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5. Magna International Inc. Business Report FY ended Dec. 2019

Magna International Inc. Business Report FY ended Dec. 2019

Factors
1) Net Sales
-The Company’s sales in the fiscal year ended December 31, 2019 decreased by 3.4% over the previous year to USD 39,431 million. The decrease in sales was primarily due negative foreign currency exchange effects decreasing sales by approximately USD 1.28 billion. The net effect of divestitures and acquisitions also decreased sales by USD 749 million. Excluding foreign currency translation effects and changes in scope, sales increased by USD 637 million due to the launch of various programs, particularly in the Complete Vehicles segment. These gains were partially offset by decreased light vehicle production, including the effect of the GM strikes, lower production volumes of the BMW 5 Series, the end of production on various programs, and net customer price concessions.

2) Body Exteriors & Structures sales
-The Body Exteriors & Structures segment had sales of USD 16,548 million in the fiscal year ended December 31, 2019, a decrease of 6.1% over the previous year. The launch of new programs, including the Ford Ranger, GMC Sierra, Chevrolet Silverado, Jeep Gladiator, Chevrolet Blazer, Cadillac XT6 and BMW X3 had positive effects on the segment’s sales. However, these gains were offset by decreased light vehicle production, a sales decrease of USD 392 million from currency translation effects, the end of production of programs including the Chevrolet Cruze, and net customer price concessions.

3) Power & Vision sales
-During the fiscal year ended December 31, 2019, the Power & Visions segment’s sales decreased by 8.2% to USD 11,312 million. Divestitures decreased sales by USD 861 million, while foreign currency translation effects decreased sales by USD 383 million. Excluding changes in scope and currency translation effects, the Power & Visions segment’s sales increased by USD 235 million due to the launch of new programs including the BMW X3, Jeep Gladiator, Chevrolet Blazer, Cadillac XT6, BMW X7 and dual-clutch transmissions for various Daimler vehicles. This was partially offset by decreased light vehicle production and customer price concessions.

4) Seating Systems sales
-The Seating Systems segment had sales of USD 5,577 million in the fiscal year ended December 31, 2019, an increase of 0.5% over the previous year. Factors contributing to the increase in sales were the launch of several programs including the BMW X5, BMW X7 and BMW 1 Series; as well an acquisition which increased sales by USD 108 million. These gains were partially offset by the end of production on various programs, a USD 149 million decrease in sales from foreign currency translation effects, customer price concessions and decreased global light vehicle production.

5) Complete Vehicles sales
-Sales in the Complete Vehicles segment increased by 11.4% in the fiscal year ended December 31, 2019 to USD 6,707 million. The increase in sales was due to the launch of the BMW Z4, the Jaguar I-Pace, the Mercedes-Benz G-Class and the Toyota Supra. These gains were partially offset by decreased volumes on the BMW 5 Series and Jaguar E-Pace, as well as a decrease of USD 389 million from foreign currency translation effects.

Acquisitions

-The Company agreed to acquire Wipac Czech s.r.o., a premium automotive lighting engineering firm located in Ostrava, Czech Republic. The transaction is the Company’s second lighting acquisition in two years and is expected to close the week of November 25. The acquisition will expand the Company’s engineering capabilities globally. Wipac Czech’s engineering team designs and develops automotive forward lighting, primarily for European exotic and luxury brands. With more than 40 engineers on staff, Wipac Czech has significant technical competencies, having served premium customers including Aston Martin, Bentley, Rolls Royce, McLaren, Lamborghini, Bugatti, Audi, Daimler, BMW and Porsche. (From a press release on November 20, 2019)

-The Company has completed the acquisition of VIZA Geca SL, a Spain-based supplier of seat structures and related systems. VIZA’s deep expertise in structural products gives the Company added support to strengthen its competitive position, particularly in Europe. (From a press release on April 29, 2019)

Restructuring

-Rico Auto Industries Limited along with its step down subsidiary, Rasa Autocom Limited has completed the acquisition 21,120,000 equity shares of Magna Rico Powertrain Private Limited from the Company’s subsidiary, Magna Powertrain GmbH for a total consideration of INR 85.6 million. (From Rico auto Stock exchange filing on March 30, 2019)

