Autoliv Inc. (ALV) Q1 2021 Earnings Call Transcript

Autoliv Inc. (NYSE: ALV) Q1 2021 earnings call dated Apr. 23, 2021

Corporate Participants:

Anders Trapp — Vice President, Investor Relations

Mikael Bratt — President and Chief Executive Officer

Fredrik Westin — Chief Financial Officer

Analysts:

Colin Langan — Wells Fargo — Analyst

Mattias Holmberg — DNB — Analyst

James Picariello — KeyBanc — Analyst

Joseph Spak — RBC — Analyst

Hampus Engellau — Handelsbanken — Analyst

Sascha Gommel — Jefferies — Analyst

Erik Golrang — SEB — Analyst

Brian Johnson — Barclays — Analyst

Bjorn Enarson — Danske Bank — Analyst

Vijay Rakesh — Mizuho — Analyst

Emmanuel Rosner — Deutsche Bank — Analyst

Chris McNally — Evercore — Analyst

Agnieszka Vilela — Nordea — Analyst

Presentation:

Operator

Welcome to the Q1 2021 Autoliv, Inc. Earnings Conference Call. Throughout the call, all participants will be in listen-mode only and afterwards, there will be a question-and-answer session. Today, I’m pleased to present Anders Trapp, VP, Investor Relations. Please begin your meeting.

Anders Trapp — Vice President, Investor Relations

Thank you, Aguasi [Phonetic]. Welcome everyone to our first quarter 2021 financial results earnings presentation. On this call, we have our President and CEO, Mikael Bratt and our Chief Financial Officer, Fredrik Westin, and I am Anders Trapp, VP, Investor Relations. During today’s earnings call, our CEO will provide a brief overview of our first quarter results as well as provide an update on our general business and market conditions. Following Mikael, Fredrik will provide further details and commentary around the financials. We will then remain available to respond to your questions and as usual, the slides are available through a link on the homepage of our corporate website.

Turning the page, we have the Safe Harbor statement, which is an integrated part of this presentation and includes the Q&A that follows. During the presentation, we will reference some non-US GAAP measures. The reconciliations of historical US GAAP to non-US GAAP measures are disclosed in our quarterly press release and the 10-Q that will be filed with the SEC. Lastly, I should mention that this call is intended to conclude at 3:00 PM Central European Time. So please follow a limit of two questions per person. I now hand over to our CEO, Mikael Bratt.

Mikael Bratt — President and Chief Executive Officer

Thank you, Anders. Looking now into the Q1 2021 highlights on the next slide. Before we start with the formal presentation, I would like to acknowledge our employees for their hard work and commitment to health and safety, cost control, quality, and delivery precision. Our focus throughout this crisis has been the health and safety of our employees and to come out of it as a stronger company. Although the COVID-19 pandemic is not yet behind us, the performance over the past three quarters shows that we have built a solid platform towards our mid-term targets.

The global automotive industry continues to wrestle with the semiconductor shortage and other component supply disruptions while managing a strong end customer demand for new vehicles. In light of this, light vehicle production in Q1 2021 according to IHS Markit exceeded expectations from a few months ago. As a consequence of the strong demand and component supply disruption, the industry is facing headwinds from rising raw materials and commodity prices.

I am very pleased that our operations reported strong sales growth, profits, and cash flow. We continued to execute on our strong order book and our sales increased organically by 18%, which was more than 4 percentage points better than the increase of global light vehicle production. This was despite negative geographic light vehicle production mix with high growth in lower content per vehicle markets. The solid operating income was a result of strong sales growth, good operation execution, cost control, and effects from the structural efficiency programs. I am pleased that we improved the adjusted operating margin significantly versus both 2020 and 2019. Our strong free cash flow generation allowed further deleveraging and our leverage ratio is now back inside our target range of 0.5 times to 1.5 times. We continue to evaluate opportunities for shareholder value creation. Our order intake was at a similar level as last year. Based on expected favorable model mix, the strong performance in the first quarter, and continued tight cost control, we again confirm our full-year 2021 guidance.

Looking now on the financial highlights on the next slide. Our consolidated net sales increased by almost $400 million or by 21% compared to Q1 2020. This was the highest passive safety business sales for a first quarter in our history. The Chinese market contributed to more than half of the sales increase as light vehicle production normalized in China and we continued to gain market share. Adjusted operating income excluding cost for capacity alignments increased by more than 70% to $237 million. The adjusted operating margin increased by 320 basis points to 10.6%. Operating cash flow increased by $30 million to $186 million.

