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5. Magna International Inc. Business Report FY ended Dec. 2017

Magna International Inc. Business Report FY ended Dec. 2017

*External production sales do not include sales from complete vehicle assembly activities nor tooling, engineering, and other activities.

Factors
1) Net Sales
-The Company’s sales in the fiscal year ended December 31, 2017 increased by 6.9% over the previous year to USD 38,946 million. The 6.9% increase in sales is significantly larger than the 2% growth in global light vehicle production in 2017. Sales increased in all of the Company’s operating regions in the fiscal year ended December 31, 2017.

2) North America
-External production sales in North America increased by 1.0% in the fiscal year ended December 31, 2017 to USD 19,571 million. The increase in sales resulted from the launch of new programs including the Chrevrolet Equinox, GMC Terrain, Jeep Compass, Volkswagen Atlas, Ford F-Series SuperDuty and Chevrolet Bolt. Sales also increased by USD 102 million due to positive foreign currency exchange effects. These gains were partially offset by lower production volumes and end of production on specific programs, as well as customer price concessions.

3) Europe
-In the fiscal year ended December 31, 2017, the Company’s external production sales in Europe increased by 10.7% to USD 10,115 million. The launch of new programs including the BMW 5-Series, Audi Q2, Alfa Romeo Stelvio, and Mercedes-Benz GLC, GLC Coupe, E-Class Coupe and E-Class Cabriolet all improved sales in the region. Another factor leading to the increase in sales include acquisitions made during or subsequent to 2016, leading to an increase in sales of USD 111 million. Finally, the operating region had increased sales of USD 141 million due to positive foreign currency exchange effects. Factors that partially offset the increase in sales include lower production volumes and sales of certain programs and net customer price concessions.

4) Asia
-The Company’s external production sales in Asia increased by 6.3% to USD 2,357 million in the fiscal year ended December 31, 2017. The increase in sales was primarily due to the launch of new programs, specifically in China. These gains were partially offset by a negative currency effect of USD 21 million and lower production volumes on specific programs.

5) Rest of World
-External production sales of the Company’s Rest of World region in the fiscal year ended December 31, 2017 totaled USD 562 million, an increase of 28.0% from the previous year. Factors causing the increase in sales include net customer price increases, higher production volumes on specific programs, the launch of new programs, and a USD 21 million increase in sales due to positive foreign currency exchange effects.

Divestitures

-In 2017, the Company divested a minority interest in a joint venture held with Shin Young Co., Ltd.

Joint Ventures

-The Company entered into a joint-venture agreement with Huayu Automotive Systems Co., Ltd., a subsidiary of SAIC Motor. The joint venture will initially produce electric-drive powertrain systems, specifically the Company’s e-drive system for Volkswagen’s Modular Electric Platform. Both partners will give the joint venture full support to develop localized core competencies in terms of market development, research and development, advanced manufacturing and key parts supply. Magna Huayu E-drive System will have a registered capital of CNY 200 million, 50.1% of which owned by Huayu Automotive Systems and 49.9% owned by Magna (Taicang) Automotive Technology. (From a press release on October 18, 2017)

-The Company has entered into a joint venture cooperation agreement with Hubei Aviation Precision Machinery Co., Ltd. (HAPM). Subject to regulatory approval, the deal is expected to close in the fourth quarter of 2017. HAPM is a Chinese automotive seat mechanism and structure component supplier and a subsidiary company of AVIC Electromechanical Systems Co., Ltd (AVICEM). Headquartered in Hubei Xiangyang, HAPM designs, develops and manufactures a wide range of automotive seating products. (From a press release on April 28, 2017)

-On March 15, 2017, Guangzhou Cosma Automotive Co., Ltd., a joint venture between the Company and Guangzhou Automobile Group Component Co., Ltd., set up a facility in the Fenglu North Industrial Park. The industrial zone is in the center of the Huangpu District in Guangzhou. The new facility is surrounded by various automotive related companies including Guangqi Honda, Guangzhou EHang Intelligent Technology Co., Ltd., and Guangdong Machinery Research Institute. When these facilities begin full-scale operations, the total output is expected to reach CNY 10 billion. (From news releases issued by multiple sources on March 15, 2017)

