Greetings and welcome to the Magna International Incorporated Second Quarter 2021 results. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question-and-answer session. [Operator instructions] As a reminder, this conference is being recorded today Friday, August 6th, 2021.

It is now my pleasure to turn the conference over to Louis Tonelli, Vice President, Investor Relations. Please go ahead, sir..

Thanks, France (ph). Hello, everyone, and welcome to our second quarter 2021 results conference call. Joining me today are Swamy Kotagiri and Vince Galifi. Yesterday, our Board of Directors met and approved our Financial results for the Second Quarter of '21. We issued a press release this morning outlining our results to find the press release.

Today's conference call webcast.

the slide presentation goes along with the call, and our updated quarterly financial review all in the Investor Relations section of our website at magna.com, Just before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable security legislation.

Such statements involve certain risks, assumptions, and uncertainties that may cause the Company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today's press release for a complete description of our safe harbor disclaimer.

As we review financial information today, please note that all figures discussed are in U.S. dollars. We've included in the appendix a reconciliation of certain key financial statement lines for Q2 '21 and Q2 '20 between reported results and results excluding unusual items. Our quarterly earnings discussion today excludes the impact of unusual items.

Please note that when we use the term organic in the context of sales movements, we mean excluding the impact of foreign exchange acquisitions and divestitures. And with that, I'll pass it over to Swamy..

Thanks, Louis. And good morning, everyone. We're happy to be here to provide you with an update on Magna. Overall, we were pleased with our Q2 performance considering the day-to-day production disruptions, caused by the semiconductor chip shortage that continues to make for a challenging industry environment in the short term.

As a result of much lower production than we had anticipated back in early May, particularly in North America and Europe, our sales came in well below our expectations for the quarter. Naturally, this impacted our Q2 earnings. And as Vince will discuss later, it is also impacting our outlook for 2021.

We continue to have a sharp focus on managing our costs through the volatile production period. This includes ongoing activities to enhance operational excellence, as well as realizing savings from restructuring initiatives announced last year. Our focus on costs helped mitigate the impact of lower sales in the quarter.

Longer-term, our portfolio positions us to continue driving sales growth over the market, as well as strong free cash flow generation. Two weeks ago, we signed the definitive agreement to acquire Veoneer. Veoneer. I'm sure, by now, many of you have heard about Qualcomm's unsolicited offer for Veoneer yesterday.

We learned of the news likely at the same time as you did, about 24 hours ago. We are evaluating our options and considering the next steps in light of Qualcomm's announcement. We will be disciplined in our approach and remain committed to earning appropriate returns on our investments.

We had excited about Magna's future, particularly given our systems and complete vehicle know-how and approach. We recently highlighted Magna activities that reflect our improved positioning in key megatrend areas. Next year, we will be launching the industry's first application of digital radar technology with our ICON Radar on the Fisker Ocean.

The technology, developed together with our partner Under, dramatically improves radar performance with a number of unique attributes compared to current radar systems. And in the area of electrification, we closed our joint venture agreement with LG.

This JV, which enhances our e-motor and in-water building blocks, is an important vertical integration step that strengthens our overall e-drive systems capability. At the same time, it allows us to participate in the fast-growing e-machine & in broader markets for OEMs who choose to do some system integration work in-house.

We recently profiles our new surface element lighting technology with which we were forced to market on the Volkswagen ID 4 BEB. This technology offers many key features with respect to LED, which provides opportunities for future growth for us and Lighting. Lastly, we won six Supplier of the Year Awards from General Motors.

The annual awards honor suppliers that consistently exceed GM 's expectations. Magna is the only supplier to receive 6 awards in a single year. And we just did it for a 2nd consecutive year. We are very proud of this, and we would like to thank our customer for this recognition.

Let me turn to some of the market dynamics that are affecting our business right now. It is clear that the global semiconductor chip shortage has been and will be more impactful to 2021 than most in the industry anticipated earlier this year. Significant chip shortages continue to impact OEM production into the 2nd half of 2021.

Commodity costs, while modestly better for '21 than what we expected a quarter ago, remain higher than what we expected at the beginning of the year. And wage pressures in certain markets, together with new labor loss in Mexico, have led to increases in labor costs.

In terms of tailwinds, the industry continues to experience robust auto demand following the COVID-19 -induced industry challenges of 2020. Strong auto demand coupled with OEM production disruptions this year, have led to a historically low dealer inventory levels, particularly in North America.

