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Edited Transcript of VNE.N earnings conference call or presentation 27-Jul-18 11:00am GMT

Half Year 2018 Veoneer Inc Earnings Call

Aug 6, 2018 (Thomson StreetEvents) -- Edited Transcript of Veoneer Inc earnings conference call or presentation Friday, July 27, 2018 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Jan Carlson

Veoneer, Inc. - Chairman, President & CEO

* Mathias Hermansson

Veoneer, Inc. - CFO & Executive VP of Financial Affairs

* Thomas Jönsson

Veoneer, Inc. - EVP of Communications & IR

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Conference Call Participants

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* Ashik Kurian

Jefferies LLC, Research Division - Equity Analyst

* Brian Arthur Johnson

Barclays Bank PLC, Research Division - MD & Senior Equity Analyst

* Christopher Patrick McNally

Evercore ISI Institutional Equities, Research Division - MD

* Itay Michaeli

Citigroup Inc, Research Division - Director and VP

* Joseph Robert Spak

RBC Capital Markets, LLC, Research Division - Analyst

* Victoria Anne Greer

Morgan Stanley, Research Division - VP

* Vijay Raghavan Rakesh

Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Semiconductor Analyst

* Viktor Lindeberg

Carnegie Investment Bank AB, Research Division - Financial Analyst

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Presentation

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Thomas Jönsson, Veoneer, Inc. - EVP of Communications & IR [1]

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Very welcome everybody to Veoneer's Second Quarter 2018 Earnings Presentation, which is actually our first earnings call ever. So a special welcome.

First of all, before we get started here, apologies that we were a few minutes late. We had a slight technical issue with our 8-K filing with EDGAR. So -- but we'll get right into it here now.

Here in Stockholm, we have our Chairman, President and CEO, Jan Carlson; Chief Financial Officer, Mathias Hermansson; and I'm Thomas Jönsson, working in Communications and IR.

During today's earnings call, our CEO will comment on the second quarter results, the progress we're making on the newly-formed company, particularly focusing around order intake. After this, our CFO will look on the financial results for the Veoneer group and the segments for the quarter. And then we will open up for a Q&A session. And the slides are available through a link on the homepage of our website.

So turning the page, we here have the safe harbor statement. It's an integrated part of this presentation and including the Q&A that follows. During the presentation, we will reference some non-U. S. GAAP measures, where the reconciliations of these figures are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC. And we intend to keep this call to 1 hour, so given that we started 5 minutes late, we will end at 14:05. So I ask everybody, when you ask questions, to limit yourselves to 2 questions each.

But with that, I turn the call over to our CEO, Jan Carlson. So Jan, please?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [2]

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Thank you very much, Thomas, and I would also like to take this opportunity to welcome everyone to this first earnings call at Veoneer. We are very excited on going live as we did July 2 and to move forward with our company. And I would like to start with -- to offer up a sincere thank you to everyone being involved in making this spin happening on Veoneer's side and also on the Autoliv side, supporting the process, which I think was very smooth and went very, very well. I would also like to offer a sincere thank you to everyone here at Veoneer working now very hard to get the company started up and running and working through the summer with -- executing on our projects and to get ourselves going.

Now looking on our second quarter results. We should keep in mind that these results are a blend of carve-out accounting and that Mathias will discuss at a later stage. Our earnings -- our operating results are evolving according to our plan, and our organic sales developed as expected for the second quarter. And also, our 2018 sales outlook remains unchanged.

One of the most important indicators for our business here at Veoneer is, of course, order intake. It continues to show a strong improvement over the last year, and it provides confidence that Veoneer should at least achieve our 2022 sales targets and beyond. We also continued to invest for our mid- and long-term growth targets. During the quarter, we hired around 250 engineers and had a capital expenditure of around 7% of sales. This is an increase from 4% of last year.

Now turning the page. We have a strong momentum, as I said, in our order intake. Before our Investor Day in late May, beginning of June, we announced a major mono-vision contract with a global OEM and also our first driver monitoring system award with another major global OEM. We have outlined also at our Investor Day that our growth potential in our total addressable market, and particularly, in Active Safety, is unprecedented. Our total addressable market is expected to grow around 10%, and our total addressable market in Active Safety is expected to grow around 20% over the upcoming years.

Now looking on our last 12-month order intake of $1.1 billion through June, we see a 20% increase versus last year for the overall Veoneer order intake. And for our Active Safety product, we are running on more than 40% increase in order intake compared to the same time last year.