Business Partnerships

-The Company announced its role as the development partner to Audi on the new quattro ultra all-wheel drive system. The next-generation AWD system was launched on the Audi A4 allroad in 2016 and provides reduced fuel consumption and emissions while also maximizing driving performance and stability. The Company’s Flex4 all-wheel drive technology forms the technical foundation of the quattro ultra system. The system was jointly developed to fit into vehicles with longitudinally mounted engines and dual-clutch or manual transmissions. (From a press release on March 6, 2017)

Recent Developments

-The Company has partnered with StartUs Insights to create more and deeper connections with the European startup community. StartUs Insights is an innovation network that connects the European startup community and makes it accessible to its partners. In addition, the network is hosting the Driving the Future of Mobility challenge, a competition for startups and innovators shaping the transportation industry. Collaboration with disruptive startups is a key objective in the Company’s open for business approach. It provides the Company with a strong competitive advantage, especially in sectors such as electric mobility, autonomous driving, sensor technology and additive manufacturing. (From a press release on September 28, 2017)

-The Company warned in its fourth quarter report that the growth of "protectionist sentiments" could hurt its operations and profitability. The Company’s Mexican operations make up 14% of its global sales. The Company has manufacturing sites in Cuautitlan Izcalli, Hermosillo, Puebla, Ramos Arizpe, San Luis Potosi, and Silao, and an engineering center in Toluca. (From a Mexico-Now article on February 27, 2017)

-The Company announced that its seating business has moved into a new headquarters in Novi, Michigan. The facility includes three floors and 180,000 square feet of area. Approximately 450 employees will work at the building with room for future growth, providing functions such as accounting, sales & marketing, purchasing, human resources and engineering. (From a press release on January 30, 2017)

Contracts

-The Company has collaborated with new Chinese startup NIO to launch their new electric SUV NIO ES8. The ES8 seats seven, features a lightweight all-aluminum body and chassis, and comes standard with electric-drive (e-drive) systems in the front and rear of the vehicle. The Company’s content includes the aluminum front sub-frame and rear cradle, gearboxes for both e-drive systems and the latching systems for the side doors and hood. (From a press release on December 18, 2017)

-The Company introduced its industry-first D-Optic LED headlamps, which will make their market debut on the 2018 Chevrolet Traverse. (From a press release on June 14, 2017)

-The Company announced that it is supplying camera-based driver assistance systems and all-wheel-drive components in the new Maserati Levante. The Company’s EYERIS electronic vision system includes a 360-degree surround view system. Other electronic features include a lane-departure warning assistant, high-beam assistant and camera-based object detection. The Company also provides its drivetrain technology to the Maserati Levante. The fast-reacting Actimax all-wheel transfer case with electronically controlled multi-disc clutch provides variable distribution of the drive torque between the front and rear axles. (From a press release on March 8, 2017)

Awards

-The Company’s Trailer Angle Detection System, developed jointly with Ford for their F-series pickup trucks, was nominated as a finalist for the 2018 Automotive News Pace Awards. The system helps enable the Trailer Reverse Guidance and the Pro-Trailer Backup Assist systems.

-Ford Motor Co. honored the Company with a special Lincoln Luxury World Excellence in recognition of the Company’s wide range of products featured on the 2017 Lincoln Continental. The Company also received a Silver World Excellence Award for the hydroformed body components it supplies Ford from its Shanghai, China, manufacturing location. The award is presented to Ford's top suppliers in recognition of their manufacturing sites that consistently demonstrate superior quality, delivery and cost performance. (From a press release on June 22, 2017)

-For the second time in three years, the Company has won an AutomotiveINNOVATIONS Award from the German Center of Automotive Management. The Company was recognized as the Most Innovative Automotive Supplier in the chassis, car body and exterior category for its new process of welding steel and aluminum together. The process makes use of traditional spot-welding techniques, which means no additional assembly line machinery or steps are necessary. Magna Steyr and Cosma are working together to industrialize this new process into the Company’s Graz contract manufacturing facility. (From a press release on May 5, 2017)

-The Company’s powertrain manufacturing division in Ilz, Austria, received the Volvo Cars Quality Excellence Award for its outstanding performance. The division earned the award by supplying Volvo with the electrified rear axle drive system featured on the Volvo V60 and S60 plug-in hybrid models since 2012. (From a press release on April 24, 2017)