These 2 factors together with indications from OEMs that they intend to run strong production once additional chip capacity comes on stream, points to a positive mid-term production environment for auto suppliers. Overall, we continued our solid performance in Q2 despite facing a difficult operating environment.

Consolidated sales increased to 9 billion. EBIT margins increased to 6.2%. Our adjusted EPS was a $1.40 and free cash flow increased to a 178 million in the quarter, bringing our year-to-date level to almost $600 million.

Despite reducing our 2021 outlook as a result of the semiconductor chip shortage, we maintained our expectations for '21 free cash flow. We returned 226 million to shareholders. And lastly, we reached an agreement to dispose of three loss-making experienced facilities in Germany.

The transaction which closed on July 3rd, improves our experience manufacturing footprint in Europe, and better positions us for the future. All considered, a good quarter for Magna. With that, I will hand it over to Vince to take you through the specifics..

Thank you, Swamy. And good morning everyone. I'm going to start with a detailed review of the quarter. The second quarter of 2020 included the unprecedented industry-wide production suspensions due to the COVID-19 pandemic.

While the second quarter of this year included the production disruptions due to the ongoing global semiconductor chip shortage, making the quarters difficult to compare. Global vehicle production increased 58% in the second quarter, driven by significant increases in North America and in Europe.

On a Magna weighted basis, light vehicle production increased a 133% in the second quarter of 2021. Our consolidated sales were $9 billion more than doubled the sales level in the second quarter of 2020. Organic sales underperformed weighted production in the quarter.

However, on a year-to-date basis, our Organic sales growth is roughly in line with weighted production. As a result of the strong year-over-year sales growth, adjusted EBIT and EPS each improved dramatically from the second quarter of 2020. Perhaps more informative comparison is reviewing sequential results. Comparing Q2 '21 to Q1 of this year.

Global light vehicle production was down 10% driven principally by North America and Europe. And substantially due to the semiconductor shortage. This led to our sales being down 11% sequentially. Each of our segments experienced sequential declines in sales, with some segments impacted more than others.

Our adjusted EBIT declined from 700.7 million Q1 '21 to 557 million in the second quarter and EBIT margins fell from 7.6% in the first quarter to 6.2% in Q2 of '21. The reduced earnings on the 1.1 billion in lower sales effectively represented all of the net decline in adjusted EBIT and EBIT margin.

There were a number of puts-and-takes, quarter-over-quarter. We have higher commodity, new facility, and launch cost, incremental labor cost in New Mexico, and higher net application costs than ADAS.

These were essentially offset by favorable value-added tax settlement in Brazil, higher tooling contribution and a net settlement of customer claims in the first quarter of 2021. We estimate that our decremental margin on the sequential decline in consolidated sales was about 19%.

Similarly, decline of sales represented the most significant factor in the lower earnings for our segments. I'm now going to review our cash flows and investment activities. During the second quarter of 2021, we generated 777 million in cash from operations before changes in working capital and invested 249 million in working capital.

Investment activities amounted to 387 million, including 277 million in fixed assets, a 93 million increase in investments, other assets and intangibles. Free cash flow was a 178 million in the second quarter. We used 99 million to repurchase shares, representing 1 million shares and paid 127 million in dividends.

Our adjusted debt to adjusted EBITDA stands at 1.29 down from [Indiscernable] said before, at the end of Q1, and continuing the sequential quarterly improvement we have experienced [Indiscernable] the second quarter of 2020. And our liquidity remains strong at 6.9 billion at the end of the second quarter.

Substantially as a result of the semiconductor chip shortage, we have lowered our 2021 outlook compared to May. Our assumptions for light vehicle production for North America have been lowered, by 1.2 million units, or 8%. About 500 thousand unit decline came through in the second quarter.

For Europe, our production assumptions have been lowered by about 400 thousand units, about half of which was experienced in the second quarter. We've also slightly increased our expectations for the Canadian dollar, the Chinese RMB, and slightly lowered our expectations for the euro, in each case relative to the U.S.

dollar, these currency changes have a negligible impact on sales and margin in our outlook. Mainly as a result of the lower assumed light vehicle production caused by the semi shortage, we have reduced our sales ranges for all segments, as well as consolidated sales.

Our outlook for BES includes a production of about 200 million -- a reduction of about 200 million as a result of the disposition of 3 German exterior facilities in early July. And our outlook for seating sales has been impacted by ongoing negative program mix the majority of which we experienced in the second quarter.