Also since our Investor Day in late May, we have secured 15 new orders across our product portfolio, 9 of them is coming from Active Safety. These orders include 2 small but strategic orders, with 2 new customers for Vision, Radar and Driver Monitoring in China. This current order intake as of today remains in line with what we saw at the end of the quarter.

Now looking -- turning the page again -- as we have mentioned before, we are investing in engineering, and that is an important differentiator for Veoneer in the marketplace. This RD&E investment trend is in line with what we communicated earlier in the year, where approximately, for the first half, we ran roughly 50% of the planned increase this year versus 2017. In addition, during the first half of 2018, we continued to ramp the -- our ADAS, Autonomous Drive software competence, with a $70 million funding investment in Zenuity. We have milestone deliverables from Zenuity for ADAS software in 2019 and for Autonomous Drive software in 2021.

We are currently seeing a heightened level of customer activity across our product portfolio as well as we are also seeing a somewhat higher-than-anticipated take rate for Active Safety products. These early market indications are encouraging, and if we can conclude that they will affect our previously announced sales targets and investments for 2022 and beyond, we will come back and provide further updates.

Turning the page again, before we move into the detailed finances, I would like to make a short summary. As indicated earlier, our sales and operating results for the second quarter developed in line with our internal expectations. However, we saw a slightly higher standalone cost than expected at the beginning of the year. For the full year 2018, we expect the organic sales situation to improve during the second half of the year and result in an organic sales decline of around 3%. On the costs side, even after taking into consideration additional standalone costs that are not fully accounted for in the second quarter, we expect the operating loss performance in quarter 3 and quarter 4 to remain at similar levels to the second quarter.

I would now like to turn it over to our CFO, Mathias Hermansson, here to walk through further financial details. So please go ahead, Mathias.

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Mathias Hermansson, Veoneer, Inc. - CFO & Executive VP of Financial Affairs [3]

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Thank you. As our focus is on bringing in more business and executing on the current customer projects that we're engaged in, our quarterly updates, as you see, would be geared towards these parameters as we continue to develop this plan, as we have all talked to you about during the recent Investor Days and roadshow.

If you look at the quarter itself, as Jan mentioned, our second quarter sales developed according to our own expectations, where our organic sales decline of 4.5% was mostly offset by favorable currency translation effects, mainly related to the weaker U.S. dollar versus last year. And this was particularly in the euro and the Chinese yuan that it was favorably moved.

As a consequence of the organic sales decline, the gross margin was impacted by this volume and mix effect, which were partly offset by net currency effects, as I mentioned. In addition, the planned increase in net RD&E, mainly within Active Safety, which we have spoken to earlier, was $17 million in the quarter versus last year and was up $13 million compared with Q1. And year-to-date, the increase is $36 million year-on-year. This, along with additional standalone costs, as Jan mentioned, in SG&A of $11 million combined accounted for the majority of the remaining change in the operating results.

Looking to cash flow-related items. EBITDA declined versus last year, mainly related to the operating impact, as we mentioned. As we discussed at our Investor Days, we can see CapEx was $40 million for the quarter, which was up $17 million year-over-year. This increase is due to the planned higher expenditures to support future sales growth, as we can see in the order books, in equipment and infrastructure. And there is no change to the plan that we discussed at the Investor Day.

Lastly, on the operating cash flow outflow of $85 million for the quarter, around half of that came from changes in working capital, as you can see. This change in working capital was mostly related to the spinoff and should be seen in context of the capital contribution that our former parent company contributed to us. We expect to come back to more normal working capital movements from Q3 onwards. So you know about that.

If we then now look at the segment reporting on the next slide. In our Electronics segment, which includes the Restraint Controls and Active Safety, net sales developed also as expected. Our organic sales increase in Active Safety of 11%, where Vision, Radar products and ADAS controllers were strong sales contributors. This was more than offset by a 12% organic decline in Restraint Controls. This combined effect was offset by the favorable currency effect around 3%, as discussed earlier, resulting in an overall net sales increase of around 1%.

As we look ahead into 2019 and '20, this trend in Restraint Control is expected to rebound towards the end of 2019 and 2020, given the strong order intake we saw in 2016 and 2017. The operating loss increase for this segment was mainly due to the volume - mix effect of the organic sales, along with a planned increase in RD&E to support the future sales growth. And as we mentioned earlier, related to the RD&E increase, most of the hiring for the quarter and even over the last 12 months have been in this segment and particularly around the Active Safety product group.