-Hanon Systems Corporation announced that it completed the acquisition of the Company’s Fluid Pressure and Controls Division for USD 1.2 billion. The Company’s Fluid Pressure and Controls Division supplies core components for hybrid and electric vehicles such as electric cooling fans and electrically-controlled transmission oil pumps. The acquisition this time will allow Hanon Systems to acquire approximately 4,100 workers and nine production and engineering bases in Europe, North America, and Asia. In 2018, Hanon Systems and Magna’s Fluid Pressure and Controls Divisions presumably generated KRW 7.6 trillion or JPY 744.8 billion in sales. (From a press release on March 29, 2019)

-Rico Auto informed that its Board has approved the acquisition of equity shares by Rico Auto and its step-down subsidiary, Rasa Autocom Limited, in the 50:50 joint venture company Magna Rico Powertrain Private Limited from the joint venture partner Magna Powertrain GmbH. Following this acquisition, the joint venture will become a subsidiary of Rico Auto. As such, Rico Auto along with its step down subsidiary will hold the entire share capital of the joint venture. Acquisition of equity shares is part of ongoing group consolidation exercise. At present, Rico Auto holds 50% equity shares capital in Magna Rico Powertrain Private Limited. (From a press release on February 12, 2019)

Joint Ventures

-On January 15, 2019, Magna Blue Sky Technology (Zhenjiang) Co., Ltd., a joint venture between the Company and Beijing Electric Vehicle Co., Ltd. (BJEV) held a ceremony to mark its opening in Zhenjiang, Jiangsu, and the construction of Magna Blue Sky NEV Technology (Zhenjiang) Co., Ltd. The joint venture develops electric vehicles under ARCFOX, a high-end brand of BJEV. The mass production of its first model is scheduled to begin in 2020. Blue Sky NEV Technology (Zhenjiang) is involved in the research, development, and measurement of battery cell modules and battery packs, those of chassis and durability, and those of electronic control systems and vehicles. (From a press release on January 16, 2019)

Recent Developments

-J.D. Power released its 2019 U.S. Seat Quality and Satisfaction Study, showing the number of problems experienced per 100 vehicles. The study is based on responses during the first 90 days of ownership of more than 75,000 purchasers and lessees of new 2019 model-year cars and light trucks registered from November 2018 until February 2019. The results for each supplier are as follows (listed in order of equipped model, and number of seats with problems per 100 vehicles): (From a press release on August 22, 2019)

• Lear: Porsche 918 [0.0], Porsche 911 [2.5], Hyundai Santa Fe [3.0], Chevrolet Silverado [2.8].
• Magna International: Ford Edge [4.7], Jeep Grand Cherokee [4.7].
• Faurecia: VW Golf [3.2], Chevrolet Colorado [4.0].
• Adient: Chevrolet Malibu [3.9], Toyota Avalon [3.9].
• Tachi-S: Nissan Maxima [3.5], Mitsubishi Outlander Sport [1.4].
• Toyota Boshoku: Toyota 4 Runner [4.5]

Contracts

-On December 17, INEOS Automotive announced an expansion of its partnership with the Company. The Magna Powertrain subsidiary had been responsible for chassis and suspension development since the inception of the project. Magna Steyr will join the project and undertake the series development phase of the forthcoming Grenadier utility vehicle. The confirmation of Magna Steyr’s appointment follows recent announcements from BMW as suppliers of their world-class I6 turbocharged petrol and diesel engines for the Grenadier, and its new manufacturing home in Bridgend, South Wales. INEOS Automotive is moving into series development and will set its sights on the start of production. (From INEOS Automotive press release on December 17, 2019)

-The Company has developed and will supply an all-new dual-clutch 8-speed transmission for the Ferrari SF90 Stradale.  The innovative, next-generation DCT provides improved torque and shifting while also reducing weight and CO2 emissions. It integrates new technologies such as a honeycomb housing structure to reduce weight by approximately 10 kg and improve torque-to-weight performance. Projects such as the SF90 Stradale transmission benefit the Company’s full line of conventional and hybrid DCTs, as many technologies can be transferred to further improve efficiency, weight and packaging. (From a press release on December 11, 2019)

-The Company announced that BMW has awarded it the largest production order for transmission technologies in the Company’s history. The multi-year contract includes all front-wheel drive dual-clutch transmissions, including hybrid transmission variants. The transmission technologies will be used in more than 170 different vehicle applications. The Company’s new hybrid solution has no impact on the overall package size of the transmission, which provides manufacturing flexibility to BMW. The hybrid variants also use a compact, 48V high-RPM electric motor within the transmission housing, providing innovative driving features while further improving fuel efficiency. The transmissions will be built at Company facilities in Neuenstein, Germany, and Kechnec, Slovakia. (From a press release on October 30, 2019)