-The Company has won a General Motors Supplier of the Year Innovation Award for its unique process of laser cutting and welding front fascias for the 2017 Chevrolet Camaro ZL1. Its laser cutting and welding process provides greater flexibility when making lower-volume parts and enables weight savings by using a thinner-walled component. The Company also won a 2016 Innovation Award from the Society of Plastics Engineers for this process. (From a press release on April 12, 2017)

-The Company has received the General Motors Supplier Quality Excellence Award, Honda Good Supplier Award and Ford Q1 Preferred Quality Award. The Company’s facility in Holly, Michigan, which produces ADAS components for global automakers, received the General Motors Supplier Excellence Award. The company’s electronics facility in Japan was presented the Honda Good Supplier Award in the Cost Performance category for its rearview and front facing cameras for the second consecutive year. Finally, its electronics facility in Monterrey, Mexico, received the Ford Q1 Preferred Quality Award. (From a press release on March 21, 2017)

R&D Expenditure

-The Company's Corporate Constitution requires a minimum of 7% of its pre-tax profits for any fiscal year to be allocated to research and development during that fiscal year or the fiscal year that immediately follows. In the fiscal year ended December 31, 2017, the Company’s research and development costs charged to expense was approximately USD 522 million.

R&D Facilities

-The Company opened a new engineering center in Shanghai on September 20, 2017. The new engineering center will develop leading-edge mirrors and mirror technology for the Asian market and create 100 new jobs. The Company will focus on providing China with the latest vision technologies including the Clear View system for interior and exterior mirrors. These technologies are designed to offer a driver improved visibility while driving, and wider views despite possible obstructions. (From some releases on September 20, 2017)

R&D Activities

-The Company is joining BMW, Intel, and Mobileye as a Tier 1 technology integrator to develop a self-driving, flexible vehicle platform available for multiple automakers by 2021. The Company is contributing its expertise in domain controller and sensor suite technology. (From a press release on October 10, 2017)

-Engineers from the Company and Continental traveled between the U.S. and Canada in a self-driving Cadillac ATS and Chrysler 300. Engineers drove the vehicles through the Detroit-Windsor Tunnel under the Detroit River, through Ontario to the Blue Water Bridge, and crossed back into the U.S. at Port Huron. The vehicles feature Level 3 autonomous technology and drove themselves on the highways, but the engineers controlled the vehicle across the borders and through customs as they studied what sort of signals, sensors, systems and other infrastructure might be needed at the border for an autonomous vehicle to cooperate with border patrol officers. The vehicles continued to Traverse City, Michigan for a conference at the Center for Automotive Research Management Briefing Seminars. At the conference, Michigan Department of Transportation and Ontario Ministry of Transportation officials signed a memorandum of understanding to “promote and foster growth of connected and autonomous technology testing and deployment”. (From Detroit News article on July 31, 2017)

-The Company has assembled a Technology Advisory Council to contribute to future innovation projects, provide direction to its technology road maps and identify additional business opportunities. The Advisory Council is comprised of six members who are recognized leaders in their respective fields, several of whom have significant experience in product innovation and the implementation of new technologies, such as iPod and Nest inventor Tony Fadell and MIT Mobility Professor Ian Hunter. Advisory Council members will provide high-level strategic planning insights and experience in the areas of advanced driver assistance systems, environmental and automotive safety, overall industry trends, and next-generation technologies. (From a press release on May 3, 2017)

-The Company has committed a CAD 5 million investment into the Vector Institute, a new independent AI research facility which held its launch event today in downtown Toronto. Vector will be dedicated to the cutting-edge exploration of AI, specializing in the transformative fields of deep learning and machine learning. The Company’s AI strategy revolves around two key areas: manufacturing and autonomous driving. In addition to its investment in Vector, the Company recently announced its support for NextAI - a global innovation program with roughly 35 CEOs, entrepreneurs and technology experts to help keep home-grown talent in Canada and attract leading thinkers to the country. (From a press release on March 30, 2017)

