Nexteer Automotive Group Ltd

HKEX:1316

Earnings Call Transcript 2020-Q3

[Operator]

Ladies and gentlemen, welcome to Nexteer Automotive Group Limited 2020 Third Quarter Investor Communication Call. [Operator Instructions]

I would now like to turn the conference over to Investor Relations Director, Mr. Cameron Wang. Please go ahead.

[Cameron Wang, executive]

Thanks, Angel. Good day, welcome, everyone, to Nexteer Automotive 2020 Third Quarter Global Investor Conference Call. Joining us today are our President and CEO, Tao Liu; Senior Vice President and the CFO, Bill Quigley; Executive Board Director, Senior Vice President, CTO and the Strategy Officer; Robin Milavec.

During today's call, first, our CFO, Bill Quigley, will provide an update of the company's Q3 business highlights and the operation status. Then, our CTO and our CSO, Robin Milavec, will provide an update of the company's latest development in the technological field. At the end of the presentation, we will remain available to answer your questions.

Today's call will take around 40 minutes. The presentation material has been posted on our company's website under the Investor Relations folder. Before I turn it over to Bill, I do remind you of the safe harbor statement governing today's communication.

Welcome, Bill.

[William Quigley, executive]

Well, thank you, Cameron, and good day to everyone, and we appreciate all of you joining the call for the Nexteer Q3 2020 business update. So as Cameron explained, Robin and I will provide a brief overview of the business, and then we will open the call for questions you may have.

So Cameron, let's continue to the next slide. Thank you. As discussed during our first half 2020 interim update, during the course of the first 6 months of 2020, especially the second quarter, which was the most challenging operating period we have experienced in recent history as a result of a global health crisis, our team has focused on these core operating tenants in navigating the operating environment the industry has faced. Disciplined cost control and cash flow management continues to be front and center as we progress through the third quarter and will be through the rest of the year and into 2021. While the environment has certainly improved for the lows of the second quarter, we also remain mindful and watchful of macro factors that can quickly come to bear in the industry.

No matter the environment we may find ourselves in, we are committed to serving our customers at the highest level, with successful program launches a key metric. During the first half of 2020, we launched 19 customer programs, most notably in Asia Pacific, and Robin will share with you our third quarter launch activity in his remarks.

We continue to leverage our deep technical competencies in developing innovative products and value propositions to drive future growth and customer diversification. During our interim results update, we highlighted product developments in dual pinion EPS and high-output rack EPS, and Robin will share with you several recent accomplishments.

Also during the quarter, we received a 2020 manufacturing leadership award from the U.S. National Association of Manufacturers for our commitment to manufacturing excellence in global talent management and training. The Nexteer program provides our manufacturing engineers with comprehensive development and training opportunities as well as a feedback system to advance their knowledge based on world-class levels. Out of 63 category winners, Nexteer was honored as 1 of 3 finalists for Manufacturer of the Year, which is a testament to our continued innovation and manufacturing leadership.

Next slide. In the third quarter, we certainly experienced greenshoots in the operating environment when compared with the second quarter of 2020, with all of our manufacturing operations and strong serial production. Most importantly, the health and safety of our employees remains our top priority, and we continue to operate all of our facilities in accordance with our comprehensive safe work playbook, making adjustments as necessary to secure the best working environment for our people every day.

Post restart of our North America and EMEASA manufacturing operations in mid- to late May, customer production demand has rebounded strongly from the second quarter low. And again, we are thankful for the increased demand. At the outset of the health crisis, our global supply chain and production control and logistics teams immediately engaged, communicated and coordinated with our supplier partners to ensure that we would be positioned as well as possible to ensure the most efficient flow of materials upon restart of production.

While we have needed to make adjustments as expected, to date, we have not experienced any significant interruption of material supply, and we are also thankful for the strong support we have received from our supplier partners during the restart and ramp-up of production.

We are very focused on favorably converting incremental volume, and given the rebound in demand in the third quarter, we are posting stronger sequential financial results across all of our key earnings and cash flow metrics when compared with our first half performance, and in particular, the second quarter of 2020.