Looking now into our Brake Systems segment on the following slide. The organic sales decline of 13% reflects lower volumes on certain models, along with the phaseout of specific other programs. However, based on specific Brake System orders won in '16 and '17 as well, we expect the organic sales to also rebound in 2020 as we also communicated at Investor Days. At the consequence of these lower volumes, the operating response was negatively impacted, but overhead reductions to reflect the lower production volumes partially offset this lower volume. The operating loss therefore was $4 million in the quarter and includes amortization on intangibles related to the acquisitions of $5 million for the quarter, and EBITDA remained unchanged at around 4.5% of sales.

Lastly, I just want to mention that the DMVS team obviously has done a very good job in adjusting the overhead structure to these lower volumes, and they will -- and they're waiting for the ramp-up to come.

So if we turn to the last slide, we can conclude that very little has actually changed compared to when we met with all of you at the Investor Days. If anything, our order intake progress, as Jan mentioned, continues to be strong and we have -- as we have described today, and this is obviously our main focus going into the second half of the year.

Before we move into the Q&A, I just want to recap some of the key investment highlights. First of all, we have an exceptional growth opportunity ahead of us, with a strong double-digit growth over the upcoming years that we can see. We are the only listed pure-play technology company dedicated to Active Safety, Advanced Driver Assistance and Autonomous Driving. We have a proven track record and heritage in automotive safety, with a strong product portfolio, evidenced by the record annualized order intake of around $1.1 billion over the LTM. And of course, combined, all of this, we believe that this will continue to create long-term value for all our stakeholders, including those of you who are on this call.

Thank you, everyone, for your attention and your interest in our great journey, and I will turn it back to Thomas to moderate the Q&A. Thank you.

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Thomas Jönsson, Veoneer, Inc. - EVP of Communications & IR [4]

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Thank you very much, Mathias and Jan. So now we will move into Q&A, and I will ask Egel to step in here in a second. (Operator Instructions) But with that, we will open up for Q&A, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is coming from Eric Golrang from SEB.

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Unidentified Analyst, [2]

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I have 2 questions. The first one is on your comments there around the -- potentially doing something to your 2022 targets. I'm just trying to get a bit of more understanding on what's really happened since the CMD, since it's now more than, I guess, 1.5 months that's passed. And then the second question is if you could provide a bit more color on -- you state in the report that a bit more than 10% organic growth for Active Safety for the full year. Is that bit seen as sort of 10% to 11%, or could that be 13%, 14% just as well?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [3]

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Well, on your first comment there, the 2022, I think we have been running on a continued strong pace. We've communicated $1.1 billion for the LTM. We have been running up until today essentially on the same level here since the Investor Days. We are, as we communicated, have taken 5 -- 15 different orders, where of 9 in Active Safety, we have added 2 new customers. We have 4 new product introduction at 3 customers. And so we are seeing a continued strong interest in our products. This is over the summertime frame, where probably activities are not as high as normal. So we are taking this as a good confirmation that Veoneer is off to a good start. We are up and running since 4 weeks as a standalone company. And of course, when you see that, in addition to somewhat higher take rate on the Active Safety components that we are producing today, we are looking into it. And we are looking into the need to see what we can do to capture this. And that is, of course, related to also potentially increased investments in engineering to be able to cope with it. As you know, to take customers, as we have communicated before, it goes via coming on the bid list, being technically qualified and then being ready to take an order. And that takes an effort. And I think we have a good chance to ride on this wave as we look upon it today. Then coming back to the outlook on the Active Safety. I don't think I have any color to give you more than what we have communicated here, just the number. To give you more details around this, where it's going to be in the teens, I don't know if that is appropriate today or not. We'll have to come back and give you more light on that after the third quarter earnings call.

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Unidentified Analyst, [4]

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And then just one follow-up on the first one. On the -- based on what you see now and the need to heighten investments near-term, is that something you think you could achieve in the current capital structure? Or would there have to be another injection, a rights issue this time, I guess, then?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [5]

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I think it's a good and fair question. We have no reason to believe we should have a different capital injection or a different capital structure to achieve even the -- execute on the potential uptick on customer interest here. So that is a good question and good clarification. There is no intention here as of right now to increase capital or look for more capital to execute it. We are, as well you know, communicated already a $70 million increase in engineering for this year compared to last year. We said that in January. We are maybe seeing this $70 million kicking up to potentially $80 million for this year. So that is within the capacity that we already have. But it is a slight deviation to what we have communicated.

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Operator [6]

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Our next question is coming from [Andres Angelof] from Handelsbanken.