Despite the roughly $2 billion decline in our consolidated sales range, we have only modestly reduced our adjusted EBIT margin range down by 20 basis points to a range of 7% to 7.4% We slightly reduced our equity income by 5 million at the top and bottom end of the range, also reflecting the lower assumed vehicle production.

Interest expense has been lowered by 20 million to approximately 80 million. Net income attributable to Magna has been reduced, reflecting the lower sales and margin, partially offset by lower interest expense. And our tax rate and capital spending expectations are unchanged from our last outlook.

And as Swamy indicator earlier, we have maintained our 2021 free cash flow expectations at 1.6 to 1.8 billion, despite the lower sales and earnings outlook. This mainly reflects a lower expected investment in working capital for the year. In terms of segment margins.

As a result of the lower 2021 segment sales outlooks, we have reduced our full-year margin ranges for Body Exteriors & Stuctures, Power & Vision, and Vision and Seating. However, we have increased margins for complete vehicles largely due to a change in program mix relative to our previous expectations.

In summary, we had solid performance for Q2 in a challenging environment. Despite the volatile production schedules due to the chip shortage, we did a good job managing our costs and decremental margins, including execution on improved operational excellence and implemented restructuring actions.

We generated free cash flow of a 178 million bringing our year-to-date amounts almost 600 million. We returned 226 million to shareholders through dividends and share repurchases. And we maintained our 2021 free cash flow expectations despite lowering our '21 outlook due to the ongoing semiconductor chip shortage. Just before we turn to Q&A.

As Swamy mentioned earlier, we are evaluating our options and considering next steps with regards to the Veoneer, we don't intend to answer questions about Qualcomm or what the implications may be for Magna. We remained disciplined and committed to earning appropriate returns on our investments. Thanks for your attention this morning.

We would be happy to answer your questions at this time..

Thank you. [Operator instructions] [Operator instructions] Our 1st question is from the line of John Murphy with Bank of America Merrill Lynch. Please go ahead..

Good morning, everyone. This is Aileen Smith on for John. I wanted to follow-up first on the commentary around the decremental margins, specifically as it relates to the outlook in the second half of the year. I think you referenced 19% in the second quarter. If we're looking at the front half of last year, that was incredibly pressured.

I think one we put up a [Indiscernable] decremental in Q2, which was the worst of it at 22% decremental. As you think about the cadence that you are looking towards in the second half of the year.

How do you think about further containing decrementals, if that's possible at all, specifically, your basic commodities environment that's going to be less favorable?.

Is your question related to your further deterioration to volumes compared to our assumptions..

[Indiscernable].

Is that your reference?.

Yes, not relative to your own assumptions, but internally as you think about decrementals in the second half of the year, your own internal expectations, are there ways from a cost perspective that you could further try to contain the decrementals versus the relatively impressive performance that you've already put up in some pressure periods..

I think when you look at the very first half of the year and as we think of it, the second half of the year, and depending on where we are in the ranges, we're seeing that the margins should actually be doing a little better in the second half versus the first half.

which implies decrementals being the same or a little better than what they were in the first half. And I would attribute that to a couple of things, a bunch of moving pieces. But first of all, I think about our seating operations has been disproportionately hurt in the first half of the year, as a result of product mix.

I think we're going to continue to benefit as we look at the second half of the year, some of the restructuring activities that we undertook last year, and we saw some benefit last year, we saw some benefit in the first half of the year. We continue to expect to see that benefit increasing as we move on in the second half of '21.

But in terms of everything else, you know, I think there's a lot of puts and takes, but generally we are seeing some pretty good operational results across the organization..

Okay. That's helpful. And then I wanted to ask a bigger picture question around strategy and not specifically referencing Veoneer, but sort of related to it. As we think about the outlook or I guess be the thought process as we head into 2022 whether or not the inner acquisition ultimately goes away you anticipate or not but pressuming it doesn't.

Well, how does that change in any way your focus from a strategic perspective around what technologies you think you may need access to to accelerate the growth trajectory? Is there still a hyper-focus on ADAS/AV or, separately, could you look at other areas within the portfolio, whether it's powertrain or electrification, and try to get more aggressive there..

Hi. Good morning, Amy. This is Swamy. I think I would refer back to the strategy that we outlined during the April Investor Day, and with that, accelerate our investments are focused on megatrends areas. That remains and I have seen one of them.

