Autoliv, Inc. (NYSE:ALV) Q1 2025 Earnings Conference Call April 16, 2025 8:00 AM ET

Company Participants

Anders Trapp - VP, IR
Mikael Bratt - President and CEO
Fredrik Westin - EVP, Finance and CFO

Conference Call Participants

Colin Langan - Wells Fargo
Erik Golrang - SEB
Emmanuel Rosner - Wolfe
Edison Yu - Deutsche Bank
Chris McNally - Evercore
Hampus Engellau - Handelsbanken
Agnieszka Vilela - Nordea
Jairam Nathan - Daiwa Capital Markets America
Dan Levy - Barclays

Operator

Good day and thank you for standing by. Welcome to the Autoliv Inc First Quarter 2025 Financial Results Conference Call. At this time all participants are in a listen-only mode.

After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Anders Trapp, Head of Investor Relations.

Please go ahead.

Anders Trapp

Thank you, Melanie. Welcome everyone to our first quarter 2025 earnings call. On this call we have our President and Chief Executive Officer, Mikael Bratt; our Chief Financial Officer, Fredrik Westin; and me Anders Trapp, VP Invest Relations.

During today's earnings call we will cover several topics including our strong sales and earnings development in the first quarter, market development and tariffs that are affecting the automotive industry, as well as how our strong balance sheet and asset returns, provide financial resilience, and support the continued high level of shareholder returns. Following the presentation, we will be available to answer your questions. As usual, the slides are available on autoliv.

com. Turning to the next slide. We have the statement, which is an integrated part of this presentation and includes the Q&A as follows.

During the presentation, we will reference non-U.S. GAAP measures. The reconciliations of historical U.S. GAAP to non-U.S. GAAP measures are disclosed in our quarterly earnings release available on autoliv. com and in the 10-Q that will be filed with the SEC.

Lastly, I should mention that this call is intended to conclude at 3PM Central European Time, so please follow a limit of two questions per person. I now hand over to our CEO, Mikael Bratt.

Mikael Bratt

Thank you, Anders. Looking on the next slide. I am happy to present the solid first quarter showcasing that the company's adaptability and resilience, driven by our diverse product portfolio and strong customer relationships.

This achievement lays a solid foundation for 2025. However, we remain cautious about the remainder of the year, as we navigate the complexities of tariffs and other economic factors. It is encouraging that we, based on light vehicle production data from March, outperformed global light vehicle production despite continued significant headwinds from light vehicle production mix shifts, particularly in China.

The stronger than expected sales were partly driven by LVP pull forward in Europe and North America. We significantly improved our profit and operating margin compared to a year ago. This strong performance was primarily driven by well executed cost reduction activities.

Our structural cost reduction program reduced our indirect workforce by over 1,500 since Q1 2023 and our direct headcount by 3,700 over the past year. We neutralized tariffs almost entirely in the quarter by agreements with customers. We also achieved record earnings per share for the first quarter, thanks to lower number of shares and high net profit.

I am also pleased that we continue to generate a high level of return on capital employed. Our cash flow remains solid despite higher receivables from strong sales towards the end of the quarter, supporting a high level of shareholder returns. In the quarter, we repurchased and retired 500,000 shares for $50 million and paid a dividend of $0.70% per share.

Looking now on the next slide. Last night, Autoliv was recognized by the automotive news in the category PACE Pilot Innovation to watch. The prestigious PACE Pilot Award recognizes achievements under development with new materials, fresh ideas, creative processes and bold execution in the automotive and future mobility space.

Autoliv received award for its Bernoulli airbag module, which inflates larger airbags more efficiently by leveraging pressure differential with the small single stage inflator, lowering deployment cost and weight. I want to thank the team for this great achievement. It reflects our collective effort and commitment to excellence and innovation.

Looking now on financials in more detail on the next slide. Sales in the first quarter decreased by 1% year-over-year due to negative effects on currency, light vehicle production development and adverse regional and customer mix development. The adjusted operating income for Q1 increased by 28% to $255 million from $199 million last year.

The adjusted operating margin was 9.9%, [230] (ph) basis points better than in the same quarter last year. Operating cash flow was a solid [$77 million] (ph), despite a temporary working capital build up. Looking now on the next slide.

We continue to generate broad based improvement. Our positive direct labor productivity trend continues as we reduce our direct production personnel by 3,700 year-over-year. This is supported by the implementation of our strategic initiatives, including optimization and digitalization.