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Unidentified Analyst, [7]

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I have a question on this order set that you received. Is this product orders, or have you specified that it's more of a system order like level 1 to a level 3. And that's my first question. The second question is where Zenuity is involved. Is Zenuity developing software parts or decision-making software for ADAS ECU? And how does that compare with the object identification software that Veoneer is developing? And if you also could maybe talk a little bit about these 800 engineers that are 70% in the software just to maybe shed some light on these different software applications.

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [8]

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It is predominantly product components that we are developing here. But of course, it has a hardware-related software ingredient into it. And even when we talk about Vision cameras, Zenuity is developing some parts of the software going into our Vision camera. So we are clearly seeing the 2 companies working more and more integrated here over time, actually, and that we have seen and what has been the plan from the very first beginning of the setup of Zenuity and the use of the competence and the strong investment in artificial intelligence and also the move where you go from rule-based algorithm to more AI-based algorithms in Vision, in particular. You can see that the benefit from Zenuity and Veoneer combined here is very strong. When it comes to the 250 engineers, that is related to the Veoneer only. If you look to the Zenuity part, they are, as of today, close to 600 people. They are 400 and -- or 500, you could say, employees and then you have another, ballpark, 81 consultants. Zenuity, as such, has also grown, in addition to these 250 people, with almost 70 people during second quarter. So that is also a continued growth on the Zenuity side. But predominantly, it's the components part of it. But of course, it's including software, it's also partly developed by Zenuity.

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Unidentified Analyst, [9]

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And can I have a follow-up question? I guess just the momentum that you're seeing in Active Safety, is that also what you're seeing on the Zenuity side when it comes to ADAS ECU software? And given that, is there a need for you to maybe see higher running costs for Zenuity for -- from Veoneer's perspective?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [10]

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As of right now, we have not revised the running cost of Zenuity. We'll have to evaluate that down the road. But we have no other numbers to give you than what we have communicated here from Zenuity. We are clearly seeing an increased interest on the Zenuity side too and -- where customers are interested in the concept. Remember, that Zenuity is a little -- is 1.5 years old almost. So it's a fresh entity, being able to establish itself already after 1 year to the extent they are today. So we are seeing also there an increased interest or a continued strong interest. And as we have mentioned before, we -- our target here, we aim to add 1 or 2 new customers in addition to what we had already here in 2018. And that target remains.

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Operator [11]

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Our next question is coming from Brian Johnson from Barclays.

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Brian Arthur Johnson, Barclays Bank PLC, Research Division - MD & Senior Equity Analyst [12]

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I just want to ask about the Vision, the Active Safety contracts you mentioned. So you mentioned 2 in China that are on the left-hand of the slide. You talk about 2 with major OEMs. I assume you're talking about different small contracts in China that are part of the 9 versus the 2 ones you flagged on the left side of the slide?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [13]

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Yes, yes. That's right. Yes. That's true. And -- but I think also even though these customers are relatively small or relatively young, they may be of high potential interest for the future due to their positioning in the market.

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Brian Arthur Johnson, Barclays Bank PLC, Research Division - MD & Senior Equity Analyst [14]

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Okay. So 2 questions then. With regard to the Chinese customers, are any of those the so-called new energy vehicle-focused companies that have very advanced like products? Or when you say they're small, they're just smaller regional or just smaller, they're starting on one platform, could expand with a major China OEM?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [15]

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Without going into all the details, I think some of them or one of them here are particularly focused on the new energy part.

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Brian Arthur Johnson, Barclays Bank PLC, Research Division - MD & Senior Equity Analyst [16]

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Okay. And then over on the global OEM programs. First, on the Vision contract. Did you say that, that was Vision, Radar? Or is it Vision only? And if it's Vision, Radar, do you also have the Radar piece?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [17]

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Yes, on the one that we have here, it's Vision and Radar. And we have both Vision and Radar. We have both -- when it comes to the Radar piece here, we have both frontal and corner radar.

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Brian Arthur Johnson, Barclays Bank PLC, Research Division - MD & Senior Equity Analyst [18]

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Okay. Good. And the driver attention monitoring, do you have -- would you have any other contract on that program?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [19]

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Just a clarification here. You meant on the smaller contract, where we talked about, what did you mean on the right-hand side or the left-hand side of the slide?

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Brian Arthur Johnson, Barclays Bank PLC, Research Division - MD & Senior Equity Analyst [20]

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No. On the left-hand side, the Vision win with a major global OEM.

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Thomas Jönsson, Veoneer, Inc. - EVP of Communications & IR [21]

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Vision only.

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [22]

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Yes. That's Vision only. What I said, there is a major contract through a major global OEM with Vision only.