-Huayu Magna Electric Drive System Co., Ltd., a joint venture between the Company and Huayu Motors, celebrated the production of the first domestically-made e-Drive system assembly on October 18, 2019. The system integrates a motor, an electrical control, and a speed reducer, emphasizing its high efficiency, reduced weight, and low noise. The joint venture will provide the system to VW plants, including the SAIC-VW Anting MEB plant, and FAW-VW Foshan MEB plant, initially for three VW and Audi electric SUV models. The joint venture also plans to launch the production of MEB e-drive systems for VW and GM BEV3 within the next four years. After the first phase of construction, the plant will have an annual output of 0.3 million units. (From a post on SAIC Motor WeChat official account on October 18, 2019)

Awards

-In 2019, two of the Company’s products were finalists for the 2019 PACE Award: the solid state lidar and augmented reality camera. The Company’s composite space frame was nominated for a 2020 PACE Award.

R&D Facilities

-As of December 31, 2019, the Company has a total of 94 product development, engineering and sales locations across 15 locations.

R&D Activities

-The Company has been awarded a grant by the U.S. Department of Energy (U.S. DOE) to develop and auto-qualify advanced electric motor technologies for next-generation vehicle propulsion systems in partnership with the Illinois Institute of Technology and University of Wisconsin-Madison. The project objective is to develop an automotive-grade, non-permanent magnet electric motor for next-generation vehicle propulsion systems that is half the cost and eight times the power density compared to current motors, while delivering 125 kW of peak power. The project will integrate exclusive electric motor technologies with a transmission and inverter as part of an e-drive system. The project scope includes development and use of innovative materials, cooling technologies, winding technologies, simulation models, and control and optimization techniques. Designing for automotive standards and low-cost manufacturing using the Company’s comprehensive design framework is another key project element project. The electric motor technologies will be presented to U.S. DOE for evaluation in 2021. (From a press release on October 30, 2019)

-The Company tests its prototypes and current production vehicles with Company technologies in a state-of-the-art display of advanced propulsion systems on a frozen test track in northern Sweden, including full-electric, high-voltage and mild-hybrids with 48-volt technology. The testing takes place under demanding climatic and driving conditions, challenging the technologies to prove their functional advantages. The highlight at Magna Wintertest ’19 is the premiere of the e2 prototype vehicle, which represents the entire range of electrification in one vehicle. The e2 includes both a hybridized dual-clutch gearbox and an electric rear axle with torque vectoring that can be activated across different power ranges. This allows a demonstration and comparison of ten different powertrain configurations within a single vehicle architecture. (From a press release on February 27, 2019)

-The Company announced that it has successfully conducted a joint ride sharing test on public roads using Level 5 fully autonomous vehicles with Lyft, Inc. (Lyft), a ride-sharing software company. The Company and Lyft have been jointly developing software stacks and hardware kits for autonomous driving systems. The ride sharing test was conducted using Level 5 autonomous vehicles on a route between the two companies’ development facility in Palo Alto, California, the U.S. and Caltrain Station in Northern California. The Company and Lyft aim to use the autonomous vehicles they have jointly developed for Lyft’s vehicle allocation network within the next few years. (From an article in the Nikkan Jidosha Shimbun on January 17, 2019)

Product development

Technologies shown at IAA 2019
-The Company will share its vision for the evolving mobility ecosystem at IAA 2019. Magna will focus on four key areas of mobility: autonomy, electrification, smart mobility and light weighting. The Company will present ADAS technologies that are shaping an autonomous future and improving lives. For e-mobility, the Company will present modular and scalable electrified powertrain systems to reduce complexity and to power a range of vehicles. Under smart mobility, the Company will demonstrate how vehicles can be used and shared differently by making them more adaptable to various needs - from ride-sharing and family travel to cargo delivery. The Company also is leveraging new materials and its body and structures expertise to help make vehicles lighter. (From a press release on August 26, 2019)

