Magna International CEO Swamy Kotagiri on Earnings & EV Demand

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2:34It's an auto parts retailer. You know that. Company out with earnings. Stock selling off at one point down nearly 10 % at its intraday low today after cutting its sales forecast for the full year. Evercore ISI out, saying that given the run-up of shares into the print, the stock was up nearly 20 % prior to today's earnings. Evercore ISI said there was a somewhat elevated bar for Magna, and that the stock saw a big first quarter EBIT margin beat that did not flow through to the full-year outlook. This is according to the analyst over at ISI, Chris McNally. Magna, these are his words, was generally expected to have a solid first quarter, and focus was all on the guide, he said.

3:12With more, we're joined by Swami Kodagiri, the CEO of Magna International, joins us from Troy, Michigan. Swami, it's always good to have you on the program. We're going to get to the quarter into earnings, but I want to just start with some news that we heard from the president. Just a little earlier today, the U.S. is set to hike a tariff rate on EU auto imports to 25 percent. This coming from the president just a little earlier today. What does that do for Magna International? Yeah, we've been dealing with trade policies and tariffs over the last one year. As you know, Tim and Carol, we have a footprint in Europe and other parts of the world.

3:48The important thing is in most of the places where we are present, we are aligned with the OEM and we produced systems and components and supply to them locally. So really not much travels across the ocean for us. So it's going to be how the strategy of the OEM changes, not as much an effect for us. And mostly, in most of the cases, the OEM is the recorder, the importer. They're responsible for it. So, Swami, in this case, this news doesn't, in other words, doesn't have any effect on your company, nothing material? Not the first order effects, obviously. You know, as vehicles start having a different price point and different hurdles as they come across, there might be an effect on the demand of the vehicles, but not directly to Magna.

4:38One thing I want to ask you, as of early 2026, average transaction price for a new car in the U.S. officially exceeded$50 ,000, with Bloomberg reporting a record of roughly a little bit above that. And I'm just, you know, we're buying bigger vehicles. EVs are more expensive. How does that at all impact your business? Yeah, Carl, that's a great question. You know, the DNA of the Magna, especially the auto industry, but more so for Magna, is continuous improvement. We call it operational excellence. We go through this improvement process year over year. And that is the reason why we have been able to post such good results even in the first quarter where we expanded margins, generated solid cash flow, and reaffirmed a full-year outlook.

5:31And that is nothing but execution despite the software production environment. So we have to continue that process and, you know, do little by little. We call it inches make champions. And, you know, we look for every penny everywhere in the organization. One thing that we're trying to get a good handle on, Swami, and we're going to be speaking to some other CEOs in our three and four o 'clock hour, is what the consumer looks like, not just in the United States, but around the world and how that behavior has changed with gas prices moving higher. What can you tell us just what you're hearing from OEMs right now and really what you're seeing as far as your product moving?

6:09Yeah, I think, as you know, Tim, we have a broad portfolio, so we have the chance to have those strategic discussions with OEMs. From a consumer perspective, affordability is definitely top of the list. From a consumer preference, they're looking at different features in terms of safety, comfort, and convenience. That is what is defined as the software-defined vehicle or the smart car, whatever name you want to give it. There is a balance now of how to get all of this into platforms so that you can still get the features that the consumers in the market demand, but in a way that is economical and that you can get by scale, right?

6:53And that is where we at Magna talk about modularity and scalability so you can engineer once and deploy it many times. And that is the thing, you know, over the last few years, there has been a significant change in trends. It's been EV, it's been autonomous, it's, you know, a whole bunch of things changing, connectivity. So we're seeing the confluence that we've never seen before. Now the question is, how do you prioritize so that you can give the consumer what they want and still keep it affordable? Yeah, you know, just I think about the factors right now. You know, Swami, coming at car buyers, right, higher gas prices, cars just expensive.

7:40You know, you see this flat production environment globally, particularly on the back of those rising gasoline prices. So I'm just curious, you mentioned, you know, really squeezing out costs. Is that the strategy? That's how you guys navigate through all of this to keep the business where you want it to be? Carol, you bring up a good point. One of the things that you have to remain flexible and be resilient. We work in an industry that has long cycles. It used to be four years and three years. Now we're talking about two years, but still a long cycle. So in other words, what you're producing today has been designed at least two or three years before, right?

8:23So you have no option but to think of scalable and be resilient so you can react and be agile about it. And from a design perspective, that's where I talk about modularity and scalability. Trends are changing. So you can't say, I designed this and that's all it's going to be. You look at our powertrain, we are addressing EVs, we are addressing hybrids, we are addressing ICE vehicles. As the trend changed, for example, in North America from EVs, pulled back a little, and now we are starting to see a significant trend in hybrids. The portfolio was set in such a way that it doesn't matter which way it goes, we can lever up the particular module scale and get back to the market.

9:08So on the design aspect, that's how we are looking at it. We have to do the same thing in assembly lines and process. If the volumes go up and down in demand, we have to be able to react to it. And on top of that is what I said, you've got to look at every penny across the organization. So it's a combination of all of this to stay competitive in the market. We have about a minute left, Swami. In this environment, we're seeing higher commodity costs with oil still above$100 a barrel. So we talk, of course, about higher gas prices, but then the second order derivatives that come from that when it comes to refining and refined products.

9:42Just in 30 seconds, how does that affect your business? Yeah, some of the pressures that we see, obviously, now with what's happening in the Middle East is energy, freight and certain input costs like resins, right? The playbook is the same. You know, first order is mitigate operationally as much as you can. Then you work through commercial recovery mechanisms that are in place over time. and you need to do this collaboratively with the customers. Yeah, it's just such a wacky environment. I just think about higher gasoline prices. So your regular combustion engine cars, that feeds into that. Power prices are up though.

10:20So I've heard people say, I've got an EV, but what it costs now to charge? Like it's just, there's a lot coming at the customer, but also those who are in the auto sector and it just doesn't end. Swami, you always find time for us. Thank you so much, Tim, and I really appreciate it.

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