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Thomas Jönsson, Veoneer, Inc. - EVP of Communications & IR [23]

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And maybe just for general clarification, those 2 contracts we referenced on the left-hand side on the slide that are in Vision and Driver Monitoring were announced in this quarter but ahead of the Investor Days.

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Brian Arthur Johnson, Barclays Bank PLC, Research Division - MD & Senior Equity Analyst [24]

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Okay. Okay. And is that contract Vision only or Vision but someone else's radar? And just what kind of...

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [25]

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This is a Vision -- for us, this is a Vision only, and that is maybe a follow-on with a Radar contract with somebody else for the radar part. But for us, this is a Vision-only contract. But it is a first order that is coming. We expect to see more of this coming later down the road.

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Brian Arthur Johnson, Barclays Bank PLC, Research Division - MD & Senior Equity Analyst [26]

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Okay. And final question, just in terms of financials. Could you just maybe make more tangible -- when you get a firm order in Active Safety, it means you already have a product and done some verification. But who -- what type of engineers, how many do you need, what kind of work do you need to do between contract award and launch that drives that engineering increase?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [27]

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Well, it's a lot of application engineering coming from where we are actually being technically qualified. But normally, there is a tuning of the product to the car, it's a validation project. And as we have said, from order to start of production, it is -- it can be even up to 4 years. But typically, 3 years, between 3 and 4 years as of today.

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Brian Arthur Johnson, Barclays Bank PLC, Research Division - MD & Senior Equity Analyst [28]

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Okay. And final question just because you're very generous, do you get any of that reimbursed either for progress payments or as when milestones are reached upon launch? I know others with electronics and safety...

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [29]

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Yes, we are getting some of it reimbursed, and we are also looking ahead here into the second half of this year, maybe even seeing a somewhat higher engineering income coming our way. To not draw any firm conclusion on that for the long haul, we are at least seeing that now for the quarters to come, actually. So some part of it is financed from customers.

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Operator [30]

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Our next question is coming from Itay Michaeli from Citi.

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Itay Michaeli, Citigroup Inc, Research Division - Director and VP [31]

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Just first, to clarify on the financial outlook. So is the guidance for the rest of the year incorporating some of the higher R&D that could support the upside to the 2022 revenue, or would that be only if you conclude that there's upside to 2022 revenue?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [32]

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It is included. So that I alluded to here, could be maybe up to a $10 million higher spend from $70 million, to potentially up to an $80 million spend. That is included in the numbers that we have given you here.

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Itay Michaeli, Citigroup Inc, Research Division - Director and VP [33]

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Okay. Great. And then any way to size up roughly what the magnitude of upside in 2022 could be based on this spending? Or is it too early for that?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [34]

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No, that is too early. Remember, that we have only been running this for 8 more weeks after the Investor Day and we thought to give you the best of our outlook at the presentations in Stockholm here and also in New York. We are seeing a continued strong interest in our product. And we just wanted to be transparent with you that while we are seeing this impact and potentially spending somewhat more money here in engineering, we are also looking into a potential revision of the 2022 target. But then it's too early to do that. I'm not sure we will even discuss that at the October earnings call. Maybe if we see this continue, then maybe we'll come back to that at the year end. But for the time being, we are holding on to our 2020 sales targets and also 2022 sales targets.

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Itay Michaeli, Citigroup Inc, Research Division - Director and VP [35]

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So that's helpful. And I'll sneak in one quick one. How much interest are you seeing beyond ADAS for level 2 applications? And how much of that do you think you can address with mono relative to stereo vision?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [36]

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I think it's, to some extent, customer-dependent and a little bit of the philosophy of what the customers have, when you look to stereo versus mono from a pure ADAS application point of view and how they're used to it and so forth. So I think we haven't seen any bigger changes. But of course, when we come out with competitive products on stereo vision, some customers are looking to that and potentially maybe switching from mono to stereo. But otherwise, the mono-vision camera will be for the ADAS application level 2, the dominating-type product.

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Operator [37]

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Our next question is coming from Victoria Greer from Morgan Stanley.

