot of runway ahead in terms of growth for digital content in general. And I think to answer your question about how much of that has been very factored into our 2026 guidance, there are a few programs where we know those extensions are happening and we have factored those in. And I would say there is some further potential that we have not accounted for and we will only do so once we have more formal confirmation with the customers about the extensions. So I would say if EVs are slightly depressed, that’s a net positive for us because majority of our revenue today is on ICE and on the kind of content that is expected to grow to have these vehicles remain competitive.
Operator: And we will take our next question from Luke Junk with Baird. Your line is open.
Luke Junk: Good morning. Thanks for taking the questions. To start, I’m hoping you could just disaggregate the 2024 growth of our market drivers you highlighted in Slide 6 specifically. Within that, just want to better understand your approach to forecasting EV volumes this year, both in terms of electronic launches as well as BMS incrementally this year. And then, within that, maybe if you could touch on China mix exiting 2023 and the view to moderating impacts in 2024 here. Thank you.
Sachin Lawande: Yes. Sure, Luke. And so what I would like to say again is to reiterate our expectations for 2024 from a vehicle production viewpoint, as we have said on Slide 6, we expect discount customers to continue to face some headwind and we will see a negative customer mix also in 2024, but it will moderate as compared to what we saw in 2023 and largely we expect that moderation to occur in China, as I said, still negative, but less so. And as you look at the slide on the right, we have identified the major drivers of growth of our market, of which the number one driver continues to be the high number of new products that we launched in 2023, as well as continuing into 2024. And as they start to ramp up in production, that’s the first major driver of our growth of our market.
The non-recurrence of the one timers, that’s contributing to about 1% to 2% of growth over market. And then the third one, which is this BMS sales, which I mentioned were sort of delayed in terms of their ramp up all through 2023. Towards the end of 2023, we started to see them grow. We expect that growth to continue into 2024. We have launched on, I would say, about seven vehicles with GM so far already, and more are planned also in 2024. In addition to that, we are diversifying our BMS business with two additional OEMs with whom we will be having our first launches this year. So BMS is going to be a strong growth driver for us, even though it is lower than our expectations earlier in the beginning of 2023 still a strong growth. And I would say there’s 10% to 12% GOM.
If you think about 1% to 2% for the non-recurrence of the one timers, the rest is split between the other two factors. There’s new model launches and the growth of BMS, although BMS also includes new model launches.
Luke Junk: Got it. That was helpful, Sachin. And then for my follow-up, hoping you could just comment on the award environment as we go into the beginning of the year here, obviously, OEMs grappling with evolving dynamics around EV. Thinking about some of the things you mentioned in terms of maybe extensions to existing ICE and hybrid platforms. Just hoping you could put a finer point on what that means, good, bad or otherwise, for the number of awards. And should we still be gearing to kind of a $6 billion plus number this year as a good starting point?
Sachin Lawande: Yes, Luke, absolutely. And if you go back to what I’ve said earlier, if you think about our product portfolio and with the additions we have made to it, we have continuously expanded the market that is available to us. And so in terms of the digital cockpit product line itself, the pipeline of new business opportunities that we see is pretty robust, similar, I would say, to what we had for 2023, and I would expect us to perform well there as well. One of the things that we are seeing is that infotainment in particular is going through a lot of changes from a technology viewpoint with Android and connected services and vision services that are all coming together not just at the upper end of the market, but now going more into the mass market vehicles.
So very strong pipeline of opportunities there. Now when it comes to electrification beyond BMS, as we discussed, we have expanded our product line into power electronics, and we hope that we have a repeat this year as well with an extension of the win that we had last year and other customers as well. So I would say that we would feel pretty comfortable saying that we would have a similar year from a new business win performance this year as last year.
Operator: And we will take our next question from John Babcock with Bank of America. Your line is open.
John Babcock: Hey, good morning, guys. Thanks for taking my questions. I guess just starting out as it pertains to the content that you guys provide and as you’re talking to OEMs, I’m just kind of curious, I mean, how much — obviously, a lot of this content has been much more used in higher end vehicles, and I’m kind of curious as to what demand you’re starting to see for mass market vehicles and how much of this technology might carry down into those vehicles and how quickly over time. Then I have a follow-up on that.