Looking now on sales development on the next slide. I am very pleased that our organic sales growth outperformed the global light vehicle production by more than 4 percentage points. This was achieved despite adverse geographical mix effects as light vehicle production grew strongly in lower content per vehicle markets. It was only in China, India, South Korea, and South America where light vehicle production actually increased.

Current light vehicle production forecast suggests a significant positive geographical mix effect in the second quarter. We had a solid sales development in all regions driven by new launches and positive vehicle mix. All regions outperformed light vehicle production by 6 percentage points to 23 percentage points. Sales of replacement inflators is now on a level where it’s impact on our sales development is insignificant.

Looking on the next slide, we had several important product launches during the quarter, including products for high volume vehicles, such as the Jeep Grand Cherokee L, Mitsubishi Outlander, and Peugeot 308. The models shown on this slide have an Autoliv content per vehicle between $130 to almost $600. Two of the vehicles are pure EVs and most of the models will be available with some sort of electrified powertrain. The long-term trend to higher content per vehicle is supported by an introduction of front center airbag, knee airbags, and more advanced seatbelts. For example, the new Mitsubishi Outlander has a front center airbag as well as two knee airbags from Autoliv. I now hand over to our CFO, Fredrik Westin, who will talk about the financials on the next slide.

Fredrik Westin — Chief Financial Officer

Thank you, Mikael. And this slide highlights our key figures for the first quarter. Our net sales were over $2.2 billion, a 21% increase compared to the same quarter last year. Compared to the first quarter 2019, it was an increase of 3% despite light vehicle production being 12% lower. Gross profit increased by $127 million and the gross margin increased by 250 basis points. The higher gross margin was primarily driven by the higher sales and direct labor and material efficiency. In the quarter, neither capacity alignments nor antitrust related matters had an impact on the operating profit.

The adjusted operating income increased by $101 million to $237 million due to the higher gross profits. The adjusted operating margin improved by 320 basis points versus Q1 2020 and improved by 290 basis points versus Q1 2019. The operating cash flow was $186 million, the second highest for any first quarter. This was achieved despite adverse effects from changes in working capital. Reported earnings per share more than doubled to $1.79. Our adjusted return on capital employed was 26% and return on equity was 25%. The good performance in ROCE and ROE shows our commitment to and focus on capital efficiency.

Looking now on the adjusted operating margin bridge on the next slide. Our adjusted operating margin of 10.6% was 320 basis points higher than in the first quarter of 2020. The impact of raw material price changes was small in the first quarter. FX impacted the operating margin negatively by 20 basis points. This is caused by transactional effects from a number of different currency payers, but more significantly a negative impact from a stronger Canadian dollar versus the US dollar.

As illustrated by the chart, the adjusted operating margin was positively impacted by lower SG&A and RD&E of 110 basis points mainly due to lower personnel costs in relation to sales. Operational improvements contributed with 230 basis points. This was a result of higher sales, cost discipline, and effects from our structural efficiency programs, partly offset by the negative impact of direct COVID-19 related costs of around $5 million and indirect COVID-19 related inefficiencies in both supply chain and manufacturing. Support from governments in connection with the pandemic was not material in the quarter.

Looking on the next slide, for the first quarter of 2021, operating cash flow was $186 million, an increase of $30 million compared to last year. The increase in operating cash flow was a result of the higher net income, partly offset by cash for the structural efficiency programs and changes in trade working capital. Trade working capital developed unfavorably with increased inventories and receivables, but lower payables, especially inventories were impacted by the supply chain uncertainties.

Capital expenditures amounted to $93 million in the quarter or 4.1% of sales. Compared to last year, capital expenditures increased by $5 million or by 6%. The free cash flow was $93 million, an increase of $25 million year-over-year. The cash conversion in the last 12 months was close to 200% as a result of the low capex, positive operating working capital development, and non-cash items.

Now looking on the next slide. We have, as you know, a long history of a prudent financial policy and our balance sheet focus remains unchanged. The leverage ratio improved from a peak of 2.8 times at the end of the second quarter 2020 to 1.4 times at the end of Q1 2021. The improved leverage in the quarter was a result of our net debt decreasing by $109 million while EBITDA over the last 12 months increased by $111 million. It is worth noting that our net debt is now $0.5 billion lower than a year ago.