So now let's turn to the next slide, a review of OEM production volume by major markets for the third quarter as reflected in IHS' latest September forecast. You'll note here, global light vehicle production for the third quarter of 2020 is expected to reach about 20 million units compared with 12.6 million units in the second quarter, reflecting a sequential recovery of 58%, although still lower than 2019 by about 5%.

You can see across this slide that every major market we serve is expected to experience a strong sequential recovery when compared with the second quarter, with North America and EMEASA posting triple-digit increases, reflecting the impact of almost 2-plus months of production shutdowns in the second quarter of this year.

Compared to 2019, North America third quarter 2020 production is forecasted to be flat at about 4 million units, reflecting the sequential recovery, though, of 190% from the second quarter as first half 2020 was down 39% year-over-year. Asia Pac production for the third quarter of 10.7 million units is expected to be slightly lower than 2019 by 3%, reflecting a sequential improvement of 24% from the second quarter and recovering from a first half drop of 26%. And EMEASA, which only reflects Europe and South American production estimates, is expected -- or expected third quarter production of about 4.9 million units is lower by 12% compared with 2019 or a sequential improvement from the second quarter of 104%, significantly narrowing the first half year-over-year drop in production of 40%.

So certainly, greenshoots at hand with all of our divisions experienced increased demand in the third quarter, with improving earnings and cash flow performance.

Next slide. And IHS has continued to forecast a second half production recovery across all served markets, as highlighted here, led by recovery in North America sequential OEM production of 50% compared with the first half of 2020, which is a significant positive for next year given our current revenue profile being weighted to the North American market.

Next slide. Well, certainly, while the first half of 2020 presented all participants in the automotive industry, quite frankly, as well as global economies in general, in an unprecedented operating environment, on the revenue front, each of our segments outperformed the overall market, as highlighted on the left of this slide, which we shared with you during our interim results update in mid-August. And we expect to maintain this position for the second half of 2020 as well. OEM production recovery is in place, as evidenced by preliminary third quarter production estimates, and is currently forecasted to extend through the end of the year. And the Nexteer team remains focused on taking advantage of incremental revenue to drive favorable earnings and cash flow conversion, reflecting continued cost control and investment discipline.

We started 2020 with a strong balance sheet, which served us well during the sudden interruptive decline in the operating environment in the first half of 2020, and we remain intent on maintaining a strong profile, which provides us the opportunity to invest in the business for the future.

So with that, I'll hand the call over to Robin.

[Robin Milavec, executive]

Thank you, Bill, and good day to everyone on the line with us today.

So after 19 customer program launches during the first half of the year, we've successfully launched another 14 programs in the third quarter: 2 in North America, 3 in EMEASA and 9 in Asia Pacific. These launches represent all regions and vehicle segments from through full-size trucks and include both global and local nameplates.

Let me emphasize a few points from this slide. First, the Ford F-150 launch. It represents the highest volume vehicle platform in all of North America. Nexteer is proud to provide both the rack EPS steering gear and the steering column on this platform. This launch features some of the most advanced steering technologies available in the market today, including redundancies in microprocessors, motor windings, torque and motor position sensors. It also includes enhancements in cybersecurity and the ability for over-the-air software flash.

Next, there are significant number of electric vehicle launches being supported by Nexteer products. They include the Fiat 500 in EMEASA and the GAC Aion, Buick Velite and Chevy Bolt in Asia Pacific.

I'd also like to highlight the Asia Pacific division as they continue to participate heavily in launches this year. They will be launching about 70% of all Nexteer product programs this calendar year, and in the fourth quarter, Asia Pacific will have an additional 10 programs entering into the launch stage.

As the year has progressed, we continue to monitor program delays resulting from the COVID-19 production interruptions, which primarily occurred in the second quarter. As of now, we're not seeing any additional delays, and programs are on track to launch in the fourth quarter as scheduled.

I'd like to introduce you to an upcoming industry first. Although I can't reveal the program at this time, this product will launch in 2023 with a major global OEM. We've talked about this technology in the past as a feature associated with Steer-by-Wire and autonomous driving. In this first application, this technology will be launched with a conventional steering system. The technology allows the steering wheel to be retracted into the dash and away from the driver. This opens up valuable space in the cockpit, creating the opportunity to restyle and repurpose the driver position environment when the vehicle is parked and the steering column stowed.