Sachin Lawande: Yes, great question. And if you look at the cockpit content, especially digital clusters and infotainment, a lot of our wins are coming now for more mass market vehicles, right? The upper end of the market either has these products already, and if we see opportunities, these are successor follow-on opportunities. But the new opportunities that’s growing the market in terms of adding more content is all coming at the mass market segments. The segment B and C vehicles, which you would think in the past, were not typically the targets. Now what’s driving that, number one is the digitalization trend, right? And within that, we talk about larger displays, talk about infotainment content that brings in downloadable apps, more connected services and OTA, and that requires fundamentally more capable electronics.
And so that trend we expect to see continue somewhat irrespective of the powertrain. It is — whether it is a small EV or an ICE or a hybrid, this trend is cutting across the powertrain and will continue to drive our business opportunities as we go-forward.
John Babcock: Okay. Thanks for that. And then just a quick follow-up here is there a way to frame how much cost ultimately needs to come down for that to be carried into the mass market segment?
Sachin Lawande: I think, as we have demonstrated, in fact, with the two wins that we talked about on this call, those are two infotainment wins. Both are for mass market segments. So the good work that Visteon has done is in working with the semiconductor supply base as well as the display supply base to drive the cost of the systems to where it is now very affordable for that segment of the market, okay? And so we believe as a result of that, we have a good set of software technologies, hardware platforms, the manufacturing integration, the vertical integration that we have done, especially for displays is putting us in a position to offer products at price points that are very competitive and affordable. So we do not see that as a hurdle for the industry taking more of it as we go-forward.
Operator: And we’ll take our next question from Colin Langan with Wells Fargo. Your line is open.
Colin Langan: Great. Thanks for taking my question. Sorry, just to recap, I just want to make sure I get the puts and takes in the year. So sales is going to be up $150 million, but thinking of it more like $300 million if we exclude the impact of the lower semi recoveries. Is that right? And then that would imply about $50 million increase in EBIT about a 17% conversion on that EBIT. Any other puts and takes we should be thinking on that conversion. I know there was the recall impact is R&D and SG&A up. It looks like those ratios look about flat. And then you also mentioned in Q4 there was some normalization help is that a headwind as we go into next year, or is that sort of still a continuing help?
Jerome Rouquet: Yes. Hi, Colin, it’s Jerome. Yes, so you’re right. We — our sales at face value increased, I think, by 4% year-over-year. But once you back out, the impact of the recoveries, which are coming down, you’re in the low — just below $300 million of additional sales. So in term — and that’s obviously contributing to EBITDA. So in terms of other factors, we do have engineering going up year-over-year. We’ve finished the year with engineering being a little bit lower than what we had originally expected. We were at 5.3% of sales, and we are forecasting for 2024 a mid-5%. So an increase — a slight increase in percentage, but as well, obviously, in dollar term, given the percentage increase as well as the sales increase.
So that’s a negative as we go into next year. But we are obviously continuing to invest in engineering, as we’ve done in the last few years. SG&A will be fairly flat in percentage, but again, it will be a slight increase in dollar terms. You have then in terms of other puts and takes, slight negative effects that we’ve accounted for, and then as well, our normal pricing that we give to customers. All this is offset as well by operational efficiencies that we’ve been able to deliver over the last few years and will continue to deliver in 2024. So overall, we’ve got incremental, maybe that’s another way to look at it, on base sales of about, in high-single-digits — high-double-digits, I’m sorry, going into next year. And that’s very consistent with the way we’ve been progressing in the last few years.
And that’s as well, the kind of incrementals we have going all the way to 2026.
Colin Langan: So you mentioned negative effects. What are you referring to there the negative effects?
Jerome Rouquet: Yes. We do have a little bit of — with the assumptions we’ve made for some currency, we do have a little bit of the negative effects going into 2024 on sales and as well EBITDA.
Colin Langan: Just a quick question. You mentioned tax wasn’t changed. I mean, I got to make your tax rates all over the place a bit. What should we be thinking? Kind of backing into like 23%, 24%, is that the right range and why doesn’t it change; if you’re releasing it to per tax asset usually that’s when you start paying higher.
Jerome Rouquet: Yes. No, it’s a good question. So we’ve had a large one-timer in Q4 with our valuation allowance release in the U.S. to the tune of $313 million. So that’s really a non-cash tax item. I think the key takeaway is that, from a cash tax standpoint, our profile will look very similar as we go into 2024 than what we’ve seen in prior years. And generally our ETR is in the mid-20s. It varies, obviously, some variability, as you said. But I think if you can count on a mid-20 as a good proxy for ETR generally as well, our cash taxes converge over time towards our income tax expense. So I think that’s a good proxy if you need to evaluate what cash taxes are going to be for 2024.