Our strong free cash flow generation should allow further deleveraging and provide opportunities for shareholder value creation. Note that our EBITDA calculation has been redefined to exclude other non-operating items and income from equity method investments. Historic EBITDA and leverage ratio has been recalculated resulting in minor adjustments. As we are back inside our target range for the leverage ratio, we will no longer guide for this measure.

On to the next slide. During the first quarter, we have seen substantial increases in spot market prices for raw materials and commodities. As we mainly buy components, the effects from changes in spot market prices are mitigated and delayed through longer-term supply contracts. Also, our volatility is normally substantially lower than the volatility in the spot market. Therefore, the impact was relatively small in the first quarter. We also have some, but limited contractual pass-throughs to our customers.

We also mitigate raw material impacts through consolidation of and negotiations with suppliers as well as redesign of products, but based on the current situation, we estimate that for the full year 2021, we will face an operating margin headwind of around 90 basis points from raw material price changes. Our previous estimate was 40 basis points.

On to the next slide. The recovery in the automotive demand and production compete with increasing demand from the wider consumer electronics sector creating disruptions to the supply of systems using semiconductors. Chip makers are expanding their production capacity, but long lead times mean that supply issues will extend well into the second and third quarters. There are varying estimates as to the length of the semiconductor shortage. Our current assessment is that Q2 would be as exposed as Q1 while stabilization of supply may not emerge until Q4. This pattern will further distort production seasonality and have an effect on the overall level of vehicle output in 2021.

We assume a 2 percentage point to 3 percentage point negative net impact on 2021 global light vehicle production. Although we are not directly affected by the semiconductor supply issues, it impacted our sales and profitability already in Q1 and is likely to continue to negatively impact LVP and our sales and profitability also in coming quarters. What is most essential for Autoliv is as always to be agile and to efficiently adapt to any sudden changes in our customers’ production plans. I now hand over back to you, Mikael.

Mikael Bratt — President and Chief Executive Officer

Thank you, Fredrik. Turning to the next slide. Demand for new vehicles remains high and inventory levels of new vehicles remains at a record low level in some regions. For example, the inventory levels in North America are at an 11-year low, the lowest since the Cash-for-Clunkers program in August of 2009. Dealers inventory are at a normal level in China and we believe that European inventory levels are fairly low especially for premium vehicles. Assuming that the component availability develops as expected, we expect the good demand and low inventories support a recovery in light vehicle production in the second half of the year.

We think it’s worth a reminder that the second quarter last year was a virtual standstill for a number of weeks in most markets except China. Hence, the very high growth rates year-over-year expected for the second quarter for 2021. As you can see in the table on the slide, light vehicle production in Europe is expected to more than double in Q2 while North America is expected to almost triple. Globally, light vehicle production is forecasted to grow by around 60% in Q2. The strong light vehicle production growth expected in the high content per vehicle markets such as Europe and North America should support our global growth outperformance in the second quarter.

On to the next slide. Here we highlight some positive and negative factors behind our 2021 indication. Our full year 2021 indications for organic growth and adjusted operating margin are unchanged despite increased market headwinds. Compared to our previous guidance, the light vehicle production outlook is lowered by almost 2 percentage points due to component shortage. Our estimate of raw material price headwinds is increased from 40 basis points to 90 basis points for 2021. Despite these negative effects, we reiterate our full year guidance as these effects are offset by an improved sales mix and improved cost structure as evidenced by the first quarter performance.

We have the details of our indications on the next slide. These indications exclude cost for capacity alignments and potential antitrust related matters. We expect sales to increase organically by around 20% supporting a full year mid-single digit outperformance versus light vehicle production. Our net sales increase is assumed to be around 23% including positive currency translation effects of around 3%. We expect an adjusted operating margin of around 10%. Operating cash flow is expected to be in line with 2020. Our strategic initiatives gradually are yielding good results and we expect 2021 to be a solid stepping stone towards our 2022, 2024 targets, which include a significant growth above light vehicle production as well as a solid operating margin increase.

Turning the page, this concludes our formal comments for today’s earnings call and we would like to open the line for questions. I will now turn it back to Aguasi [Phonetic].

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Colin Langan from Wells Fargo. Please go ahead, your line is now open.