Our gross margin was 18.6%, an increase of 160 basis points year-over-year. The improvement was mainly the result of direct labor efficiency and headcount reduction, partly offset by a supplier settlement as communicated last year. As a result of our structural efficiency initiatives, the positive trend for RD&E continued, combined with the gross margin improvement, this led to 230 basis points improvement in adjusted operating margin.

Looking now on the market development in the first quarter on the next slide. According to S&P Global data from March, global light vehicle production for the first quarter declined 40 basis points, exceeding the expectation from the beginning of the quarter by 140 basis points. Supported by the scrapping and replacement subsidy policy, we continue to see strong growth for domestic OEMs in China, while light vehicle production in higher content per vehicle market in North America and Western Europe declined by 7% and 10% respectively.

This resulted in an unfavorable regional light vehicle production mix of more than 3 percentage points in the quarter, significantly impacting our outperformance negatively. In the quarter, we did see call-off volatility continue to improve year-over-year. We will talk about the market development more in detail later in the presentation. Looking now on our sales growth in more detail on the next slide.

Our consolidated net sales were $2.6% billion. This was slightly lower than a year earlier, driven by negative currency translation effects, which reduced sales by almost 4% in the quarter. Excluding currency, our organic sales grew by 2%, including out-of-period compensation of $4 million.

The regional sales split reflects the seasonally weak sales in China due to the Lunar New Year celebration. China accounted for 17%, Asia, excluding China, accounted for 20%, Americas for 33% and Europe for 30%. We outlined our organic sales growth compared to light vehicle production on the next slide.

Our quarterly sales were robust and slightly exceeded our expectations, driven by strong performance across most regions, particularly in Europe and America. Based on light vehicle production data from March, we outperformed light vehicle production in all regions except China, fueled by product launches and pricing. In China, our sales to domestic OEMs grew by 19%, aligned with the light vehicle production growth. Our growth with the global customers in China was just 1 percentage points below their LVP growth.

Due to LVP mix shift that continues, we underperformed significantly in China overall. Among the primary net sales growth drivers for the company this quarter four were Chinese OEMs and two were Japanese, highlighting the importance of the Asian market and its customers. On the next slide, we show some key model launches.

New launches in the first quarter of 2025 was, as you can see on this slide, mostly in Americas, Europe and South Korea, with few launches in China. The reason for this is that many OEMs are planning to unveil new vehicles in the Shanghai Auto Show in April. We expect significant number of new launches in China as of Q2, but we are unable to disclose these launches, as the vehicles have not yet been unveiled.

The models displayed here features Autoliv content per vehicle, ranging from approximately $130 to nearly $500. In terms of Autoliv's sales potential, U.S. produced Honda Passport and the Ford Expedition are the most significant. Now looking at the next slide.

I will now hand it over to Fredrik Westin.

Fredrik Westin

Thank you, Mikael. I will talk about the financials now more in detail on the next few slides, so turning to the next slide. This slide highlights our key figures for the first quarter of 2025 compared to the first quarter of 2024.

Our net sales was $2.6% billion, representing a 1% decrease. Gross profit increased by $35 million and the gross margin increased by 1.6% percentage points. The adjusted operating income increased from $199 million to $255 million, and the adjusted operating margin increased by 230 basis points to 9.9%. The reported operating income was $1 million lower than the adjusted operating income, mainly due to costs for capacity alignment.

Adjusted earnings per share diluted increased by $0.58%, where the main drivers were $0.48% from higher operating income and $0.13% from lower number of shares. Our adjusted return on capital employed was a solid 26%, and our adjusted return on equity was 29%, driven by share buybacks impacting total equity. We paid a dividend of $0.70% per share in the quarter and repurchased shares for slightly over $50 million and retired 0.5% million shares.

Looking now on the adjusted operating income bridge on the next slide. In the first quarter of 2025, our adjusted operating income increased by $56 million. Operations contributed with $46 million, mainly from higher organic sales and improved operational efficiency, supported by the [better calloff] (ph) accuracy.

The net currency effect was $5 million negative as the positive effect from the Mexican peso versus the U.S. dollar was offset by translation and revaluation effects. The impact from raw materials was around $5 million negative. Out-of-period cost compensation was $4 million higher than last year.

Costs for SG&A and RD&E net decreased slightly despite higher costs for SG&A personnel. The recycled accumulated currency translation differences related to the divestment of our idle operations in Russia amounted to $12 million. The year-over-year impact from the supplier settlement in 2024 was around $2 million negative.