Right? And we also, if you look into what we've said in the past, we have been investing in ADAS over the last number of years. We have the building blocks to address the requirements for ADAS, the sensor suite to compute in the software. The acquisition that we talked about in one way would accelerate our position in ADAS.

But we had the path and we will continue on that on the electrification aspect we talked today about the closing of the LG JV, which addresses some key building blocks as we talked about in e-machine and inverters. And we continue to make progress in the business of electrification. We are launching programs in our HASCO JV.

We have had [Indiscernable] on primary and secondary drives. And there is one other program and radius discussions that you will be able to give color when the customers will allow us to do that. So the strategy remains and we continue to make good progress..

Okay. Great. That's very helpful. Thanks for taking my questions..

Our next question is from Peter Sklar with the BMO Capital Markets. Please go ahead..

Good morning. What's the -- first on the semiconductor shortage, so I'm particularly thinking as GM at the trucks, I think they're going to be having more downtime over the next couple of weeks. I am just wondering, like, how do your plants react to it? So I believe you have that plant near London, Ontario that does frames for GM truck.

So like do you take the plant down and send the employees home or do you reduce shifts, or -- how does Magna react to this volatility that we're seeing in the production schedules for your primarily platforms?.

Good morning, Peter. I think that's one of the plants, right? We have a lot of content in that platform. The semiconductor shortage, as you know, is continues to be a dynamic situation and difficult to predict. There is a lot of start stops in terms of volumes in terms changes and variance in terms of the amount of releases.

it's been difficult, but we have been able to continue to support our customers through this dynamic time right now. Regarding your question of how we manage is, kind of, a mix of all the above that you've talked about. It's very difficult to have what I would call a playbook, right? I mean, we are reacting to a very dynamic situation.

As some of the volumes change and some of the lines have different FRAND rates. We're going through that part of the restructuring are we flex that time on different programs, even sharing between different facilities, between COVID with and semiconductor shortages and other things. It's kind of a mix of all right now, Peter..

Okay. And then, Swamy, my last question. I'm just wondering if you could elaborate a little bit more on the LG joint venture. When do you expect to be delivering products? Which customers you're targeting? And I know you'll be doing electric drives there, but there are other areas within Magna that we'll be doing electric drives.

So is it that the LG joint venture is positioned more for Asian customers and won't be addressing the North America and Europe markets? I'm just wondering how you're carving up this e-powertrain market, 'cause you seem to have a number of areas of expertise that will be pursuing that product category?.

Peter, I think from the electric drive systems perspective, Magna powertrain remains the forefront. When we talked about the LG Magna JV, the recently closed transaction, it will be focused on supplying.

The e-machine and the inverters, right? So a little bit more color maybe from a North American and European customer perspective, Magna powertrain remains to lead and the JV will be supplying e-machine and the inverter.

From an Asian customer perspective, the JV would take the lead from a customer interface perspective, but Magna powertrain would still be providing the expertise of the overall system. So the JV is really focused on supplying the e-machine and the [Indiscernible] part of it.

And we believe that's really advantages as some of the OEMs look at doing the system integration themselves. So it allows us to look at the overall system plus were necessary to supply the addressable market of the machines and inverters.

And what assets are there in the joint venture now? Has LG contributed facilities that are up and running now? What is the status and what needs to be built..

So LG does have engineering and production facilities, they have in Korea. Obviously complemented by the footprint of Magna elsewhere. And they also have an engineering center, which are a development center that works on the e-machine and inverter piece of it.

And we'll continue to see where it makes sense to add as we, as we get the additional programs. They currently have programs with OEMs. I think Louis we talked about roughly about a 150 million or so in 2019..

Correct. Correct. Yeah. They've also -- we haven't talked a lot about the customer specifically, other than they said that they have. The Chevy Bolt for GM and the IPs for Jaguar I-PACE, a business with oil, but they have multiple customers beyond that..

Okay..

Okay. Thanks, Louis. That's all I have. Thank you..

Our next question is from Chris McNally with Evercore ISI. Please go ahead..

Thanks so much, guys. So 2 questions. one about production and one about decrementals in second half margin. So I guess the first, clearly, I think some of the pace of the second half caught us by surprise in the second half, and GM definitely indicated that in the second half versus first half comments earlier this week.

Can you just maybe comment in your 11% now North American production outlook.

Do you think you fully incorporated sort of some of the down year-over-year comments that GM made on production, or are some of those comments new to you as well?.