Colin Langan — Wells Fargo — Analyst

Oh great, well, thank you very much for taking the question. Maybe just first question, you’re now within your target leverage range. Sales seem to be holding up relatively well. Why not bring back a dividend or a large buyback. Any thoughts there on sort of capital allocation plans going forward?

Mikael Bratt — President and Chief Executive Officer

Hi, as you know, I mean this is a Board decision any dividend or buyback decisions there. So this is a quarterly call and we revisit that question with the Board on a quarterly basis, so in connection with the Board meeting. So this is not a topic for today. So we have to come back later when it’s time for it.

Colin Langan — Wells Fargo — Analyst

Okay and then just looking at the guidance, it implies about 8% over market. I think you’re talking about mid-term 4% to 5%, I think Q1 was just 4%. What’s driving the very strong growth over market through the rest of the year. I mean are launches coming in at higher levels, are launches being pulled forward and what’s sort of the driver there? Thank you.

Mikael Bratt — President and Chief Executive Officer

It’s at the back of our strong order book that we have built over the years and continuing to build. So this is in line with what we have indicated before and we continue to deliver on that. And as you said, I mean we have slight increase of launches here that contributes to that. So I will say, according to plan. And of course also in the mix as we have talked a bit there and we see the content per vehicle increasing gradually also all the time, in line with what we also said in the past.

Colin Langan — Wells Fargo — Analyst

Okay, thank you for taking my question.

Operator

Thank you. Our next question comes from Mattias Holmberg from DNB. Please go ahead, your line is now open.

Mattias Holmberg — DNB — Analyst

Thank you. I have two questions. The first one is on the investigation that I see in the US where some faulty airbags of GM vehicles are looked at. Can you make any comments if you’re involved in this in any way?

Mikael Bratt — President and Chief Executive Officer

I mean we are aware of the investigation and GM is an important customer of us. We are delivering, among other things, airbags to different GM models. So if GM needs our help in investigation, we will of course support, but based upon our understanding, we do not see this as an issue for which we should be responsible.

Mattias Holmberg — DNB — Analyst

Thank you. And on the recent announcement that you will make disconnect devices for electric vehicles. Can you perhaps elaborate a bit on what type of growth outlook potentially you see for this business. If it’s something that could become material or sort of more a small side business?

Mikael Bratt — President and Chief Executive Officer

No, I don’t have any numbers to give you at this point, but of course, it’s a meaningful effort in terms of growing content per vehicle and our also role in the electrical vehicle development. So we see this as a very interesting opportunity for sure to continue growing that part.

Mattias Holmberg — DNB — Analyst

Great, thank you.

Mikael Bratt — President and Chief Executive Officer

Thank you.

Operator

Our next question comes from James Picariello from KeyBanc. Please go ahead.

James Picariello — KeyBanc — Analyst

Hey guys, just on the guide, the unchanged organic growth in operating margins. Starting on the top line, you’re acknowledging the 2 point to 3 point headwind from the semiconductor shortage but maintained your organic revenue growth guide. So is that just a function of new launches? You know, the new business backlog or is there — how much of it is attributable to favorable mix?

Mikael Bratt — President and Chief Executive Officer

I think it is several factors. I think, I mean first of all, we had a strong start of the year. We have also seen the improved sales mix and yeah, I think that’s the main factors there. So we believe in the numbers that we’re talking about here and see a good development in general when it comes to us delivering on our order book.

Fredrik Westin — Chief Financial Officer

And then maybe [Speech Overlap] one addition to that. In the 4% [Indecipherable] performance that we achieved here in the first quarter was with a rather significant negative country mix for us in terms of CPV and that will have a much more positive impact, especially in the second quarter as we laid out that both Europe and North America will grow substantially faster. So that will then be a tailwind for us to a much larger extent, especially in the second quarter.

James Picariello — KeyBanc — Analyst

Right and collectively 2 points to 3 points better than what you expected as of last quarter. Okay and then on the margin side, the commodities headwind has essentially doubled right from 40 basis points to 90 basis points. It’s about $40 million difference. What’s the offset to that? Is it — because your top line revenue growth hasn’t changed. Are the structural savings higher? Just curious on that. Thank you.