There are several enabling innovations and patents related to this technology that will provide an advantage to Nexteer. They are related to crash safety and the energy-absorbing performance of the column and the sensing technology of the rake angle position. And finally, as I mentioned before, this is a technology that will continue to complement future steering technologies, such as Steer-by-Wire and autonomous driving.

I'd like to share with you the latest innovation coming out of our joint venture with Continental. It's a technology called brake-to-steer. In highly automated vehicle applications, steering systems feature multiple protective layers to ensure that the steering safety net is always on and protecting against a steering fault. In addition to these multiple layers, brake-to-steer adds yet another layer of safety and redundancy by using the electronic brake system to safely steer the vehicle while simultaneously controlling its speed. In a fully autonomous vehicle with no steering wheel present, brake-to-steer can negotiate a command path until a safe pullover can be achieved.

So this is how it works: in a fully autonomous vehicle situation, the brake-to-steer function resides in the motion control system, which acts as an intermediary between the vehicle's path planner, which is the automated driving system, and the chassis actuators, which includes steering, brakes and powertrain. It determines the best path forward. Integrated with a performance manager, the vehicle's intended path is compared to the system's ability to steer the vehicle via brake-to-steer. It constantly negotiates the safest route ahead.

In the event that brake-to-steer needs to engage, it reacts in one of the following 3 ways: first, it can continue on the intended path before ultimately having to move to one of the following options; second, it could perform a minimum risk maneuver such as slowing and braking to steer the vehicle to the side of the road; or finally, it could stop the vehicle in its current lane. In traditional manual driving scenarios, brake-to-steer works the same way. However, the driver is determining the vehicle path as opposed to the automated driving system. This is a very cost-effective layer of redundancy and can be applied to a broad spectrum of vehicle applications from standard EPS to Steer-by-Wire and from manual driving all the way to fully autonomous operation.

This week, Nexteer is celebrating its 10th anniversary. In 2010, the company was reborn with the name Nexteer, carrying with it over 100 years of automotive heritage, but now as an independent company and under new ownership. These past 10 years have created a recent history of profitable growth and industry leadership. During this year, we've achieved a series of production milestones. Over 70 million electric power steering systems have been produced and over 100 million steering columns have been produced. That, in combination with over 96 million half shafts have been produced as of this year.

These are 10 years of continued expansion of global footprints from 20 locations in 2010 to 28 locations today. We opened new plants in China, India, Indonesia, Mexico and Morocco and expanded our technical capabilities with new tech centers in Poland, China and India. We now serve more than 60 customers around the world.

These are also 10 years of innovations. In 2011, we launched the first full-size truck rack EPS steering system. In 2017, we launched CNXMotion, our joint venture with Continental. In 2018, we launched award-winning digital trace manufacturing technology. Also, in 2018, we unveiled a suite of advanced steering technology for autonomous and mixed-mode driving. And in 2019, we won the Manufacturing Leadership Award for a second year in a row. With over a century of legacy and 10 years formally as Nexteer, we are just getting started.

Next slide, please. As we head into the next 10 years, we are highly focused on the industry megatrends that will provide the growth and opportunity for our products. We make a point to systematically map next year's product portfolio and technology against the industry megatrends to ensure alignment.

Starting with driveline, you can see that even our most mature mechanical product has a significant role to play in the megatrends. Related to electrification, the driveline focus is on NVH, performance and efficiency. In the column and intermediate shaft product line, they are also covering many of the megatrends, and of special note is the development of the high-travel stowable column technology that will support the future autonomous driving vehicles.

Then, starting with the EPS product line, you can see the full alignment of technology development across all relevant megatrends. And as you progress down the chart, Steer-by-Wire, our R&D activities,and the development work with our JV partner, Continental, all have increasing levels of focus on megatrend technology. It's through this alignment with the industry megatrends that we will create the best opportunities for growth with all of our advanced products.

So this concludes our formal presentation for today. I want to thank you for your time. And now I'll turn it back over to Cameron for Q&A.

[Cameron Wang, executive]

Thank you, Robin. And we will now begin the Q&A session. Angel, please proceed.

[Operator]

[Operator Instructions] First question comes from Tim Hsiao of Morgan Stanley.