FreeForm seat trim manufacturing process
-The Company has introduced the FreeForm seat trim cover technique as a solution for improved seat comfort that also provides a clean, sculpted, seamless styling surface, high seat concavity, enhanced cleanability and increased design flexibility. The Company offers the freedom to achieve endless design possibilities with various shapes and crisp styling lines, allowing design details as sharp as a 3-4 mm radius compared to 20-25 mm for traditional cut-and-sew. The new patent-pending technology offers improved seat back comfort with highly concave surfaces and back panels that have a soft touch and provide up to four inches of additional rear seat knee clearance. Seats are easier to clean because they feature simple construction with a seamless surface, ideal for future scenarios such as ride sharing where the seat covers can be swapped out using a zipper. The FreeForm manufacturing process enables more surface control and repeatable precision, can be used in both low- and high-volume vehicle programs, and works with all seat materials, such as leather, cloth or vinyl. (From a press release on June 13, 2019)

ClearView vision system
-The Company’s ClearView vision system features a pair of mirrors with integrated cameras, one on the inside and one on the outside of the vehicle, to improve vision of the area around the vehicle. The exterior camera uses a self-cleaning camera with a side-view mirror and can display live video in the vehicle. Other features such as turn signals, ground illumination lighting and surround-view cameras can also be integrated into the mirror. The interior mirror can alternate between showing the view of a traditional rear-view mirror or a full-size video display from a rear camera. Through the use of smaller exterior cameras and mirrors, The ClearView system also reduces drag, thus improving the vehicle’s fuel economy and reducing interior noise.

Flecsform flexible lighting solution
-Flecsform is a flexible lighting solution developed by the Company through a joint venture with Rohinni. Flecsform offers high-performance, flexible lighting that is brighter, lighter and more energy-efficient than other alternative technologies such as OLEDs. It uses thin-film micro and mini LEDs that are thin as a piece of paper and provide uniform lighting. Flecsform can also be used in vehicle interiors, to enable brighter displays that are visible in daylight.

Composite space frame
-The composite space frame represents the Company’s continuous efforts to reduce vehicle weight. The space frame is approximately 10% lighter than conventional steel and can be used on liftgate modules, side door modules and windshield headers. The composite space frame made its series production debut on the 2020 Toyota Supra.

Sony Vision-S concept vehicle
-The Company’s Magna Steyr subsidiary assisted Sony throughout the development and manufacturing process of the Sony Vision-S electric prototype sedan that was unveiled at the 2020 CES. Magna Steyr supported Sony across various developing phases, including vehicle engineering, styling and system integration. The Vision-S concept features 33 different sensors across the entire vehicle, multiple widescreen displays, 360-degree audio and constant connectivity.

SmartAccess power door system
-The Company’s SmartAccess system is a complete power door system that is the first in the industry to feature a haptic motion control system. This enables the door to be opened or closed through gesture controls. The SmartAccess system also has an advanced obstacle detection system to prevent impacts between the door and people or other objects. Anti-slam technology limits the potential force that can be applied to the door.

e4 demonstration vehicle
-The e4 demonstration vehicle highlights the Company’s eDrive systems in a battery electric vehicle. It provides approximately 120 km longer range than current production models and uses integrated permanent magnet synchronous motor eDrive systems on the front and rear axle. The front system has a mechanical differential, while the rear has a twin-clutch torque vectoring system. Other Company systems on the e4 vehicle include the gearbox, inverters, inverter software and vehicle control strategy.

Recyclable thermoplastic liftgates
-The Company offers automakers unique expertise in delivering recyclable thermoplastic liftgates, which provide up to 25% weight savings compared to steel and allow for broader design flexibility. The Company began producing thermoplastic liftgates in 1999 for a premium European automaker, followed by several more European launches. The Company signed two contracts in 2018 for thermoplastic liftgates on the 2019 Jeep Cherokee and 2019 Acura RDX. The Company will launch two more later this year in China. IHS Markit estimates the global SUV/compact SUV market will grow from 34 million units in 2018 to almost 43 million units by 2025. The Company sees a considerable growth opportunity to provide thermoplastic liftgates for this growing segment. (From a press release on August 30, 2018)

Multi-material battery frame
-The Company has developed an industry-first, multi-material battery frame. The battery frame is comprised of advanced composites and metals to meet battery housing requirements of electric and hybrid vehicles.