Looking now at the full year results on the next slide -- on the cash flow, sorry, on the next slide. For the first quarter of 2025, operating cash flow decreased by $45 million compared to the same period last year to $77 million, mainly a result of increased receivables following the strong sales towards the end of the quarter. Capital expenditures net decreased by $47 million.

Capital expenditures net in relation to sales was 3.6% versus [5.4%] (ph) a year earlier. The lower level of it debt is mainly related [indiscernible] in Europe and America [Technical Difficulty]. The free operating cash flow was negative $16 million compared to negative $18 million in the same period the prior year, as the lower operating cash flow was offset by lower CapEx. The cash conversion in the last 12-months, defined as free operating cash flow in relation to net income, was around 72%, slightly below our target of 80%.

Now looking at our trade working capital development on the next slide. Trade working capital decreased by $56 million compared to the prior year where the main drivers were $11 million in higher accounts receivables, $17 million in lower accounts payables and $84 million in lower inventories. In relation to sales, the trade working capital decreased from 12.8% to 12.4%.

The improvement in trade working capital is a result of our multiyear working capital improvement program and an improvement in customer call-off accuracy, enabling a more efficient inventory management. Now looking on our debt leverage ratio development on the next slide. Autoliv has consistently prioritized maintaining a strong leverage ratio, reflecting our prudent financial management and commitment to a strong balance sheet.

This approach has enabled the company to navigate economic fluctuations, invest in innovation and continue delivering value to its stakeholders over time. Our leverage ratio is virtually flat year-over-year at 1.3% times, despite close to $700 million in shareholder returns. Compared to the end of last year, our debt leverage ratio increased by 0.1% times as our net debt increased by $242 million, while the 12-month trading adjusted EBITDA increased by $55 million.

With that, I'll hand it back to you, Mikael.

Mikael Bratt

Thank you very much, Fredrik. On to the next slide. In recent years, our business has faced significant challenges from COVID, disrupted global supply chains, component shortages, inflation and the changing LVP landscape.

Our company has adopted quickly, found new ways to mitigate risk and maintaining profitability. Now facing a challenging tariff situation, we are well equipped with a diversified customer portfolio, a broad regionalized footprint, a strong balance sheet and a single focus on automotive safety and saving lives. Autoliv has a diversified customer and model mix in North America.

This diverse model mix base helps Autoliv mitigate risks associated with slowing import of certain vehicle models from Mexico and Canada. The company has multiple production and assembly facilities across North America, ensuring timely delivery of airbags, seatbelts and steering wheels. Our largest production hub is in Mexico.

However, not all products are made there meet USMCA standards due to customer-specific components or the unavailability of certain materials like magnesium and leather for steering wheels. Our logistics in North America are complex. While some of our Mexican production support local vehicle manufacturing, the majority is still destined for U.S. vehicle assembly plants.

For products sent to the U.S. customers managed about one-third of the transportation and import and these shares continue to grow. Driving from past experiences, Autoliv has developed the [indiscernible] tariffs. Over the years, we demonstrated that our methods for navigating challenging environments are effective.

On to the next slide. The instability and overall magnitude of the tariffs have placed the automotive industry in a challenging position. Tariff costs need to be passed on to the end consumers, which would lead to higher vehicle prices and potentially impact consumer demand and light vehicle production.

To mitigate the effects of U.S. tariffs on our [indiscernible] and materials, we have implemented several strategic measures. We established a task force early in the year with a focus on minimizing the impact of tariffs. We are engaged in ongoing discussions with our customers to find setups that are mutually beneficial while negotiating compensation for the transition period.

Our large existing footprint in the U.S. enable us to navigate the challenges posed by tariffs effectively. It gives us opportunities to ramp up production in the U.S., should that be the best option when evaluating future production locations together with our customers. We are committed to increasing our compliance with the USMCA regulation, working closely with our customers and suppliers to achieve this through increased local sourcing of components and changing of specifications.

On to the next slide. The outlook for global light vehicle production in 2025 has become significantly more uncertain since January, with regional variation influenced by tariffs, slowing economic growth and other factors. In North America, the production outlook may be significantly downgraded due to trade risk and higher vehicle prices from import tariffs.

This reduction is likely to affect vehicles produced in Mexico and Canada more severely. In Europe, production is expected to increase slightly short-term due to revision in EU regulations and higher demand in some Eastern European markets. China is also growing, driven by government policies supporting the new energy vehicle market.

