AUTOLIV INC

Autoliv, Inc. is a leading developer, manufacturer, and supplier of passive safety systems to the automotive industry, with a broad range of product offerings including modules and components for frontal-impact airbag protection systems, side-impact airbag protection systems, pedestrian protection systems, steering wheels, inflator technologies, battery cut-off switches, and seatbelts. The automotive passive safety market is driven by two primary factors: light vehicle production (LVP) and content per vehicle (CPV). LVP is forecasted to grow to close to 92 million by 2028 from just over 90 million in 2025, due to growing demand and export in medium- and low-income markets. The annual passive safety market is expected to grow from around $24 billion in 2025 to almost $26 billion over the next three years, based on the current macro-economic outlook and the Company's internal market intelligence and estimates.

Autoliv is the clear market leader in passive safety components and systems for the automotive industry with an estimated global market share of around 44%. The Company's ability to consistently outperform market growth is rooted in a steady flow of new safety technologies, a strong focus on quality, and a superior production and engineering footprint. Primary competitors named include ZF AG, Joyson Safety Systems (JSS), and various local suppliers such as Tokai Rika, Toyoda Gosei, Mobis, FinDreams Technology, Nihon Plast, Ashimori, Yanfeng, Jinheng, Samsong, and Chris Cintos de Seguranca. In seatbelts, Autoliv has a global market share of around 45%, primarily due to being the technology leader with several important innovations such as pretensioners and active seatbelts. Autoliv holds a leading position in both airbags and steering wheels, with a combined market share of around 44%.

The Company generates revenue through the development, manufacture, and supply of passive safety systems to automotive OEMs. The Company's sales in 2025 were $10.8 billion, approximately 68% of which consisted of airbag and steering wheel products and approximately 32% of which consisted of seatbelt products. The Company has frame contracts with automobile manufacturers that are typically entered into up to three years before the start of production of the relevant car model or platform and provide for a term covering the life of such car model or platform including service parts after a vehicle model is no longer produced, though these contracts do not typically provide minimum quantities, firm prices, or exclusivity. In 2025, the Company's top five customers represented around 44% of its consolidated net sales and the Company's top ten customers represented around 70% of its consolidated net sales.

The Company's passive safety systems such as seatbelts and airbags substantially mitigate human consequences of traffic accidents. The airbag module is designed to inflate extremely rapidly and then quickly deflate during a collision or impact and consists of the container, an airbag cushion, and an inflator. Seatbelts can reduce the overall risk of serious injuries in frontal crashes by as much as 60% due to advanced seatbelt technologies such as pretensioners and load limiters. The Company also manufactures steering wheels that are crafted to ensure they meet safety requirements and are functional as well as stylish. The products manufactured by Autoliv's consolidated subsidiaries in 2025 consisted of 143 million complete seatbelt systems (of which 100 million were fitted with pretensioners), 143 million side airbags (including curtain airbags and front center airbags), 61 million frontal airbags and 21 million steering wheels.

To expand its product offerings, the Company formed Mobility Safety Solutions, developing and manufacturing mobility safety solutions such as passive safety systems for commercial vehicles, battery cut-off switches, and safety solutions for riders of motorcycles and bikes. The Company has 62 production facilities in 23 countries and its customers include the world's largest car manufacturers. The Company's business is conducted in the following geographical regions: The Americas, Europe, China, and Asia, excluding China.

During 2025, gross expenditures for R,D&E amounted to $616 million compared to $612 million in 2024. Of these amounts, $202 million in 2025 and $214 million in 2024 were related to customer-funded engineering projects and crash tests reimbursed by the customers. Net of this income, R,D&E expenditures in 2025 was $413 million compared to $398 million in 2024. Of the gross R,D&E expense in 2025, 79% was for projects and programs where the Company has customer orders, typically related to vehicle models in development. The remaining 21% was mainly for new innovations, products and standardizations that may yield benefits over time. No single customer project accounted for more than 2% of Autoliv's total gross R,D&E spending during 2025.

The Company's sales in 2025 were $10.8 billion. The Company's sales compound annual growth rate (CAGR) for passive safety has been around 5% compared to the market rate of around 2.8% which includes an LVP growth of around 1.9%. The Company has increased its global market share in passive safety from 27% in 1997 to around 44% in 2025. On December 31, 2025, the Company had approximately 64,300 personnel worldwide, with 10% being temporary personnel.

Several significant trends are likely to positively influence overall safety content per vehicle, including society becoming increasingly focused on Vision Zero and its goal of reducing traffic fatalities, demographic trends of increased urbanization and aging driver populations, evolving government regulations and test rating systems such as the updated European New Car Assessment Program (Euro NCAP), China NCAP, and USNCAP, and the trend towards autonomous vehicles that may lead to roomier interiors requiring more advanced passive safety systems. In high-income markets (Western Europe, North America, Japan, and South Korea) the average CPV is around $350, with CPV growth mainly coming from new safety systems such as active seatbelts, knee airbags, and front-center airbags along with improved protection for pedestrians and rear-seat occupants. In medium- and low-income markets, the Company sees great opportunities for CPV growth from more airbags and advanced seatbelt products, with the average CPV in these markets being around $210, which is almost $140 less than in the high-income markets. CPV is expected to increase at a similar pace in both high-income and medium- and low-income markets over the next three years, and almost all LVP growth is expected to come in medium- and low-income regions with lower CPV, leading to a dilution of the average global CPV.