Yes, Chris, that's -- good morning. It's Vince. As we looked at overall production assumptions for the second half of the year, we started our internal forecasting process sometime ago with a certain set of assumptions. We continue to refine our outlook based on information that we're receiving from all of our customers.

So I'd say that the outlook we've got today [Indiscernable] reflects look, we had as production schedules in the last week, week and a half, but it's pretty current. But you know, Chris, things are pretty volatile as both Swamy and I have commented on. So things could get better, maybe they'd get a little bit worse.

I think we've got most of caught in our overall forecast, nothing to ship. Hopefully there's not much variance to that other than. The good news is of course, with sales being strong, I think tank constrained production flux, it gets pushed out, it will means strong couple of years of production going forward. No, that's great. That's really helpful.

And then maybe on the decrementals where they are actually pretty impressive. If I just do the guidance, it only looks like a 10% cut from where the revenue was cut.

What I think is somewhat surprising is the second half margins implied in the guidance actually assume a 50 basis point improvement second half over first half, roughly a 100 million greater EBIT, second half over first half, I was just wondering if, you know, we don't have to get specific into.

percentages on decremental. But when we look at something like Body, where we had a pretty big drop down in Q2, a 190 basis points lower than Q1. I'm assuming it's back up into the 8% to 8.5% range in second half.

Even though revenues is not that strong, could you just maybe talk about Body because it's such a big driver and obviously has the most exposure to the D3 where production could be the weakest in the second half?.

Chris just something that is impacting in, particularly, in our Body Series and Structures Group second half margin. Remember, we talked about disposing 3 German facilities. You said that's added to margins second half versus first half. The business. Do we probably had about a couple of $100 million of sales in the first half.

But these divisions, plants generated losses. So do you think about the second half sales are lower as a result of not consolidating these 3 facilities, and profits are higher cause we don't have the losses. That's going to be incremental.

The other incremental in BES, as well as most of the other groups, is the restructuring activities that we started last year. Remember we talked about but a $200 million benefit from overall structuring that we agree lives by the time we got into '22, we recognized about 25% of that benefit in 2021, we recognized.

Expected that half of that 200 million in 2021 and the balance in 2022. So if you look at that $100 million, we're probably about halfway there in the first half. So that continues in the second half and then, we get an incremental benefit from continuing restructuring. So that's going to help the overall margins.

And BES is certainly going to be a beneficiary of those activities as well..

And seating -- if you look at Magna seating as well, you have a pretty tough first half. Expectation is based on production that -- it looks better in the second half, so sales are stronger and margins are stronger..

That's great. And so Vince, I was actually fully putting in the benefit of the disposal of the 3 German facilities. That's obviously something that's in your '23 guide, and obviously that's something that's going to help '22 as well as that annualizes next year..

Yes. Well, Chris, we've been focusing on these divisions for some time, but they have not been contributing to bottom line. And when you look on an annualized basis, it's probably the 350 million in sales. But the profit perspective, they know -- you know, Chris, we can have 2023.

We're going to have to redo our entire volumes during change we have new program and so on. So but if you look at this alone on its own, this will be better for overall margins going out to '23..

Perfect, thanks so much..

[Operator Instructions] Our next question is from Brian Johnson from Barclays. Please go ahead..

Sure. I just want to talk a little bit about the Complete Vehicle business, which was sort of very hot in the -- as investors are focused on all these startups coming out. I think 2 questions.

Can you give us a sense, obviously, without going to confidential details, on the discussion pipeline for that? I don't know if you have a formal pipeline, but something around what could be coming.

And then 2nd, since there is a lot of interest, we heard Fisker sending very confident last night, for example, in your capabilities there, how you would think about the breakpoint because it is a very chunky business of opening up a new facility to handle additionally [Indiscernable].

Good morning, Brian. I think in terms of the discussions we've said in the past, we obviously continue to have strategic discussions with costumers that are in production today. Various discussions on that topic, plus the new entrance that you talked about, or the existing customers that are looking at variance and so on.

So it's a mix of all of this that they're constantly looking at. And when we talk, if you look at the capacity that we have in placed in Graz and Hoji in Europe. And then we have the footprint in China.

You know, Louis, you can be more specific, but somewhere in the range of 200 thousand units in our hotel facility, our food chain [Indiscernable] And about similar 180 to 200 in China. So we have the footprint that we continue to look at, We have the flexibility to figure out variance and how we go through the manufacturing process.