Japan and South Korea are potentially facing declines due to the impact of lower exports to the U.S. Overall, while some regions are still expecting growth, the global auto industry remains cautious, navigating the complexities of tariffs and other economic factors. Now looking on the business outlook on the next slide. We expect 2025 to be a challenging year for the automotive industry.

However, our ongoing focus on efficiency is expected to further enhance our profitability. We anticipate a significant improvement in our sales performance in China. Additionally, our strong cash conversion and solid balance sheet provides financial resilience and the robust foundation for maintaining high shareholder returns.

We expect cost pressures from [indiscernible] in 2025, but still we expect some pressure coming mainly from labor, especially in Europe and America. However, the ongoing tariff situation could add inflationary pressure. Certain raw material prices have increased, and we expect headwinds for the year, mainly in the U.S. We successfully navigated the new tariff environment in the first quarter.

This gives us confidence that it's possible to continue on that course, but there is a significant uncertainty. Contrary to the past three years, we do not anticipate a gradual quarter-by-quarter adjusted operating margin increase as the inflationary environment differs from recent years. However, the fourth quarter is still expected to be the strongest of the year.

Turning to the next slide. This slide shows our full year 2025 guidance, which excludes effects from capacity alignment, antitrust-related matters, as well as no further changes to tariffs or trade restrictions that are in effect as of April 15, 2025, as well as no significant changes in the macroeconomic environment or changes in customer call of volatility or significant supply chain disruptions. The business environment uncertainty makes it difficult to predict the reminder of 2025.

However, based on the strong first quarter performance and tariff [Technical Difficulty]. Operating cash flow is expected to be around $1.2% billion. Our positive cash flow and strong balance sheet supports our continued commitment to a high-level of shareholder returns.

Our full year guidance is based on a global light vehicle production decline of around negative 0.5%, a tax rate around 28% and that the net currency translation effect on sales will be around minus 3%. We are monitoring the situation closely and are prepared to be as agile, as needed to adjust to any changes. Looking on the next slide.

We are pleased to invite you to the Autoliv Capital Markets Day on June 4, 2025, in Stockholm, Sweden. Join us to learn more about our journey towards achieving our targets, capturing growth opportunities and translating these into attractive and sustainable shareholder returns. We will showcase that Autoliv is strategically securing a strong position with successful OEMs in the market, supporting our medium-term and long-term growth in a rapidly changing market environment.

You will also have the opportunity to see our latest innovations and technologies. I personally look forward to seeing you all in Stockholm. Now turning the slide.

This concludes our formal comments for today's earnings call, and we would like to open the line for questions from analysts and investors. I will now hand it back to Marlene.

Operator

[Operator Instructions] Our first question comes from the line of Colin Langan from Wells Fargo. Please go ahead. Your line is open.

Colin Langan

Hello great. Thanks for take my question. I know mid-quarter, you were trying to size the USMCA exposure.

Do you have any better clarity now on how much of your sales are non-USMCA compliant that are at risk. Because I didn't see any actual impact on the walks on margin or sales, so I assume it was pretty small in March. But at any run rate you could kind of help so we could frame the potential risk.

Mikael Bratt

Yes. We haven't given any detail around the split there with the USMCA compliance or noncompliance here because it's, I would say, with the current circumstances here, I mean it's pretty fluid situation here. And giving too much details in this environment, I think would more confuse than support.

I think the bottom-line here is that we are well-positioned here with the footprint we have described here. We are having a regionalized setup, so meaning Americas for Americas. However, now with this focus on the U.S. side, it means the tariffs imply impact us mainly for the Mexican flow, but as we have mentioned here, that production we have in Mexico is to a large extent for OEMs in Mexico, also our customers are there. They also have pickup points in Mexico, meaning that they are carrying them over, and then a smaller part of that is also carried by us over the border into the customers' plant in the U.S. We are working with our customers here to see what we can do to improve that.

But the reason why we are not -- why we have USMCA non-compliant components here is because there is no -- to a very large extent, there is no available supply in the region there. And we mentioned, for example, leather, we mentioned magnesium for the steering wheels. We have also uniqueness when it comes to certain directed components when it comes to electronics in the stearing wheels, et cetera.

So we are working to find alternatives with our customers but that will take time. But wherever we are impacted by there is what we'd pass on to the customer here through surcharges. So I think we are as good as we can get in this environment here right now, and we monitor it carefully going forward to see what we can do.

Colin Langan

And the vast majority was passed on to the customer in the quarter already.

Mikael Bratt

Yes, yes.