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Victoria Anne Greer, Morgan Stanley, Research Division - VP [38]

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Can you help us think about the pace of how things can change going into 2019? I know in the statement, you've talked about the ramp-ups being more probably into the later part of the year. Could you talk us through what the tempo is there? And then associated with that, I'm not really looking for a sort of overall profitability commentary for '19, but just to think about the shape of it through the year. If the launches are more H2-weighted, should we think about H1 '19 cost pressures, for example, ex obviously whatever happens around your new orders and R&D needing to increase, just thinking about the ramp-ups for a much higher growth level for 2019?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [39]

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All very good questions. I'm afraid I won't be able to give you any details on it. 2019 will be a year following 2018 with a lot of hard work and executing on the projects. We will see the ramp-ups starting towards end of '19 of the stronger order intake. And in the beginning of the year, we will continue to execute on our projects that we have taken and hopefully will take for the remainder of this year. So apart from that, I'm not, at this stage, able to give you any more detailed outlook. But the execution will continue, potentially then up to another $10 million for the total engineering spend in 2018. That would mean that we would go out on a run rate of 2018 that is somewhat then higher than what we are seeing today to be able to execute on our projects and also to work on our customer pursuits. And that is not the least important. And I'd like to address that, that a lot of these expansions that we might look to here is to be able to continue to be technically qualified. It takes time to get into new customers here. It takes time to get technically qualified. And you need to have people devoted to that and they're being dedicated to new customer pursuits. So we'll come back to you with our outlook for 2019 then in the beginning of -- or in January at our earnings call after Q2 -- fourth quarter.

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Operator [40]

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Our next question is coming from Joseph Spak from RBC Capital Markets.

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Joseph Robert Spak, RBC Capital Markets, LLC, Research Division - Analyst [41]

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I guess just -- I understand not wanting to give specifics to sort of maybe the upside. But can you help us just understand like a rule of thumb, like for every maybe $100 million of order intake you get, how much do you think you would need to spend in order to secure that business?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [42]

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I think that's also a good question. It varies very much from type of products, on what time frame it is, on what type of project it is. Is it order intake on a component part like a, more or less, a standard mono-vision camera or a standard radar component? Is it somewhat system-related like the L3 order we took to Geely . It's hard to give you any good number on it. But we are -- coming back to what we are seeing here, taking 15 new orders in just 8 weeks, 9 in new Active Safety orders in just 8 weeks, adding these new customers, even if they are small, but for us, I think, they are an important milestone. It's giving us, of course, some thoughts whether we can change our 2022 targets. Let us work now during this half of the year to get more into how this can evolve, and let us come back in January with our thoughts around that and see 2022 and also what type of investment is needed.

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Joseph Robert Spak, RBC Capital Markets, LLC, Research Division - Analyst [43]

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Okay. And then the second question, just on Zenuity. So it looks like, year-to-date, you contributed $71 million. And I think you've talked about the need to continue to fund. So I mean, how should we think about the level you need to contribute to that venture this year and over the coming years? And also, I was curious if you could help us or let us know what the book value of Zenuity is on your balance sheet and whether you would consider or need to market up in light of some other transactions in the space.

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Mathias Hermansson, Veoneer, Inc. - CFO & Executive VP of Financial Affairs [44]

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Thanks. This is Mathias here. I think as Jan mentioned before, I think you saw a run rate EBIT of -- impact for us of $16 million in the quarter for Zenuity. And from that level, I think we don't see any material changes. The $71 million is the funding we joined today together with our partner there, which is largely 4 years of cash flow for that company, give or take. But it's not directly linked to any time-specific period today. When it comes to the book value of -- sorry? Sorry, go ahead...

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Joseph Robert Spak, RBC Capital Markets, LLC, Research Division - Analyst [45]

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Go ahead.

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Mathias Hermansson, Veoneer, Inc. - CFO & Executive VP of Financial Affairs [46]

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I think when it comes to the book value, I think that, that is actually booked at cost when we incepted a year ago roughly, which is, I think, around $115 million, give or take. But -- and no, we are not seeing any -- we don't have any plan to mark that up. I don't even think we can do it unless there is a transaction that we can base that on. So -- but obviously, you're bang on there. I think it's probably valued more than the book value, I guess.

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Operator [47]

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Our next question is coming from Vijay Rakesh from Mizuho.

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Vijay Raghavan Rakesh, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Semiconductor Analyst [48]

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Just not sure if this question was asked. But when you look at the Roadscape 3D-mapping side, I'm just wondering how that pipeline is shaping up. I know you talked about ADAS just now, but how is that, the mapping side, evolving? How many design wins do you expect over the next 6, 9 months?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [49]

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Well, as we communicated, we have taken our first -- at our Investor Day -- we have taken our first orders in Roadscape and we are also seeing there a continued interest in our Roadscape business. We have not booked any business on the Roadscape since our Investor Day, but we have here, at the moment, 2 awards, 2 customers on the Roadscape. We have one customer being technically qualified, and we have another 3 customers on the bid list for it. So it will come. We have some good hopes also for the Roadscape part.