ICON RADAR
-The Company unveiled its ICON RADAR at the North American International Auto Show in Detroit. ICON RADAR incorporates advanced technology used by the U.S. military to provide precise detection, high resiliency and extensive range. The Company has been collaborating with technology startup Uhnder in engineering and product development to bring the technology to market in 2019. With a range of more than 300 meters, the ICON RADAR continuously scans the environment, tracking objects’ distance, height, depth and speed. The advanced radar technology can detect and track nearly 100 times more objects than competitive systems and individually classifies them. It is able to detect static objects such as guard rails, road debris and speed bumps, as well as moving objects such as vehicles, bicyclists, pedestrians and pets. With its compact size, ICON RADAR also allows greater flexibility in exterior design and can be easily integrated into an automaker's autonomous system or as part of the Company’s MAX4 autonomous vehicle platform. (From a press release on January 15, 2018)

Patents

-As of December 31, 2019, the Company has more than 3,800 global patents, including 1,300 that were granted since 2017.

Investment outside Canada

<U.S.>
-The Company celebrated the opening of a new USD 50 million electronics manufacturing facility in Grand Blanc Township, Michigan, U.S. for ADAS systems, advanced robotics and micro-LED lighting. The 230,000-square-foot state-of-the-art facility consolidates three nearby locations, including Magna Electronics Holly and the Magna Rohinni Automotive joint venture established in 2018 to bring paper-thin, flexible, micro-LED products to the market. The factory is expected to be fully operational by fall 2020 with more than 600 employees, and will ship components to more than 330 global locations. The facility will also house the Company’s advanced robotics R&D testing lab, which allows it to tailor more efficient robots and production processes at global factories. Magna Electronics Holly began manufacturing automotive-grade cameras in 2005 and has since produced more than 46 million ADAS components. The Company now combines cameras with other sensors such as radar and lidar to develop the ADAS systems that make up the building blocks of autonomy. (From a press release on August 14, 2019)

-The Company has won new seating business in North America with a global automaker and will supply seat structures from a new manufacturing facility in Lancaster, Ohio. Construction has recently started on the 150,000-square-foot facility with an initial investment of approximately USD 60 million. The new seating plant is expected to be operational in the first quarter of 2020 and employ 300 people by 2021, with the possibility for future growth. The facility represents the Company’s first dedicated seat structure plant in the U.S. and will feature robotic laser and MIG welding capabilities. The facility is strategically located to provide seat structures to the Company’s customers, starting with a new plug-in hybrid vehicle for a global automaker. The new seating facility in Lancaster will be the Company’s fifth location in Ohio. (From a press release on July 30, 2019)

-Dakkota Integrated Systems LLC, a joint venture between the Company and Rush Group LLC, announced that it is investing USD 55 million to build a new assembly plant in Detroit to serve FCA’s new assembly plant in the city. Dakkota Integrated Systems’ new 600,000-square-foot assembly plant on Detroit’s east side is located on a 32-acre site. The plant will employ an estimated 625 people. Dakkota Integrated Systems manages assembly and sequencing of integrated automotive interiors for OEMs. Construction to convert FCA’s two Mack Avenue engine plants has been under way since June. FCA is investing USD 1.6 billion to convert the idled Mack Avenue Engine Complex to build the next-generation Jeep Grand Cherokee and a new three-row full-size Jeep SUV, starting in late 2020, and another USD 900 million to update the Jefferson North Assembly Plant in Detroit for the Dodge Durango and all-new Jeep Wagoneer. (FCA release on July 9, 2019) (Dakkota Integrated Systems announcement) (Detroit News article on July 9, 2019)

-Local Ohio government officials announced that Magna Seating of America, a subsidiary of the Company, will invest USD 14.6 million to add a new building to its manufacturing base in Lancaster, Ohio, for the production of automotive seat components and assemblies. The Company will begin production prior to completing the building by installing one production line in Lancaster Port Authority's speculative building and continue that operation until their building is complete, according to Lancaster’s mayor. Production is expected to begin in early first quarter of 2020. (From multiple sources on March 25, 2019)

<Morocco>
-The Company announced that it recently broke ground for a new facility in Kenitra, Morocco, to supply global automakers with exterior and interior mirror systems. The 61,400-square-foot facility represents an investment of USD 11.3 million and is expected to create up to 275 jobs. Production at the new plant is projected to begin in spring 2020. With this new facility, the Company expands its reach in enhancing driver experiences through intelligent vision systems. (From a press release on April 23, 2019)