[Tim Hsiao, analyst]

Just 2 quick questions. The first one, regarding the substantial increase of orders into third quarter in second half, do we have enough labor force or need to hire more part-time headcounts? And will there be any additional expenses or clients would cover the additional expenses if there's any rush order?

And my second question is about the pricing negotiation. Do we see more benign price environment amid the pandemic, given the valuation for this year? Or do we expect more tough pricing negotiation towards the year-end? Those are my 2 questions.

[William Quigley, executive]

Great. Thanks, Tim. Appreciate the questions. I'll take a shot at both of these. Obviously, there's heavy demand. Again, we are very thankful for coming off of the second quarter lows, so moving through the third quarter as well as now what we're projecting and seeing into the fourth quarter. So again, that's a very positive factor, not only for next year but for the industry in general. And it's really across all served markets.

With respect to workforce, certainly our workforce has responded quite well to that incremental demand. If anything, you might see some premium cost with respect to overtime shifts, but I would say nothing out of the ordinary on the base run rate of the operation. So staffing has been good. Our safe work playbook has been very effective, maintaining the safety of all of our employees not only in our manufacturing facilities but across our administrative or technical facilities around the world. So we feel very good about that current environment.

With respect to the pricing environment, Tim, I think you're a bit spot on here. Coming off a very unprecedented operating environment in the first half, we do see incremental pricing pressures coming from OEMs. But that's kind of normal course, right? And we always need to kind of deal through that as we look for opportunities to grow the business into the future with new business awards from customers as well as, obviously, next-gen opportunities on our incumbent business. So certainly the pricing environment is, I would say, a bit elevated. But it's something that we're somewhat accustomed to as we move through these various periods of time.

So we keep a very mindful approach to it, working with our customers on opportunities, not just with straight pricing, but where we can see, for example, design change opportunities, VA/VE opportunities. So we continue to work all the levers with the customers, I would say, as normal course.

[Operator]

The next question comes from Rebecca Wen of JPMorgan.

[Rebecca Wen, analyst]

So 2 quick questions. First, on the third quarter revenue track, I know we don't release the quarter results, but just as a high-level comment, could you comment a bit on how our revenue is tracking in each of the region compared to the IHS third quarter production update? So are we tracking higher or lower in each of the regions?

And then the second quarter (sic) [ question ] is relating to the backlog orders. So I know that we've stopped updating the backlog since the first quarter because of the fluctuations and volatility seen in the market. But is there any possibility to give us a bit of a high-level update there? Or -- also, I also would like to know, within that backlog breakdown, we previously had guided 28% would be ADAS-related backlog and 17% would be EV-related. When will we see the peak volume contribution from ADAS and EV-related products from the current backlog? That's for all my questions.

[William Quigley, executive]

Great. Rebecca, it's good to hear your voice. Let me take a shot at a couple of these. With respect to the third quarter revenue track, correct, we're not going to provide, obviously, quantitative guidance. But I'll give you some kind of color around this. Each of the regions, and I'll start with North America, obviously, good strong sequential demand with respect to OEM volume from Q2 to the third quarter. And I'd say we're somewhat on track with respect to market.

Robin highlighted in his comments, we're seeing the Ford F-150 launch. So obviously, Ford is taking down some assembly plants as they convert from the current platform to the new platform. So that's got some ebb and flow, if you will, with respect to our third quarter results.

Asia Pac is clearly outperforming the market as well as EMEASA. And I'd just comment on EMEASA, it's largely around our Morocco operation as well, although we are seeing strong demand from, I would say, our base European customer. So all in all, I think all the regions, either in line or above, quite frankly, market growth, if you will, as measured by OEM production volume.

Now with respect to the backlog, you're exactly right. Coming off the first half, we did suspend updating the backlog. We continue to monitor, if you will, forward year orders as well as production. That's a pretty significant underlying foundational element in our backlog.

And from an awards perspective, first half was down, right, as OEMs certainly were going into shutdown as well as suppliers. So I would say it was a low "award environment". But we are seeing pickup in the third quarter as well as into the fourth quarter as OEMs obviously are, I would say, getting their feet back on the ground, realigning their portfolio and their program -- other programs. So I think we'll see an emerging positive trend here in the second half.