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Vijay Raghavan Rakesh, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Semiconductor Analyst [50]

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All right. And on the LiDAR side, we have been hearing costs are coming down significantly. As we look into next year, just wondering what you guys are seeing in terms of your new engagements or design wins on that side over the next...

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [51]

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Well we are also seeing here, continued interest, and we are in discussions with a customer on further LiDAR orders. As you know, we have taken our first order in LiDAR. We have here 11 customers on the bid list, and we have been technically qualified with 8 customers. So -- and we are in discussions also on further awards with customers on the LiDAR side. We are working with Velodyne . Velodyne is our partner for this one, and we are happy with that. And for the time being, and for some time, we think that a rotating LiDAR will be the solution out there. Of course, the solid-state version will come. But I think that is still yet to be determined, who is going to be the winner there. I think Velodyne has a compelling technology that is coming also there. But ultimately, at the end, who's going to be the winner, I don't think it's yet decided.

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Vijay Raghavan Rakesh, Mizuho Securities USA LLC, Research Division - MD of Americas Research & Senior Semiconductor Analyst [52]

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And just last question on that. When you said technically qualified, is the conversion rate pretty high from that to a design win?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [53]

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No, it's -- I mean, you have to go through that as we are working with the Velodyne technology and building that part in production, it takes time there to be technically qualified. And that's the milestone, that the customer can have trust in the partnership with us and -- with Veoneer and with Velodyne. And that's where we are seeing core customers reaching that stage. And then finally, it's about them having the right platform, the right program and then also, ultimately, commercialization.

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Operator [54]

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Our next question is coming from Viktor Lindeberg from Carnegie Investment Bank.

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Viktor Lindeberg, Carnegie Investment Bank AB, Research Division - Financial Analyst [55]

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And that's Carnegie Investment Bank. I have 2 questions. 2 questions from my side on geography. On the order intake that you have seen now on the Active Safety side, can you comment on this from a geographical perspective and if you see materially different OEM behavior or maybe adaptation depending on where they are based? And secondly, on Zenuity, I know you have a few clients there, potential clients on the bid list. Can you also comment on them from a geographical perspective, if there's any bias and...

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [56]

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Well, I guess we have had discussions, and we have discussions in all geographies on the Zenuity side. We have been -- and as you can understand, when we have the Geely order, we have been seeing customers in China. We are seeing definitely an interest from the Chinese OEMs and from customers in China on the Zenuity side. But it's not limited to there. We have also customer discussions in Europe and also with global -- other global OEMs. So Zenuity faces a global interest on the software part. When it comes to the significant or materially different demand, the markets are different in China and in Europe and in North America and has always been different. And also here, the rapid adoption of electrification in China and also, probably there, a need for a high technology towards Autonomous Drive is showing a good potential in China. It's showing a market interest in China and probably coming faster than what it did when it came in Europe and in North America. And as you can see, we have also mentioned here the 2 new customers in China. So we -- clearly, China is an important market for the future. And the Chinese OEMs, but also other OEMs than China, are interested.

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Operator [57]

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The next question is coming from Ashik Kurian from Jefferies.

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Ashik Kurian, Jefferies LLC, Research Division - Equity Analyst [58]

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I've got 2. The first one is how confident are you in sustaining this 20% increase in order intake? I know you don't guide on order intake. But the reason I ask is I believe last year's order intake was stronger in the second half, and your last 12 months would include the second half of last year. So is the current rate of order intake that you see, is that enough to sustain the 20% growth for the full year basis? And then the second question is your commentary on the ramp-ups in Restraint Control and Brake Controls being towards the end of 2019. Should we expect the current declines we're seeing in them to continue into the first half of 2019 as well?

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [59]

