Executive Summary / Key Takeaways

• Autoliv demonstrated strong financial performance in Q1 2025, achieving significant adjusted operating margin expansion and record first-quarter adjusted EPS despite challenging market conditions and unfavorable regional mix.
• The company's strategic focus on structural cost reductions, operational efficiency improvements (including automation and direct/indirect headcount reductions), and successful negotiation of customer compensations for inflation and tariffs are key drivers of profitability enhancement.
• Autoliv is actively strengthening its position with fast-growing domestic Chinese OEMs, expecting a record number of new launches in 2025 to significantly improve its sales performance relative to the overall Chinese Light Vehicle Production (LVP) market mix.
• Management reiterated its full-year 2025 guidance, projecting organic sales growth of around 2% and an adjusted operating margin of 10-10.5%, underpinned by expected continued efficiency gains and a strong order book, while acknowledging uncertainties related to tariffs and market volatility.
• A strong balance sheet, robust cash flow generation, and disciplined capital allocation support a continued commitment to high shareholder returns, even as the company invests in its footprint and technology.

Setting the Scene: A Global Leader Adapting to a Shifting Automotive Landscape

Autoliv, Inc. stands as a preeminent global supplier of automotive safety systems, a critical layer of technology ensuring occupant protection in an increasingly complex vehicle environment. Operating as a single, focused segment encompassing airbags, seatbelts, and steering wheels, Autoliv has built its leadership position over decades, rooted in a history of innovation and a vast global manufacturing footprint. The company's strategic journey has involved adapting to evolving market dynamics, from integrating acquisitions like certain Delphi assets in 2009 to navigating portfolio adjustments such as the spin-off of Veoneer.

Today, Autoliv operates within a competitive landscape characterized by a few major global players and various regional specialists. Key publicly traded competitors include Aptiv PLC (APTV), Magna International Inc. (MGA), and BorgWarner Inc. (BWA), all vying for contracts with global automakers. While these competitors often have broader portfolios spanning active safety, powertrain, or full vehicle assembly, Autoliv maintains a specialized focus on passive safety, where it holds a leading global market share of around 44% as of 2024, an increase of nearly 5 percentage points since 2018. This focused approach, coupled with a diversified customer base and a strategically regionalized production network, forms the bedrock of Autoliv's competitive strategy.

The industry is currently undergoing significant shifts driven by electrification, the rise of autonomous driving, and the increasing prominence of domestic Chinese OEMs. These trends present both opportunities and challenges, influencing market mix, technology requirements, and competitive dynamics. Autoliv's strategy is centered on leveraging its established strengths – technological leadership, operational efficiency, and deep customer relationships – to navigate this transition, capture growth in new areas like New Energy Vehicles (NEVs), and maintain its profitability and market position.

The Technology Edge: Innovation at the Core of Safety

At the heart of Autoliv's competitive moat lies its differentiated technology in passive safety systems. The company's expertise spans the intricate design and manufacturing of airbags, including frontal, side, and curtain airbags, as well as advanced seatbelt systems and steering wheels. This core technology is not merely about components; it involves sophisticated system integration and calibration tailored to specific vehicle platforms and regulatory requirements worldwide.

Autoliv's technological advantage is underpinned by continuous innovation. A notable recent development is the Bernoulli airbag module, recognized with a PACE Pilot Innovation award. This technology leverages pressure differential with a small, single-stage inflator to inflate larger airbags more efficiently. While specific quantitative benefits like weight or cost reduction percentages for this particular module are not detailed, the description implies improvements in efficiency and potentially lower deployment costs and weight compared to traditional designs. This focus on optimizing fundamental components like inflators is crucial in a cost-sensitive industry.

The company is also actively involved in developing safety solutions for future mobility trends. This includes securing the global first autonomous L4 full passive safety system development and supply contract, indicating a forward-looking approach to safety in self-driving vehicles. Furthermore, a strategic cooperation agreement with XPENG AEROHT, a Chinese flying car innovator, highlights Autoliv's ambition to pioneer safety solutions beyond conventional automobiles.

Sustainability is increasingly integrated into technology development. Autoliv has developed airbag cushions made from 100% recycled polyester, a step towards reducing environmental impact and potentially lowering the cost of the airbag module. The company is also working towards achieving net zero greenhouse gas emissions across its supply chain by 2040, supported by initiatives like phasing out sulfur hexafluoride (SF6) in steering wheel production – a significant source of fugitive emissions.