And with respect to the backlog, our intent would be, as we kind of close up the year-end, we'll be providing an update on that front. But I think we need the next couple of months just to really understand the stability of the market demand that we're seeing currently not only in North America but around the world.

With respect to ADAS and EV, I'll let Robin take a shot at those. My only overarching comments would be, as we talked in the first half is, I think the focus has quickly turned more to the EV side, maybe lesser to the ADB or ADAS side. Certainly a lot of activity on the EV front by probably every OEM around the world, and I think that's going to bring more immediate benefit to the company with respect to revenue opportunities than maybe ADAS.

But I'll let Robin highlight his comments.

[Robin Milavec, executive]

Yes. Thanks, Bill. So on the ADAS technology, we have seen a bit of a slowdown on the full autonomous vehicles. There certainly still are autonomous vehicle programs in the pipeline and that will continue to be launched. And from a steering technology, a lot of the ADAS technologies, I would say, for like Level 2 autonomous driving, is becoming very common in the steering system. So as an example, the F-150 product that is launching now has a lot of ADAS features, cybersecurity, over-the-air flash capability, redundancies, features like lane keeping, et cetera. So there's a high level of ADAS content being built into the steering systems today, and it's becoming a competitive advantage to have that technology available for the OEMs as they ramp up that technology.

And on the EV side, certainly we continue to see OEMs prioritize the EV platforms. And we see a steady stream of new EV platforms coming through the pipeline. You see in Asia Pacific, as I mentioned on the launches, a number of those are beginning to take hold. The volumes will ramp up slowly, but we see no shortage of a significant number of future EV vehicles. And as I've said in the past, next year, we are very well positioned to support those with our existing technology.

These vehicles tend to be heavier, which drives more premium steering feel and a higher level of performance in the steering system as well as -- as an example, a lot of the full-size trucks in North America that continue to be converting, Nexteer has a high level of content on those, including the steering gear, the steering column and even the driveline. If you look at content per vehicle with the driveline, a lot of new technology being pulled there with the ball spline axle that we expect to see a lift with. So in general, I would say the pipeline of the vehicles is continuing very strong, and Nexteer is very well positioned to support that with our technology, and including increased CPV in general, as those get rolled out.

[Rebecca Wen, analyst]

Yes. Can I follow up quickly on that? So you mentioned about APAC outperformance in the -- outperforming the market. May I know what's driving the outperformance in APAC region? Is that the new launches surrounding EV, as you just mentioned?

And also, regarding the 28% ADAS backlog and 17% EV-related backlog, so my question was actually on when are we going to see revenue -- meaningful revenue contribution from these 2 products? So are we likely to see around 28% revenue contribution, let's say, in 2 years' time? Or it would be in the next 4, 5 years' time? So that was my question.

[William Quigley, executive]

Sure. Let me take a shot at the first one, Rebecca. With respect to Asia Pac outperformance, certainly we're seeing strong demand across a number of our customers. And I'd suggest Changan had a very, very strong quarter as we've moved forward as well as obviously what we're seeing with respect to SGM Wuling, just overall market demand, if you will, on a sequential basis. So I think a number of the customers are driving that increase.

We also have export coming out of Asia Pac, and obviously with a recovery in domestic market, that being North America and/or Europe, we're seeing strong demand there as well. So I think that's driving some of the outperformance compared to overall OEM production trends. So good stance to be in and good position to be in moving forward.

With respect to the content, the ADAS, 28%; EV, 17% I think the 28% is further down the road. As you know, our backlog, as we define it, it extends out for quite a period of time. That's our full revenue stream yet to be earned, if you will. So obviously, ADAS is going to be over a period of time. I think as we look to EV, just with the fundamental shift overall in the market, as well as we are hopeful that we'll see that rise in demand, as Robin spoke to with respect to OEMs, bringing new platforms to the market, that's probably maybe an earlier shift, but it's still a couple of years out.

But we're already launching EVs, right, with our customers and I think as Robin indicated in his comments and highlighted on just the launches in Q3, especially in Asia Pac, many of those being EV platforms. So we believe we're well positioned and in good stead really on both, if you will, technologies, that being ADAS and/or EV.

[Operator]

[Operator Instructions] The next question comes from Nick Li of Crédit Suisse.