Colin Langan

Okay. And just as a follow-up. In your comments, you said -- I believe you may have misheard, but the profit trajectory is not going to be like prior years now.

Is that -- but it will be strongest in Q4. So how should we be thinking about, I know you don't get quarters, but Q2, any rough color there. Are we now expecting that to not increase sequentially.

And why would that be the case.

Mikael Bratt

No, what -- I mean we have -- I mean I would say, we are more back to the normal free inflationary environment here where you always had a weaker Q1, we had a stronger Q4 and then Q2 and Q3 was more average in between there. And I think that's what we are trying to say now that we are not seeing the same inflationary pressure that creates this sequential development that we have seen for the last three years. So more back to normal.

Colin Langan

All right. Thanks for taking my question.

Operator

Thank you. We’ll now move on to our next question comes from the line of Erik Golrang from Sweden. Your line is open.

Erik Golrang

Thank you. I have three questions. Firstly, on Europe, if you can give some more color on that big outperformance, what's behind that.

And then the second question on the size of tariff compensation in Q1 to the extent you would share that. And then thirdly, continuing on the tariff topic. Just some more sort of color on this.

I mean you've covered yourself fully in Q1. It seems that you are confident that you'll be able to continue to do so. Just thinking why wouldn't this burden be shared across the value chain.

Thank you.

Mikael Bratt

Okay. Thank you. On the European side, I think we see the result of our position here with the European OEMs and a positive result of the mix we have there, as they have some because I pulled forward here also to well connected to the European regulations here.

So we have a good mix there. So more on the tariff side. I would say here that we start with the last question maybe why I'm confident.

I mean we have been -- clear thing here that these tariffs needs to be passed on to our customers and obviously, the end consumer here in my view. Then, of course, it's up to the OEMs what they want to do here. But I don't see any logic at all why the supply chain should absorb these tariffs.

And this is the cost of doing business, which is implemented from one day to another. And, yes, we'll see for how long and at what magnitude that will be, but there is no way the supply chain can absorb this kind of magnitude of additional costs. So pure nature of it, in my mind, needs to be passed on to the end consumer.

So we start forming that, and we'll continue to hold that position as we move forward. And with that said of course, we will be working with our customers to see what can be done in terms of fulfill the requirements so you don't need to have to pay a tariff at all. But in order to do any bigger things there, you need to have some kind of stability uncertainty on the tariff situation before we can take that kind of decisions, for example, moving large part of your capacity from, let's say, Mexico or somewhere else into the U.S. So you will see that we have the right circumstances there to have a business case to do it.

But as said, we are well-positioned here with the footprint we have. And of course, we can work on the footprint we have here to see what kind of [pressures] (ph) we can do there in terms of using the footprint we already have. We are, I’d say, among our peers, the one with the strongest industrial footprint in the U.S. here.

So we are in a good start there. And then when it comes to what we discussed before here with the non-U.S. MCA compliance is availability. And there, of course, it is more forces than our own force here that can change that.

So we are dependent on the industry here as well. But we're working together with industry on this and see what happens. But once again, stability and predictability is required before any bigger things can be done if they should be done.

And we haven't given any details on how much the tariffs are because I don't think that -- I mean, it is a figure that is not meaningful in terms of the details here because we are seeing on the tariffs that we get as a result of this and it is changing all the time also. So it is a lot of changing part here because besides the automotive tariffs here, you have the steel, manganese, aluminum and all that. So yes, it's a very complicated picture.

Erik Golrang

Thank you. And if I could just follow up. You mentioned the business case to relocate production probably early days, but do you see that is there sort of an investment that you could do in the U.S. where the total cost to bring your product to the market and your customer doesn't go up or is actually a beneficiary.

Or do you think that you'll stay where you are based on the -- at least the current level of tariffs.

Mikael Bratt

It's way too early to be any -- have any firm views on that because, as I said, we need to know what the landscape will be for the foreseeable future. You can actually do a business case around it. And for certain, the cost in the U.S. will go up.

I mean there is a reason why we are in Mexico. So the question is what that would be and what everybody is prepared to do there. So it is too early to have any opinions about [indiscernible].

Erik Golrang

Okay, thank you.

Operator

Thank you. We’ll now move on to our next question. Our next question comes from the line of Emmanuel Rosner from Wolfe.

Please go ahead, your line is open.

Emmanuel Rosner

Great. Thank you so much. My first question is your decision to reiterate the guidance.