For investors, Autoliv's technological differentiation translates into several key benefits. Its proven expertise and continuous innovation in core passive safety systems provide a competitive moat, supporting pricing power and customer loyalty. The development of advanced solutions for NEVs and autonomous vehicles positions the company to capture growth in emerging segments. While specific, detailed quantitative performance metrics comparing Autoliv's technology directly against all competitors are not available, the company's consistent outperformance in safety assessments (like NCAP) and its ability to secure contracts for premium and next-generation vehicles, particularly with high-end NEV manufacturers in China (where it has achieved over 50% market share with a broad range of players), suggest a tangible performance advantage valued by OEMs. This technological edge is a critical factor supporting Autoliv's ability to defend its market share and drive future revenue growth and profitability.

Operational Excellence and Financial Resilience

Autoliv's recent financial performance underscores its operational resilience and the effectiveness of its strategic initiatives, particularly in cost control and efficiency. Despite a 1.4% year-over-year decline in reported net sales in Q1 2025 to $2,578 million, organic sales grew by 2.2%, outpacing the global LVP decrease of 0.4%. This organic growth, combined with rigorous cost management, drove a significant improvement in profitability. Operating income surged by 31.2% to $254 million, resulting in an operating margin of 9.9%, a substantial increase from 7.4% in Q1 2024. Adjusted operating income saw a similar increase, reaching $255 million with a 9.9% margin, up 230 basis points from 7.6% in the prior year period.

This margin expansion is a direct result of well-executed operational and commercial efforts. The structural cost reduction program, initiated in Europe in 2023 and expected to conclude in 2025, continues to yield benefits, contributing to reductions in the indirect workforce (over 1,500 since Q1 2023). Direct headcount has also been significantly reduced (3,700 year-over-year as of Q1 2025), supported by improved customer call-off accuracy and strategic initiatives like automation and digitalization, which enhance direct labor efficiency. Gross profit increased in Q1 2025, driven by these efficiency gains and organic sales growth, despite negative currency effects and the lingering impact of a supplier settlement cost reported in Q3 2024, which is expected to phase out by Q3 2025.

While SG&A costs saw a modest increase in Q1 2025, primarily due to higher IT and personnel costs, R&D expenses net decreased, benefiting from higher engineering income and cost control. The company also realized gains from the sale of property in China and the divestment of its Russian entity in Q1 2025, contributing to other income.

Autoliv's financial health is further evidenced by its robust cash flow generation and strong balance sheet. Operating cash flow in Q1 2025 was $77 million, lower than the prior year due to a larger increase in operating working capital (driven by higher receivables from strong quarter-end sales) but considered within normal variations. Capital expenditures net decreased, reflecting lower investment in footprint optimization and capacity expansion. For the full year 2024, operating cash flow reached a record high of $1.1 billion. The company's capital efficiency program has successfully improved trade working capital, achieving around $700 million of its $800 million target as of Q4 2024, although inventory efficiency is still impacted by call-off volatility.

The company maintains a prudent approach to leverage, with a Net Debt to Adjusted EBITDA ratio of 1.3x as of March 31, 2025, well within its target range of 0.5x to 1.5x. This strong financial position, supported by solid credit ratings (BBB+ from Fitch, Baa1 from Moody's), provides flexibility for strategic investments and shareholder returns. Autoliv has a demonstrated commitment to returning capital, repurchasing 0.5 million shares for $50 million and paying a $0.70 per share dividend in Q1 2025. Over the last twelve months, shareholder returns exceeded free operating cash flow, leading to a modest increase in net debt, but the overall balance sheet remains solid.

Strategic Positioning in a Dynamic Market

Autoliv's strategic positioning is defined by its ability to navigate complex market dynamics, including regional LVP shifts, evolving customer landscapes, and increasing geopolitical pressures. The company's performance relative to global LVP is significantly influenced by regional and customer mix. In Q1 2025, while global LVP declined by 0.4%, Autoliv's organic sales grew by 2.2%, resulting in a 2.6 percentage point outperformance. However, unfavorable regional and customer mix, particularly in China where lower-content domestic OEM vehicles outgrew higher-content global OEM models, created an estimated 3 percentage point headwind to outperformance.

China represents a critical strategic focus. Autoliv is the leading safety supplier to both global and domestic OEMs in the region, which accounted for 20% of its global sales in 2023. Recognizing the rapid growth and increasing market share of domestic Chinese automakers (who now represent close to 55% of Chinese LVP), Autoliv has significantly expanded its business with this group. Sales to domestic Chinese OEMs grew by 19% in Q1 2025, in line with their LVP growth, and this group's contribution to Autoliv's China sales has risen from 20% in early 2022 to 38% in Q2 2024. Autoliv is projected to increase its market share with Chinese OEMs from ~20% in 2022 to ~32% by 2025, while maintaining a steady share with global OEMs in China.