And I think we continue to say we remain open to the footprint in North America, given the right business case viability. But more importantly, even if we start somewhere, if there is a good visibility and a roadmap, I think that's what's going to trigger the decision for us..

Okay. So you would be open to it, but you'd have to have confidence obviously in the volume estimates. Just a follow-on ICON Radar. Could you elaborate a bit more on that product line in particular, how much is developed within [Indiscernable] how much is using some of the radar products are few startups active in 4D radar out on the market..

So this development goes back a few years and we've been talking about it. And our thought process going through this or the rationale going through it was, as we have more proliferation of radars, we have to look at some key attributes like interference mitigation, look at higher resolution.

And if you look at the -- some key factors like object detection, you should be able to locate a tire on the road at 75 meters, example, or look at some object separation. A pedestrian walking next to a guardrail at about 75 meters or so, maybe even likely more to detect a vehicle greater than 300 meters pedestrian, 850 meters.

So we thought this were all important things and that's where we worked with the startup and our partner, Uhnder. They're looking at the silicon side of things, and we continue to look at the quality, overall integration of the system, the software for a feature functionality.

So as system level, Brian, we will be -- Magna would be looking at it and working and interfacing with the customer. And as the silicon level call it, the really the full D imaging chip will be done by wonder..

Okay. Thank you..

Our next question is from the line of Dan Levy with Credit Suisse. Please go ahead..

Hi. Good morning. Thank you for taking the question. What dig in on the margin in the quarter and maybe you can help to decompose a little bit. Just a couple of pieces on this.

First, how much was mix a contributor to the results in the quarter? Because I think we actually saw GM 's truck programs hold up well in the second quarter, and we know that's your largest program.

And on the flip side, maybe you could talk to how much of the margin was weighed down from supply chain pressures or labor and efficiencies on start-stop production. The cost inflation as opposed to just pure lost volume. So you would just decompose the quarter to margin in the quarter a little bit, to be great..

Sure, Dan. It's spend some of the trends you can pose a little bit for you. So you -- I said on a consolidated basis, there were some puts and takes, higher commodity costs and additional costs for new facilities and launch costs for new programs. The Mexican labor law change is a negative in the quarter compared to Q1.

These are all compared to Q1, by the way. And we certainly benefited from additional tooling contribution. I did talk about the Brazilian VAT value-added tax settlement. And then in Q1 we had a customer settlement that hurt margins, so that reverse in Q2. But all all of that that I just talked a bit necessary, 0.

But when you look at the various segments, it's a little bit different story, I think stands out to me. I will go through it is the biggest set of that certainly is a [Indiscernable] volumes and I attribute that all to the semiconductor situation. And how much of that is inefficient labor by starting and stopping and -- what that does overhead.

It's a real challenge to try to measure that. But I can tell you when I look at our Seating business, I think they've been disproportionately hurt from a sales and a margin perspective. I'm asking because when you look at some of the larger programs, the volumes just have not been close to what the markets performed that.

I think when you look at some of the others, I would look at our Body Exteriors structure 's group. I think the the biggest negative quarter-to-quarter was higher commodity costs. And that comes primarily in the form of resin with a little bit of steel, but primarily resin. And in that one group again, they're launching a bunch of new business.

So that was quarter-to-quarter drag on margins. Other than that, it is a pretty clean ogre and had a different discussion if we didn't have a reduction in volumes, be pretty straightforward to talk about the quarter, but that's kind of what I see when I look at our business..

And then looking at mix for a little bit, Dan, relative to North American production growth and European production growth.

our top 30 programs did underperform and you're right, you picked up GM 's impacts in the GM trucks, but you know, Chris can do that, made events a big program, and is actually pretty significantly down in the quarter was a few others like that as well. So operately, North America did underperform. And like I said, in Europe a little bit as well.

So it doesn't happen every quarter but this quarter, it did have an impact. And so overall as sales negatively.

Great.

And just to clarify, commodity cost in the year did use to give an update on that?.

We talked about -- I guess in Q1, we gave some guidance on commodity costs. And as we look from where we were at the beginning of the year to now, there has been global easing commodity costs probably benefit for both $25 million to $30 million versus prior expectations, but year-over-year, so negative.

In that benefit or is this primarily as a result of resin pricing coming down a little bit but still higher than our levels of 2020..