Technological Alliance

-The Company made a strategic investment to expand its existing collaboration with Innoviz Technologies Ltd., a pioneer in solid-state lidar technology. Magna started collaborating with Innoviz in December 2016 as it expands its suite of sensor technologies and features that enable autonomous driving capabilities. Innoviz’s solid-state lidar can provide high-definition, 3D, real-time images of the vehicle’s surroundings regardless of changing light and weather conditions. The lidar can be easily integrated into any vehicle at significantly reduced cost compared to commercially available lidar technologies with comparable performance. The Company will demonstrate its autonomous driving enabling technologies, including Innoviz’s solid-state lidar technology, at the 2017 International Motor Show in Frankfurt, Germany. (From a press release on August 29, 2017)

-At the 2017 North American International Auto Show, the Company, in cooperation with the U.S. Department of Energy (DOE) and partners FCA US and Grupo Antolin, announced it has developed a new, ultralight door architecture that achieves the project objective of 42.5% mass savings compared to an average current production door. Utilizing expertise from the MMLV project, the door was developed in less than 10 months while providing a solution applicable to approximately 70% of the light vehicle market. The Company’s SmartLatch electronic latch system removed the need for mechanical hardware and enabled the development of a unique carrier module with integrated glass guides and lift capability of a lightweight hybrid glass laminate. The use of aluminum in the door-in-white assembly achieves approximately half of the door’s total mass reduction. Grupo Antolin contributed its expertise in the design and manufacture of interior trim components. The application of advanced molding technologies and polymers contributed approximately 7% to the total mass reduction. The project’s next steps include manufacturing full-scale prototype door assemblies, performance tests and safety tests to validate the design, with the goal of being available for use in production vehicles by the fall of 2020. FCA US plans to conduct testing of prototype door assemblies and full vehicles to validate the results of the predictive simulation. (From a press release on January 9, 2017)

Product development

etelligentDrive highlighted at CES 2018
-The Company will present its etelligentDrive system at CES 2018. The Company's e1 demonstration concept vehicle will be used to exhibit different electric-drive concepts and systems and demonstrate its electric integration capabilities. The e1 system consists of one highly integrated e-drive system on the front axle and one on the rear axle with two electric motors. Each motor in the demonstration vehicle provides 140 kW, giving the e1 an overall peak power of 420 kW. The motors are combined with a single-speed reduction-gear transmission and an inverter in a compact package. (From a press release on December 15, 2017)

Torsional welding process
-The Company has developed a new process on joining thermoplastic materials in order to reduce weight and costs: torsional welding. The torsional welding process, developed at the Company’s exteriors plant in Liberec, Czech Republic, presents a new way to join plastics. It features a high-speed twisting motion that creates enough friction-based heat to join a plastic bracket to a thermoplastic fascia. The technology achieves an approximate 10% weight reduction because it allows thinner materials to be joined, which in turn reduces material costs. Torsional welding is currently used to make the front fascia of the 2017 Skoda Octavia. (From a press release on October 26, 2017)

MAX4 autonomous driving platform
-The Company unveiled its MAX4 autonomous driving platform, a fully integrated, customizable and scalable autonomous driving platform that can enable up to level 4 autonomous driving capabilities. The platform combines cameras, radar, lidar and ultrasonic sensors with a computing platform that is designed to be easily integrated across a variety of vehicle platforms. The MAX4 also integrates with a vehicle in such a way that does not take up cargo space in the vehicle’s rear or space in the vehicle’s main compartment. (From a press release on August 31, 2017)

D-Optic LED headlamps
-The Company’s newly developed D-Optic LED headlamps represents the next generation of LED headlamps by combining multiple high-power LEDs with precise, injection-molded lenses to achieve high performance and efficient energy use. D-Optic lighting is unique for automotive applications as it is scalable and is custom-developed for a vehicle's specific shape and styling. LEDs and lenses can be added or subtracted to suit each models unique design. D-Optic is manufactured at the Company’s new automotive lighting facility in Plymouth, Michigan, U.S. (From a press release on June 14, 2017)

ClearView mirror system
-The Company announced its newly developed ClearView mirror system. The ClearView exterior mirror combines a self-cleaning camera with a regulatory compliant side-view mirror to display a live feed inside the vehicle. The camera is mounted on the mirror beyond the widest point of the vehicle to achieve a maximum field of view. The mirror can include features such as turn signals, ground illumination and surround-view cameras. The ClearView interior mirror features the ability to switch between a traditional rear-view mirror and a full-size video display. The video is a live feed from a camera mounted at the back of a vehicle, which provides an unobstructed rear view if passengers or cargo obstructs the mirror. (From a press release on May 15, 2017)