This strategic shift is supported by a strong order intake with Chinese OEMs, which is expected to translate into a record number of new product launches in China in 2025. These launches, many for high-end NEVs featuring advanced Autoliv systems, are anticipated to significantly improve Autoliv's sales performance relative to the overall Chinese market mix, helping to offset the negative impact of the current LVP mix trend. Autoliv's success with Chinese OEMs stems from close partnerships, speed, local competencies, advanced solutions, and leveraging its global footprint to support their overseas expansion.

Beyond China, Autoliv demonstrated strong outperformance in Europe, Americas, and Asia excluding China in Q1 2025, driven by product launches and pricing. The company's regionalized footprint, with a significant production hub in Mexico for the Americas market, is a key asset, particularly in the face of evolving trade policies and tariffs.

Outlook and Risks

Autoliv reiterated its full-year 2025 guidance, projecting organic sales growth of around 2% and an adjusted operating margin of 10-10.5%. This outlook is based on a global LVP decline of approximately 0.5% (S&P Global (SPGI) March 2025 forecast), a negative currency translation impact on sales of around 3%, and a tax rate of around 28%. The guidance reflects confidence in the company's ability to continue driving operational efficiencies, benefit from structural cost reductions, and improve its sales mix, particularly in China, through new launches. Management expects cost pressures from general inflation to moderate but anticipates continued pressure from labor costs and potentially from tariffs, with raw material costs expected to increase for the full year. Unlike the past three years, they do not foresee a gradual sequential margin increase throughout 2025, expecting a return to more normal seasonality with Q4 being the strongest quarter.

However, the outlook is subject to significant uncertainties. Geopolitical instability, including the ongoing conflicts in Ukraine and the Middle East, poses risks. Changes in global supply chains, component availability, and raw material costs can impact operations and profitability. A major challenge is the evolving trade policy landscape, particularly the imposition of tariffs. Additional U.S. tariffs on imports, including those from China and potentially impacting vehicles/components from Mexico and Canada, create uncertainty. While Autoliv successfully neutralized the impact of new tariffs in Q1 2025 by passing costs on to customers, the ability to continue doing so is not guaranteed, and increased vehicle prices could potentially impact consumer demand and LVP. The guidance explicitly excludes the impact of any new or increased tariffs beyond those in effect as of April 15, 2025. Autoliv is actively monitoring the situation, leveraging its regional footprint, and working with customers to increase USMCA compliance to mitigate tariff risks.

Product liability, warranty, and recall claims are inherent risks in the automotive safety business. Autoliv maintains reserves and insurance coverage for these risks, but significant claims could still have a material adverse impact. Specific ongoing matters include the ARC Airbag Inflators litigation and NHTSA investigation, and potential liabilities related to the Honda (HMC) Buckle and ZF Inflator recalls. While reserves and insurance mitigate some exposure, the ultimate outcomes are uncertain. Antitrust investigations and related civil litigation, such as the BMW (BMWYY) complaint in Germany claiming up to €95 million in damages, also pose potential financial and reputational risks, although Autoliv is contesting these claims. Intellectual property infringement claims represent another potential liability.

Call-off volatility, although slightly improved, remains higher than pre-pandemic levels, impacting production efficiency. While management expects volatility to decrease over time as the industry seeks predictability, continued high volatility could pressure margins.

Conclusion

Autoliv enters 2025 from a position of strength, having demonstrated remarkable resilience and operational effectiveness in a challenging market. The company's Q1 2025 results, marked by significant margin expansion and record adjusted EPS, underscore the positive impact of its structural cost reduction program, efficiency initiatives, and successful management of inflationary pressures and initial tariff impacts.

The core investment thesis for Autoliv is centered on its market leadership in essential passive safety systems, underpinned by continuous technological innovation and a robust global operational footprint. The strategic focus on capturing growth with fast-growing domestic Chinese OEMs and adapting to evolving regional LVP dynamics positions the company for continued organic growth, expected to be around 2% in 2025.

While the automotive industry faces ongoing uncertainties related to LVP volatility, raw material costs, and particularly the unpredictable impact of tariffs, Autoliv's proactive approach to cost control, its strong balance sheet, and its commitment to passing on unavoidable costs provide a degree of insulation. The reiterated 2025 guidance of 10-10.5% adjusted operating margin signals confidence in further profitability improvement, building towards the medium-term target of around 12%.

For investors, Autoliv represents a fundamentally sound business in a non-discretionary automotive segment. The company's ability to generate strong cash flow supports attractive shareholder returns. Key factors to monitor will be the resolution and impact of global trade policies, the continued execution of efficiency programs, the success of new product launches (especially in China), and the trajectory of LVP and call-off volatility. Despite the headwinds, Autoliv's strategic agility and operational discipline position it to continue delivering value.