Great, thanks. And then second question is, if you could just zoom out a little bit and look at Seating. it's been -- that segment has underperformed the other segments, but and I know that large piece of it more recently has been on the volume side.

But maybe you could just give us sense on how Seating is positioned today versus where it's been historically, are you still trying to gain additional share? Are you onboarding new customers? The views on vertical integration there. Just a bit of a zoom out on where seating stands today would be helpful, please..

Maybe I'll start on the numbers Swamy. Maybe you can then talk about over our strategy. You'll recall in a year or a couple of years ago we talked about getting some new business with a European customer.

Were -- there wasn't a lot about of that was just in time and that was going to depress margins, Not necessarily impact returns on capital, but margins. We were anticipating that, and we talked about then as we look at successor programs, we're expecting that our content's going to increase, so our margin s should expand. That's all kind of in line.

The growth as we outlined in our Investor Day or beginning of the year, call forceding resell goods and above-market. But as I look at 21. At least for the first half of the year have been substantially underperforming on the revenue side compared to our other segments. They also have launch costs, they're launching some new business.

So longer term, when I look at this business here and look at overall margins I expect margins to continue to expand. And just to remind you, when we talked about growth in this business, back the beginning of the year, between '21 to '23, we're expecting growth of 6% to 13%, on average, per year.

And think about the market at that point in time on a weighted basis is growing 6%. So there's clearly some outperformance on sales site there, which should help overall profitability.

Swamy -- maybe just talk about kind of where the group fits?.

Yeah. I'm sure you can just look at it as I would say, Seating is really good business and we are in are deliberate and looking at the programs and how we bring value to the table. And just looking at the overall picture of the [Indiscernable] and with our business, and how we're addressing the new entrants.

I think overall, it's fits really well and I also talked about the business segment that is kinda agnostic to the megatrends, it doesn't mean that there's going to be no product evolution. Of course there is going to be.

But as to the rate of [Indiscernable] we are going to have [Indiscernable] Looking at the baseline where we are in how we continue to grow faster than the market. I would say it remains an integral part of our strategy and we feel good about it..

Great. Thank you..

Our next question is from Mark Delaney with Goldman Sachs. Please go ahead..

Yes. Good morning, and thanks very much for taking our questions. First question is to better understand what you're assuming with regards to your second half revenue outlook. If I look at the midpoint of the adjusted revenue guidance, I believe it implies a slight year-over-year decline in revenue, towards this year versus towards last year.

So Maybe you could talk a bit more around what assumptions are going into that, both in terms of any content-per-vehicle benefits you may get in terms of outgrowth, and then what you may be assuming in terms of any headwinds, in terms of, potentially, OEMs having, partially, both vehicles, and your -- potentially assuming [Indiscernable] some work down some of those partially both vehicles within your revenue outlook..

Mark. Good morning. Let me try to give you some color there. I think when you look at kind of first half sales were about $19.2 billion onsolidated. Our implied range for the second half is 18.8 to 20.3. So the midpoint, it showed a slight increase in sales, second half versus first half.

When we look at overall content, you made some comments about how we've been growing relative to the market, and we REE a little faster than the market, which is implied content per vehicle growth. In the first quarter, a little bit behind in the second quarter.

But for the full year, we're expecting to be kind of in line or maybe a little bit positive. So it's a content per year-over-year, really not much of a change, which is what we assumed at the beginning of the year. And as we get out to '22 into '23, we start to see our content per vehicle growth over market accelerating..

Yeah. And if you look at production last year in the second half, North America built 8 million units. Were implying about 7.4 for this year's second half.

And I think, if we look at last year's Europe, it's 9.6, when now we're at 2022 pretty significant year-over-year decline in '22?.

I guess, Mark, I kinda look at -- I'm disappointed with the semiconductor situation and how it's impacting our industry, but more importantly, how it's impacting Magna. But as I think about what's going to happen next year, in sales are still strong, inventory level sales -- our customer sales are still strong.

Inventories are low, very low at historic lows, interest rates are still at very good levels. So as I look into '22 and even beyond that, I think we're going to see some, some tailwinds is going to benefit us. Not a portion of this year but certainly next year..

That's helpful and my follow-up question was on that same topic.

And could you go into some more depth about what you're hearing from your own semiconductor suppliers? And in terms of how the back half of the year may shape up, what sort of linearity are you expecting in terms of improved chip supply and when potentially the supply demand situation may ease. Thank you..