Video-based child-monitoring system based on EYERIS camera technologies
-The Company has developed a video-based child-monitoring system, an industry-first feature to increase safety for drivers and passengers based on its EYERIS camera technologies. The system recently debuted on the new Honda Odyssey at the 2017 North American International Auto Show. The child-monitoring feature provides front passengers with a clear, undistorted view of the backseat area on a display screen. Even at low-light or dark conditions, passengers are illuminated by an infrared LED light and can clearly be seen on the screen. In addition, the Odyssey includes an EYERIS rearview camera, which assists the driver while reversing the vehicle. Rearview cameras will become mandatory in the U.S. for all light passenger vehicles in 2018. (From a press release on March 15, 2017)

Carbon fiber composite subframe
-The Company has developed a prototype carbon fiber composite subframe in cooperation with Ford which reduces mass by 34% compared to a stamped steel equivalent. By replacing 45 steel parts with two molded and four metallic parts, the prototype subframe achieves a dramatic 87% reduction in the number of parts. The Company’s engineering team combined its unique, full-vehicle knowledge on the design, materials and processing to address the challenge of reducing weight using composite materials and manufacturing processes. The prototype subframes are now being produced for component and vehicle-level testing at Ford. (From a press release on March 14, 2017)

SOMATEMP climate control seat
-The SOMATEMP Seat features embedded climate control technology which can cool or heat the seat in shorter times compared to currently available seating systems. In addition, the climate control system within the seat is more efficient than traditional systems, drawing less power for HVAC purposes and thus extending the range of electric vehicles.

Haptic Tailgate Actuator
-The Company has developed high dynamic response haptic actuators which can open or close tailgates within two seconds. The tailgates can be opened or closed through either a light physical touch or a remote control.

Solid State lidar
-In collaboration with Innoviz Technologies, a startup company headquartered in Israel, the Company integrated a solid-state lidar into its MAX4 autonomous driving platform. The solid-state lidar can generate an accurate three-dimensional point cloud of the vehicle’s surroundings in real time, across a variety of weather and lighting conditions.

Active air dam
-The Company’s active air dam is featured on the 2019 Dodge Ram 1500 pickup truck and is estimated to reduce vehicle drag by 7%. The Company’s active aerodynamic systems help to improve fuel economy by redirecting airflow to reduce vehicle drag.

Driver monitoring systems
-The Company has developed a multi-sensor suite that monitors the attentiveness and drowsiness of a driver. The suite features seat-embedded sensors to monitor heart rate and driver positioning, as well as cameras in the mirrors to detect the driver’s gaze and fatigue.

Investment outside Canada

-The Company announced that its mirror manufacturing facility in Nove mesto nad Vahom, Slovakia has completed its relocation to a larger facility and started operations. The Company is investing USD 30 million to refurbish the building and install a new automated paint line. The expansion will create approximately 150 new jobs at the facility. At 27,820 square meters, the new facility is approximately twice the size of the previous location. The paint line is expected to be operational in early 2019. Products made at the facility include exterior mirrors, prismatic and electrochromic interior mirrors, turn signals and puddle lights. (From a press release on October 31, 2017)


-The Company announced that it is expanding operations to add aluminum casting capabilities at its Kamtek facility in Birmingham, Alabama. The Company invested approximately USD 60 million for the 150,000-square-foot facility. The facility will utilize a high-pressure aluminum casting process which allows production of full structures in one piece. The Kamtek facility produces structural components for various customers including Mercedes-Benz, Volkswagen and Nissan. The new casting operation will initially produce aluminum front shock towers for a major OEM, with additional customers and programs expected in the future. (From a press release on September 8, 2017)


-The Company has started construction to expand its seat trim facility in Odzaci, Serbia, from 4,300 square meters to 10,000 square meters. Through a USD 3.5 million investment, the expansion doubles the amount of floor area available in the facility. The seat trim facility originally opened in Serbia in 2013 with approximately 400 employees. The facility currently houses nearly 1,200 employees and is expected to create an additional 400 jobs in the next two years. The facility produces seat trim covers to customers including Ford, Skoda, Audi and Renault. (From a press release on May 30, 2017)