Can you elaborate a little bit about this. Is it mostly a function of just a lot of uncertainty, so it is really difficult to know what to assume for any changes. Or is it strong confidence in the ability to offset future challenges.

Is it both. Can you just comment a little bit more about it.

Mikael Bratt

Sure. No, I think first of all, we feel comfortable with the guidance here when we look at our own ability to move forward here. I think we had a strong first quarter here.

And we continue to see also when we look into the horizon that we have with calloffs that we continue to see a healthy level of light vehicle production moving into the second quarter with the horizon we have there. And as I said, our own activity level controlling what we [indiscernible] in a good way. So I think that we are steadily moving forward in the right direction there.

So we have no reasons, I’d say, to change our guidance here. We feel comfortable with what we can see. Then of course, what you are pointing to here, we are absolutely fully aware of the risks you could say, that is out there connected to the tariffs and overall uncertainty there.

But today, we don't have any data points pointing in the dramatic changes to that. Plus that we also, in our guidance, has a range mentioned there also that can absorb some movements as well. So yes, we've been comfortable with the guidance we've given here today with what we know.

Emmanuel Rosner

Thank you. If I could just ask this sort of like a different way, and then I have a quick follow-up. But for example, this morning, I think you are based on the March S&P file, but this morning, S&P cut the global production a little bit deeper than the down 0.5% that you're assuming.

So all else equal, is that something that we should be flowing through your guidance essentially saying, look the production is lower than assumed, therefore, it is actually sort of like a lower outcome. Or are you essentially saying that you have offset or the Q1 was so much stronger than expected that all in, even with sort of like this somewhat weaker outlook, you still good with your guidance.

Mikael Bratt

I mean, as we said here I mean, we have based our guidance on the 0.5% negative. So we were already, from the beginning, remember more as a negative than S&P Global. Now they have made an adjustment.

I would say that's ballpark figure around where we are at also I mean, 1% lower than what we have. So I mean, I would say, it is within margin of error so when you look at the light vehicle production. So it doesn't change the picture for me here.

Emmanuel Rosner

That's great. And then the quick follow-up is your capital allocation strategy and in particular, the shareholder returns. Are you still comfortable with your existing strategy.

Or is the current uncertain environment make you want to potentially slow down the cash returns to shareholders or changes in any other way.

Mikael Bratt

No, I think, I mean our strategy and commitment here lays firm, to be a shareholder-friendly company, return liquidity to our shareholders. We continued in the first quarter here with our buyback, even though at a slightly lower pace, but we'll hold on to it. And what we will do going forward of course, we can't comment here, but our commitment still stands.

Emmanuel Rosner

Thank you so much.

Mikael Bratt

Thank you.

Operator

Thank you. We’ll now move on to our next question. Our next question comes from the line of Edison Yu from Deutsche Bank.

Please go ahead. Your line is open.

Edison Yu

Hi, thank you for taking our questions. First one on near term, in terms of the tariff-related costs, it seems like you absorbed it or able to pass it on very quickly -- would you expect that going forward to be that quick in terms of the time when you pass it on to when you actually run it through the P&L.

Mikael Bratt

Yes. I think it needs to be quickly. I mean, you remember when we have described our negotiations when it comes to the inflationary compensation, that was related to a very detailed and complicated negotiations on component by component, plant by plant level across the whole globe.

The tariffs is very, I would say, clear and obvious when you have to pay them and, let's say, the evidence to prove that you have had this cost is much more simple, and therefore, the negotiations would go much faster absolutely.

Edison Yu

Okay. So just to check, let us say, tariffs continue on for the next couple of quarters, you would expect to recover that pretty much intra-quarter going forward.

Mikael Bratt

I mean I will not promise anything here. But as I said, we stand firm in our opinion here that the tariff cost needs to be passed on, and we will continue to do so. And I think we have a well-established way of doing it with our customers.

Edison Yu

Got you. And then longer-term, on automation, I know it's a bit early to decide whether to necessarily relocate a lot back to the U.S. But I think you've discussed in the past, you've done a lot of automation overseas in China and it is been very successful. So if you had to automate, do you have a playbook. Do you have kind of a system that you can implement based on your learnings.

Mikael Bratt

Yes. I mean, I'm not worried about the process or the way of moving capacity or establishing capacity in the U.S. It is more a question about the business case. And as I said, the reliability in the environment that makes you comfortable in making investment in this environment.

If not, how or so that is the problem. It is the calculation, the business case that we can provide competitive better cost domestically than with tariffs, basically -- breakeven calculation.