Good morning, Mark this is Swamy. I think the semiconductor situation I would say is still dynamic and we have task forces kind of looking at every program, working with the customers, as well as the chip suppliers.

We took the best forecast that we could, and it's kind of a very dynamic situation on a daily basis to look at it, we've been fortunate to continue to support our customers. We didn't stop any customer because of the shortage from our side. But it's really in -- is too wide.

So if you look at it, there seems to be a path in the next 3-4 months, but we talked last quarter regarding continued to monitor the situation. We kind of start seeing a little bit of relief towards the end of the year. That's -- it's very difficult to give a definite answer to how it works out.

We already saw the production down by about 1.2 million and 400,000 units in North America and Europe, respectively. And so we got to wait and watch..

Thank you..

Our next question is from Michael Glen with Raymond James. Please go ahead..

Hey, good morning. First question. When you're seeing the OEMs introduce eBeam variants like full battery electric variants on existing platforms that you're providing content on.

Can you just discuss like, how does your content vary on those EV variants versus what you are producing now, are you indeed seeing an increase or is it, it doesn't stay relatively stable?.

Good morning, Mark Michael. Sorry. I think if you just kinda look at it, there are some EV variants, there is a platform where you have an EV variants plus a normal, call it, propulsion system. When it's in hybrid, we are talking about hybrid piece or some rate interfere fo DCT, which gives them CO2 reduction.

But when you're talking about with full BES, let's say, if you had it all-wheel drive, four-wheel drive system, we would be now addressing that with a primary or a secondary e-drive. From a content-per-vehicle perspective, if you're replacing an all-wheel-drive / four-wheel-drive, it's higher with the e-drive.

If you're looking at a just their front-wheel drive system which was not an addressable market, is now becoming an addressable market for us. So. I would say it's total addressable market perspective as the EV variance come is significantly higher for Magna.

And if it is a replacement of an all-wheel, drive four-wheel drive with a primary and secondary drive with all the feature functionality of connected powertrains and talk vectoring and so on. so on, then the [Indiscernable] breaker would be higher there too.

And we talked about eBeam as one technology where we believe that OEMs would have a chance to get an EV variants without having to significantly change their existing platform. So overall, if you sum it up with EV variants increasing, our addressable market and content for vehicle that we can address would be higher..

Okay, perfect. And then -- go ahead..

Sorry, Michael, I was just going to add. You may not see it all in our sales because there'll be an element that's in, you knowm, like LG, that's comes consolidated, but we're going to keep track of that and provide some color on that as well as you can see the incremental sales that don't flow through our P&L..

Okay, perfect. And then just a capital allocation question and I mean, just when we look at the Veoneer transaction and I hear you make the comment during the opening remarks about Magna being focused on generating appropriate returns on capital.

So when you look at the amount of capital that was going -- that could potentially go towards Veoneer, how do you assess that return on capital versus, say, allocating such an amount to a substantial issuer bid for the stock?.

Good morning, Michael. I go back to what I've been talking about for years on these, talking about it more recently. Just kind of overall philosophy. And you look at where Magna is, more of the history is and more risk growing and the position we hold and our unique capabilities for the right opportunities.

If we're investing in the business, we're creating, for the right returns, obviously, we're creating value. And I call it sustainable value, cause it's just going to -- kind of each and every year, were generating value. And that's our preferred course of action.

And to the extent that we have excess liquidity after we're paying dividends, buyback stock. And I look at the buyback of stocks, you paying it somewhat reduce your share capital -- returns capital shareholders, but that value doesn't continue to grow.

So our preference and our approach and our strategy is to stay focused on our overall product strategy, continue to fill the gaps or complement what we do, and invest in the business, but we're going to be prudent about that. And if it doesn't fit our strategy or doesn't meet our returns.

And we have excess liquidity than we return it back to shareholder. We've been doing that for years and I don't see that changing at all in Magna..

Okay. Thanks for taking the question..

And this is all the time we have for questions. Mr. Kotagiri, I'll turn the call back to you for closing remarks..

Thank you. Thanks, everyone, for listening in. Despite ongoing semiconductor-related production challenges, we had a good quarter, solid quarter. Despite the short-term impact, we are encouraged by the mid and long-term auto environment. And we remain focused on executing our plans and delivering solid results. Thanks again. Enjoy the rest of your day..

And that does conclude the conference call for today. We thank you all for your participation. I kindly ask that you please disconnect your lines. Have a great day, everyone..