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Both very good questions. You are absolutely right that 2017 was back end-loaded. And it's a good thing that you mentioned that because when you're commenting on the last 12 months, suddenly, a quarter falls off, and if that is heavy-loaded, you may have a last 12 months' order intake being higher, then you have a quarter for -- four more quarters where then it's going down. The important part here is not to look probably quarter-over-quarter on an LTM basis because then you end up exactly what you are talking about. The important part is to look on the trend line overall for -- over the time and to see that trend line increase to -- so that you can match your expected growth numbers in 2022 and our ambition in 2025. And my confidence, you asked -- your true question was to ask me for my confidence. I'm seeing a heightened customer interest. But from there to say that, yes, we will, or it's possible or so forth, I can -- you can never guarantee this. This is a fierce competition out there. But I think we again here are off to a good start. All the indications that we have right now is that if we have the right -- can bring the right people on board, and we are talking a little bit here of the engineering increase, to have dedicated people on pursuit, dedicated people on working with new customers, I think we still -- we have this -- a good chance to sustain this. But to give you a comment here on an earnings call, that is impossible, actually. The ramp-up here on the Restraint Control, the negative numbers here, the declines that you are seeing now is coming from very low order intake in 2014 and 2015 on Restraint Control. Looking back on our numbers in 2016, '17 and also up here in '18, it's showing a totally different order intake level. But that takes time to materialize. I don't think you should calculate with any rebound or anything in your models as until, we have said, until end of '19 when you start to see the ramp-ups. But for guidance, more in detail or numbers, we will come back to you in January.

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Ashik Kurian, Jefferies LLC, Research Division - Equity Analyst [60]

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Can I just ask a quick follow-up on the order intake commentary because from -- based on what Mats explained during the CMD, you would need a step up in the 2018 order intake to kind of be fully booked for the 2022 revenue targets, right? So I mean, I agree with you on the quarterly variation. But on an annualized basis for 2018 and 2019, your current 2022 revenues would imply that you would need a higher level of order intake. Am I correct in thinking that?

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Mathias Hermansson, Veoneer, Inc. - CFO & Executive VP of Financial Affairs [61]

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Hi, it's Mathias here. Yes, absolutely. I think that's also why we do not automatically have a one-to-one correlation between engineering spend and order intake -- sorry, the sales target in 2022. So you're absolutely right.

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Operator [62]

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The next question is coming from Chris McNally from Evercore.

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Christopher Patrick McNally, Evercore ISI Institutional Equities, Research Division - MD [63]

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2 high-level questions on maybe Zenuity, if we can, one financial and one evolution of maybe the market TAM. So on the financial, again, I know that you can't put hard numbers, but just high-level, is it fair to say that our expectations should really be rebased, that this is something that we probably won't see material revenue or EBIT until probably the early 2020s for revenue and maybe mid-2020s for EBIT, given that's just 3- to 4-year lead time?

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Mathias Hermansson, Veoneer, Inc. - CFO & Executive VP of Financial Affairs [64]

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I think we haven't been specific on that. But we should expect quite -- for quite some time that we're going to continue to invest in Zenuity.

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [65]

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You can have -- you know we are launching our ADAS software in 2019 and our AD software in 2021 as an indication, and it is launching in 2021 and the other one is launching in 2019. So that is the best indication. And from there, you can see -- that's when the first customer takes it, and then you have follow-on customers to the software. But this is an arrangement made for the longer term and to give us the position for being the leading player here for the longer term. It's not for the short term.

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Christopher Patrick McNally, Evercore ISI Institutional Equities, Research Division - MD [66]

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Okay. Great. And then just on the market that you're going after as we think about the TAM. Is it fair to say -- and I think you made these comments -- that you are, for the foreseeable future, focused on what we would say, level 3, level 4 production cars similar to the strategy that Volvo was taking and the Germans seem to be taking about cars sold to consumers and that for the time being, you are less focused on -- where the Americans are a lot more focused in Silicon Valley -- on the idea of robo-taxis and basically an urban environment? Just so we can understand which TAM we're thinking about for basically the mid-2020s.

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [67]

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Yes, you are absolutely right. We are focusing more on the level 1, 2, 3 and then level 4 coming from bottom-up rather than the level 5 and then level 4 coming from top-down. We believe that we have a very good chance to develop a very good level 4 system with the features that is advanced enough that people buying cars, like people like you and me owning our own cars, would really appreciate to have. And that is our TAM.

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Operator [68]

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As there are no further questions in the queue, that will conclude today's Q&A session. I would now like to turn the call back to Mr. Jan Carlson for any closing or additional remarks.

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Jan Carlson, Veoneer, Inc. - Chairman, President & CEO [69]

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Thank you. And, well, I would like to thank everyone for your participation here today. Your questions, interesting ones. We are extremely excited for the journey ahead. We, of course, look forward to talk to you again at our next conference calls and also roadshows ahead during here in the third quarter. In the meantime, we will continue to hunt business, to hunt down more orders and to continue to execute on our already taken order book. But our next point of contact formally will be then October 26, which is our third quarter earnings call. So I would like to thank you again, everybody listening to this call and inside Veoneer and also outside, of course, and wish you all a safe and relaxing summer until then. So thank you very much, and goodbye for now.