Edison Yu

Understood, thank you.

Operator

Thank you. We’ll now move on to our next question. Our next question comes from the line of Chris McNally from Evercore.

Please go ahead. Your line is open.

Chris McNally

Thanks so much team. And I apologize if I missed this in the prepared remarks, but just in terms of the call-offs you're seeing through early April, do they align with some of the March projections around Q2. I think we are all sort of anticipating basically any day now that we'll get major Mexico and Canadian shutdowns basically permanently until tariffs are changed.

So just curious if some of that is reflected in what you've seen in that call-offs over the last 2 to 3 weeks.

Mikael Bratt

As I indicated before here, we see that the call-offs is holding up well, and no other indications that we are moving forward here with the horizon we have from the call-off.

Chris McNally

And maybe just to follow up on that because I think you've answered the other question really helpfully. It basically seems like production is the primary variable here. There will be a little bit on raw materials, but you are expecting to get repaid for any tariffs from the suppliers.

I think we've heard that on -- from every supplier. I'm just a little surprised. I mean, basically if there was no change in call-offs, particularly for Mexican and Canadian facilities, it would sort of imply that the Detroit 3 were continuing to build, which means they weren't planning to cross the border, which does not seem to be the case.

So could you help us reconcile that. Because you would imagine we would see weakness based on everything that we know if shutdowns were to be coming soon because they are building inventory at the border essentially.

Mikael Bratt

No. I mean, I can't, of course, comment or speculate in what our customers are doing here in -- specifically. But I mean the totality of the call-offs that I referred to here when we look at Autoliv order book, so to speak, is as I said, holding up well here as we move forward into the second quarter with what we can see in the time horizon we have.

Chris McNally

Okay. So it's sort of a global order perspective and maybe we'll hold off on giving very specific Canadian-Mexican facility as a lot of that stuff is live. Thanks so much for the comments.

We’ll appreciate it.

Mikael Bratt

Yes. Thank you.

Operator

We’ll now move on to your next question. Our next question comes from the line of Hampus Engellau from Handelsbanken. Please go ahead, your line is open.

Hampus Engellau

Thank you very much. Two questions for me. Starting-off on the capacity line program.

I guess the question, if you -- are you happy where you are on these levels. Or are you going to go ahead fully on the 8,000 that you previously indicated in terms of head count reduction. Second question is more related to the mix.

I was also surprised of the very outgrowth in Q1. And if we look at the quarters ahead, on the LVP outlook, should we assume any big changes in mix in the quarter from what you see now. I know you are not going to guide on the quarter, but just the sense for us to model.

Thank you.

Fredrik Westin

Yes. On your first question on the headcount reduction, I think we are progressing well. You saw now that we have reduced our indirect or salaried headcount by over 1,500.

So that has progressed further versus the Q4 report, and we also hold on to the expected savings of an incremental $50 million for the year. So that's progressing well. Also on the direct labor side, I think we're down -- in total headcount were down 6%, whereas organically we grew sales by 2%.

So also here, we see a good development on the operational excellence side and productivity side. So that's also, of course helped by the better call-off volatility. That was around 93% in the first quarter.

So a continuation of the positive trend we saw in the fourth quarter. And then on the mix side, and we mentioned here, we had 3 percentage points negative mix in the first quarter. That will most likely continue also here in the second quarter.

And then we expect a more favorable development in the second half of the year, at least when you look at our expected sales performance versus LVP development in China. But we still expect a negative mix also for the full year, still above 1 percentage point.

Hampus Engellau

Okay, fair enough. Thank you.

Operator

Thank you. We’ll now move on to our next question. Our next question comes from the line of Agnieszka Vilela from Nordea.

Please go ahead, your line is open.

Agnieszka Vilela

Thank you so much. So my first question is on the pull forward impact that you saw in Q1 when it comes to car production. I wonder if you can just tell us about what has been happening.

And also, did you only see that on the kind of car production. Or did you also see that OEMs are stocking up your products.

Fredrik Westin

Yes. I mean it's very difficult for us to say what volume deviation here that we saw in the first quarter, which was favorable and the volumes in the first quarter were better than we had expected going into the quarter. But to quantify a pull ahead of effect of that is incredibly difficult for us and was even impossible.

But as Mikael already pointed out here that we see the call-off continuing at a good level also here in the second quarter. So it's not that we see them falling off yet. So that would indicate that either the pull-ahead effect continues or it was smaller in the first quarter.