The Company continues to expand its product offerings beyond light passenger vehicles to include other mobility safety solutions, such as wearables and two-wheeler passive safety products, though these are still in the development stages. The Company also develops and manufactures mobility safety solutions such as passive safety systems for commercial vehicles, battery cut-off switches, and safety solutions for riders of motorcycles and bikes. The Company's strong market position in seatbelts, with a global market share of around 45%, provides an excellent opportunity to benefit from the expected growth in low-end vehicles in medium- and low-income markets. The market for airbags and steering wheels is expected to grow primarily due to increasing installation rates of inflatable curtains, side airbags, knee airbags, and front-center airbags, as well as rising demand for higher-value steering wheels with leather and additional integrated functions.

Direct material cost represents approximately 54% of the Company's net sales in 2025. The Company takes several actions to manage raw material fluctuations, such as competitive sourcing and looking for alternative materials, and is also taking necessary actions to gradually implement raw materials with a lower carbon emission footprint. The Company's future profitability will depend upon, among other things, its ability to continuously reduce its cost per unit and maintain its cost structure, enabling it to remain cost-competitive. The Company's profitability is also influenced by its success in designing and marketing technological improvements in automotive safety systems, which helps offset price reductions by customers.

The Company's assembly operations generally are not constrained by capacity considerations unless there is a disruption in the supply of raw materials and components. When dramatic shifts in LVP occur, Autoliv can generally adjust capacity in response to any changes in demand within a few days by adding or removing work shifts and within a few months by adding or removing standardized production and assembly lines. Most of Autoliv's assembly factories can make sufficient space available to accommodate additional production lines to satisfy foreseeable increases in capacity. During 2025 the volatility of LVP improved, although it is still more volatile than prior to the COVID-19 pandemic. The Company's 'just-in-time' delivery system is designed to accommodate the specific requirements of each customer for low levels of inventory and rapid stock delivery service.

During 2025, gross expenditures for R,D&E amounted to $616 million compared to $612 million in 2024. Net of customer-funded income, R,D&E expenditures in 2025 was $413 million compared to $398 million in 2024. The Company continues to invest in technology and innovation, which it believes are critical to its long-term growth. The Company's capital allocation strategy is not explicitly detailed in terms of future R&D spending levels, capital expenditure plans, share repurchase authorization amounts, or dividend policy with exact figures beyond what is disclosed for the current period.

The Company faces escalating pricing pressures from customers, partly attributable to the major automobile manufacturers' strong purchasing power, and is often expected to quote fixed prices or accept prices with annual price reduction commitments for long-term sales arrangements. While the Company in the past received inflation related pricing concessions from most of its customers, there is no guarantee that this will occur in the future. The Company also faces risks related to the cyclical nature of automotive sales and production, which can be affected by general or regional economic or industry conditions, the level of consumer demand, recalls and other safety issues, labor relations issues, technological changes, fuel prices and availability, vehicle safety regulations, governmental initiatives, trade agreements, political volatility, changes in interest rate levels and credit availability, and other factors.

The Company's business may be adversely affected by changes in automotive safety regulations or concerns that drive further regulation of the automobile safety market. The fitting of seatbelts in most types of motor vehicles is mandatory in almost all countries and many countries have strict laws regarding the use of seatbelts while in vehicles. In the U.S., federal legislation requires frontal airbags on the driver-side and the passenger-side of all new passenger cars, sport utility vehicles, pickup trucks, and vans. The Company also faces risks related to global climate change and its goals, targets, and ambitions related to sustainability and emissions reduction, including its climate ambitions of carbon neutrality in own operations by 2030 and net-zero emissions across its supply chain by 2040.

The Company faces material risks from product liability, warranty, and recall claims, as demonstrated by the U.S. National Highway Traffic Safety Administration's investigation of ARC inflators, which if proceeding with recalls could have a material impact on the Company's business. The Company's top five customers represented around 44% of consolidated net sales in 2025, creating significant customer concentration risk, and the loss of any major customer could materially adversely affect the business. Direct material costs amounted to approximately 54% of net sales in 2025, exposing the Company to raw material price fluctuations and supply chain disruptions that could materially affect profit margins. The Company also faces risks from escalating pricing pressures from customers with strong purchasing power, which have impacted sales and profit margins and are expected to continue, and there is no guarantee that inflation related pricing concessions received in the past will occur in the future.

Management's message emphasizes the Company's mission to Save More Lives and its drive for excellence as the world's leading supplier of automotive safety systems. Key themes include the successful execution of strategies relying on shaping a quality and performance-oriented culture and adapting quickly to sudden shifts in circumstances such as supply chain disruptions and geopolitical instability. The Company's strategic priorities include focusing on creating a work environment that attracts, retains, and engages its employees, continuing to drive its quality initiative called 'Q5' which addresses quality in five dimensions (products, customers, growth, behavior, and suppliers), and pursuing its climate ambitions of carbon neutrality in own operations by 2030 and net-zero emissions across its supply chain by 2040, which are aligned with a 1.5°C trajectory and should position the Company as the supplier of choice for the most climate-focused customers.