[Nick Li, analyst]

So basically, I have 3 questions. So first is on the operation -- company's operation. So do we -- I recall that the management actually guided that our Morocco factory is expected to turn around in next year, in mid of next year. So is there any positive or negative factors to delay or have some impact on the turnaround? Or we still stick to that time line?

And second is also on the driveline business in North America. So are we seeing a positive contribution from the driveline business in North America? And how much will be the positive contribution for the, for example, for the operation profit after a full turnaround?

And second (sic) [ third ] is on the new product launch. So we -- I saw that we have launched the new F-150 pickup trucks. And how is the transition? Is there any difficulties on the transition that would happen before the General Motors' new T1 platform? And also, I think the new Hummer EV will be launched in third quarter this year. So is there any color on the, for example, of high-functional EPS pricing and also the margins? Like is there any further pricing pressure for the EV products we've supplied to?

And I think last question is more on a -- on the future outlook, like especially amid the pandemic. Like do we see any M&A opportunities? So is there any, for example, negotiations ongoing for the M&A targets? And what will be the like kind of targets? What do we focus now the M&As now?

[William Quigley, executive]

Sure. Thanks, Nick. I'll take a shot at a couple of these. With respect to Morocco in particular, obviously, we're very excited about this operation. Basically dirt to operations in about 18 months. New country, new people, new process, new customers. So we're very excited about the opportunity that Morocco has afforded us. To your comments and to our comments obviously in the first half, we have multiple launches going on in Morocco. Certainly, the health crisis was a setback, not only for Morocco, but in general, for the industry. So we're still very focused on launching programs with our customers, working out the various launch actions and activities in Morocco with support from, really, our global footprint, that being either manufacturing or engineering.

So with respect to turning a corner, I'll call it, very good volume. Obviously, the earnings contribution is somewhat minimal given multiple program launches. But I think as we move into probably late first half into second half of 2020, we'll -- or 2021, we'll see the fruits of all the labors going on with respect to that important operation.

With respect to the driveline transformation in the U.S. in particular, I'd suggest that we continue to move forward with that. On pace, again, somewhat of a pause given production shutdowns for plus 2 months in the second quarter of the year. But again, on track with that business. Our ultimate end game is to make that business profitable. It's not going to be at the same profit levels, if you will, as an EPS at the tier or manufacturing operation. But at the same time, we've got all the capability in place to ensure that, that business is contributing overall as well.

So that's a longer term. We've got a number of plants that we're looking ultimately to consolidate into one that will provide us additional operating leverage. We're certainly working with our partner suppliers with respect to buy versus make. This was a highly integrated business -- vertically integrated business, and we're really working with our suppliers to do what they do best and to do what we do best. So it's still probably a couple of years off with respect to the full contribution, but we are certainly making very good strides in the performance of that business.

With respect to the F-150 transition, and Robin, you may have some color on this as well, I think that launch is going quite well. We're always going to have, as any supplier, areas that we need to focus on with respect to maybe corrective actions or so, but I would say nothing demonstrably out of the ordinary, especially given the size of that platform and the representation that we have on that platform, as Robin highlighted in his comments.

I'll just jump to kind of future outlook with respect to M&A. We certainly keep our eyes and ears around the world, focused on what may be opportunities that emerge. But we have been very focused currently on getting our operations back into place, servicing our current customer demand. And we're very thankful, obviously, for all the work that's being done around the world with respect to our manufacturing operations, servicing, quite frankly, a very strong recovery, if you will, from a demand perspective compared to the second quarter.

But again, we will continue to look for opportunity. I don't think the opportunity has really changed. I mean, we're looking -- as Robin has discussed in the megatrend discussions, over time, these would be adjacency capabilities, potentially opportunities in software and/or algorithm opportunities. So I don't think the focus has changed. But certainly, the opportunities, we will continue to address as they come forth.

Robin, I don't know about the Hummer EV. If you want to have any comments on that?

[Robin Milavec, executive]

Yes. So we're definitely focused on that vehicle as well. It's part of GM's electrification strategy of their full-size truck lineup. And as we understand and the dates we're working to, this is -- will be a launch in the -- towards the end of 2021. But again, Nexteer is very well represented on that platform. It's our high-output rack EPS system, the column and the intermediate shaft as well as driveline. So it's a significant development for us. A lot of new technology being pulled into that launch and something we're very excited to support.