Agnieszka Vilela

Understood. Thank you. And then maybe just if you could help us to understand the impact on the P&L from getting compensation from tariffs and overall tariff impact.

Does it filter through sales and your cost. Or how should we think about it when you get the compensations for tariffs.

Fredrik Westin

Yes. The majority filters through sales, but in the first quarter, it was not such a large magnitude that it would have any meaningful effect on the top-line.

Agnieszka Vilela

Thank you.

Operator

Thank you. We’ll now move on to our next question. Our next question comes from the line of Jairam Nathan from Daiwa Capital Markets America.

Please go ahead, your line is open.

Jairam Nathan

Hi, thanks for taking my question. Just wanted to understand in terms of the cost reduction or your [SEP] (ph), can you make any enhancements or increased the cost reduction potential if things worsen from here, and what kind of flexibility would you have.

Mikael Bratt

No. I think -- I mean, I think we have already shown that we have a high flexibility in the company to manage big shifts in demand here. So of course, what we are seeing the results of from now in the quarter one here, for example, is from really what we call them the strategic road map activities here to drive towards our mid-term targets here.

If something dramatically would happen in the market, then of course, we have more levers to pull to bring down the cost and reduce labor, et cetera. So the short answer is, yes, we can do more if needed here, of course.

Jairam Nathan

Okay. And just as a follow-up. We are seeing a lot of -- especially Japanese OEMs, I think moving -- trying to shift production back to the U.S. And I just wanted to understand how would that have any impact on margins from Japan versus the U.S..

Or -- and would the U.S. facilities have the capacity.

Mikael Bratt

I think -- I mean, first of all -- I mean, yes, we see some of that also. And of course, we -- if there is platforms that we are on that changes location, we have a procedure for that. That has happened before, so that's nothing dramatically with that.

That's basically a reset of the program, and we need to do a new calculation and all that stuff. So we have a well-defined way of working around that. And I think, here we have also a big advantage since we have this global footprint we have.

We can also support our customers if they want to move to a different region. So that's not very dramatic for us today. So yes, and I think it will take some time until you actually see any meaningful volume impacting that.

I think they have this same situation here as we, as a supplier have that you need to make sure that you have a long-term view on the landscape here in order to actually make those investments at the end of the day.

Jairam Nathan

Okay, thank you. That’s all I had.

Operator

Thank you. We’ll now move on to your next question. Next question comes from the line of Dan Levy from Barclays.

Please go ahead, your line is open.

Dan Levy

Hi, good afternoon, thank you for taking the question. First, can you just outline what your exposure is within Europe and Asia to vehicles that are exported to North America.

Fredrik Westin

I don't have the number here in front of me. We could come back to you on that one. I mean, it's typically premium vehicles, more that are exported and then we are a bit overweighted maybe against those.

But I would have to come back on the exact number, but you can talk to [indiscernible].

Dan Levy

Okay. Thank you. And then second question is on the tariffs.

And what specifically is not USMCA compliant. How much of this is Tier 2 directed content by the OEMs that is essentially in a position where the other OEMs have to negotiate because they've directed this content as opposed to content that you chose to source on your own and there's maybe a little less of a basis for getting those recoveries.

Mikael Bratt

Yes. We are not breaking it down in the [indiscernible]. It is, I was going to say, to detail to keep to the external content there and especially in a situation like this one is quite fluid here.

As I said, I mean the directed ports, as you said, is obviously something we need to support from the OEMs, allow our customers here to find alternatives too. But most cases, when we announce USMCA compliance is because it’s not available in the -- under those conditions there. So I think you have to live with it.

Dan Levy

Okay, thank you.

Operator

Thank you. Due to time constraints, this concludes our question-and-answer session. So I'll hand the call back to Mikael Bratt, President and CEO, for closing remarks.

Mikael Bratt

Thank you, Melanie. Before we conclude today's call, I want to emphasize our commitment to achieve our financial targets. Our focus remains on structural cost reductions, innovation, quality, sustainability and on tariff mitigation efforts.

Despite significant market challenges in key markets, we expect to continue to perform strongly. We remain vigilant about the risks associated with the tariffs and geopolitical challenges, which could impact our cost structure and market dynamics. Navigating these complexities as well as we did in the first quarter, will be instrumental in maintaining our momentum throughout the year.

Once again, I'm delighted to invite you to our Capital Markets Day on June 4, 2025. I look forward to see you there. Our second quarter call is scheduled for Friday, July 18, 2025.

Thank you for your attention. Drive safely.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Speakers, please stand by.