Maybe a couple of other comments on the F-150 launch. This -- as I mentioned in my comments around the launch of that, a significant launch of new technology with the F-150 steering system, very advanced, probably one of the most advanced steering systems on the road today. We're in the very early stages of production ramp-up, and things are going as planned. The initial launch obviously has a lot of attention from Nexteer because of the high volume associated with this and the critical nature. And so it's something we're very focused on.

We're not experiencing anything abnormal at the moment in terms of the volume attainment as we ramp up. And again, it's something that we'll continue to have a significant focus on over the next months as we get up to full volume on that platform.

[Operator]

And due to limited time, we will take the last question which will come from Paul Gong of UBS.

[Paul Gong, analyst]

I have 2 questions. The first question is regarding the comparison between the products supplied to ICE cars and the EVs. I understand that the ASP of the EV products is probably higher due to the EV is heavier and it requires higher performance in terms of steering. But how should we think about the margin comparison, given, today, most of the OEMs are still making lower margin on the EVs and the ICE cars, and the volume scale of the EVs are not yet reaching the ICE car level? Are you similarly having a lower margin on the EV products? Or are you kind of having a highly similar margin profile between the ICE products and the EVs?

My second question is regarding the North America market. It seems to be recovering pretty well from the demand side, and the pricing environment seems to be pretty strong. My question is, what is holding the market back from recovering even stronger? Do you see any supply side issue, especially some other maybe component suppliers may be located in Mexico that is still suffering from partial lockdown? Or is there any supply side constraints for the light vehicle production?

[William Quigley, executive]

Sure. Paul, I appreciate the question. I'll take the second one. And Rob, I'll let you handle the first question. With respect to the North American market in particular, demand has been very strong. And I think, more importantly, consumer demand has been strong especially with respect to the light truck and/or larger SUVs, which we're well represented on.

We, obviously, are focused very much on supplying our customers with their demand, and we really haven't heard much about supply side issues. I'll tell you that -- if you think about just a sequential improvement from Q2 to Q3, it's almost 200% in OEM volume, right, or production volume. So that's a market increase. And I'd also suggest that at least with our key customers in the North American market, they are running, if I can say this, flat out. We're seeing a lot of overtime with respect to even weekend shifts.

I'll probably note that from a days on hand, inventory remains very light, especially with respect to light truck. And if you think about the customers that we service, in particular, GM, Ford, FCA, the average day supply -- a 5-year average day supply is about 78 days. And at the end of September, day supply on hand was about 64 days. So again, 18% lower than the average 5-year days of supply.

So every OEM is really working hard to get product into the market because demand is there, and I think really not many constraints. There are program launches only on when we talked about the Ford F-150. So you'll see some, obviously, movements in production, for example, depending on the customer. So I haven't really experienced for seeing a lot of supply side issues, especially, I think, in the current period.

Coming out of May, we all read and saw that there were some constraints in the market. But we've been working very closely, for example, with our suppliers to ensure that we've got the appropriate level of material flow to really service our customers' demand profile which, again, has been very heavy, not only through the third quarter, but we continue to experience in October. And we expect that to really kind of move through the rest of 2020.

Robin, on the ICE versus EV ASP and kind of margin profile?

[Robin Milavec, executive]

Yes. Yes, I'll take that, Bill. Thanks, Paul, for the question. So I'll try and speak just in generalities because every platform is a little different. But in general, when we look at a conversion from an ICE vehicle to an EV vehicle, and the impact of that on Nexteer's products, in general, we're increasing the content per vehicle. And that's because, as you mentioned, the vehicles tend to be heavier, which drive higher-output steering systems.

And then from a feature standpoint, let's take the column, for example, we're seeing probably a trend towards power columns. And the stow column that I reviewed earlier in the deck is also a product that will launch on an EV. And then on the driveline standpoint, the EVs are driven by high efficiency, so there's additional technology in the drive axles as well.

So the general trend, as we convert from ICE to EV, will be additional content in our products. And I think the margin profile is really going to depend on how the volume ramps up. So certainly, the potential -- as the volumes increase because of the higher content, the potential is there to have an improved margin on those products as the volume ramps up to similar volumes as the current ICE engines.

[Operator]

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