Mikael Bratt — President and Chief Executive Officer

I think first of all, I think the first quarter shows that we have a very strong foundation to build on and that the structural efficiency programs are coming through. They were basically 80% through now on the second one and yet [Phonetic] complete that here in the second quarter. Then we see the strategic initiatives paying off as well. And then, it is really about the agility to react to the demand changes, which I think we’ve proven that we can do in both the fourth quarter and the first quarter here. And then we see good progress on productivity improvement both material, but also on the direct labor side. So that all combined then it makes it possible for us to offset the higher impact we see from raw materials and that’s how we then can confirm the guidance also on the 10% margin side.

James Picariello — KeyBanc — Analyst

Okay, thanks guys.

Operator

Thank you. Our next question comes from Joseph Spak from RBC. Please go ahead.

Joseph Spak — RBC — Analyst

Thank you very much everyone. I guess last quarter, right, you talked about how — this is what IHS is forecasting for the year, but maybe you saw some concern to that forecast. Now you’ve lowered that right and acknowledged sort of that there is a bigger semiconductor [Technical Issues]. I just want to be clear, like is your guidance still actually assuming 12% or are you assuming something internally a little bit different and I’ll stop there for a second.

Mikael Bratt — President and Chief Executive Officer

No, I think, I mean, as always, I mean we take a view on the visibility that we have and see that and the further out in time you come, we use then the external references to that, but I think what we have seen here now is that the semiconductor shortage [Phonetic] would have impact in the range of 2% to 3% for the full year and that of course is baked into the outlook we are talking about here and the net effect is what you see in our guidance there when it comes to [Speech Overlap] number.

Joseph Spak — RBC — Analyst

Okay and then as has been alluded to a couple of times, right, like your outgrowth actually I guess got better versus your prior guidance. I’m wondering if you could talk a little bit about the convexity of that outgrowth as you see it to light vehicle production, meaning if it ends up being, I don’t know, 9% or 10% sort of 12% like do you see a meaningful change to your outgrowth there or organic growth or it should be pretty linear.

Mikael Bratt — President and Chief Executive Officer

I wouldn’t go into any details in terms of the timing and so forth, but I think once again here I mean, what you see is the result of a strong order book that we are delivering and also now and also particularly now in combination with a good mix plus that we also have content growth that we see that is coming through nicely with many new models and new development in, I would say across the globe here with more safety parts coming into the vehicles.

Joseph Spak — RBC — Analyst

Okay, yeah, I guess that was sort of the question. Like it seems like that — what’s keeping the outgrowth is automakers are making a stronger mix of product that’s sort of helping you. So you would expect something similar to continue it would seem going through the balance.

Mikael Bratt — President and Chief Executive Officer

Yes, yes.

Joseph Spak — RBC — Analyst

Okay, okay, thank you.

Operator

Thank you. Our next question comes from Hampus Engellau from Handelsbanken. Please go ahead.

Hampus Engellau — Handelsbanken — Analyst

Thank you very much. Two questions for me. I’m sorry for coming back on this collaboration with Mersen, but it would be interesting to hear your view on the potential for having this included in the NCAPs for EVs given the significant step up with potentially 8.5 million [Phonetic] EVs by 2025. Second question is coming back to the semis, at least we are starting to pick up but some subsidizers say that even if the OEMs are stopping the production to balancing semi shortage, they will take delivery from other subsidizers because they fear that it could be other shortages for the remainder of the year. Is this something that has impacted you guys, i.e., you will still deliver airbags even if OEMs have stopped production for two weeks or three weeks. Those were my questions. Thank you.

Mikael Bratt — President and Chief Executive Officer

Thank you. The NCAP question first. I can’t say that we don’t see anything in the NCAP pipeline if I put like that, that would include this kind of product, but I think there is a growing interest for these kinds of products and I think with the higher voltage vehicles also, we have an opportunity here to provide power safety switches into those vehicles with this collaboration. So as I said, we are quite positive about this opportunity, but no numbers or details further than that at this point in time here.

On the semiconductor side here and the production, I mean of course, we are delivering to our customers according to their call ups. We do not have detail insight in how those vehicles ultimately are ending up back around the yard or fully delivered to the dealers, but it’s nothing really that we have heard or seen in an extent — a meaningful extent. So for us, it’s all about delivering according to the call ups and expectations from our customers and we are doing that.

Hampus Engellau — Handelsbanken — Analyst

Can I ask that question in this way instead then. For instance, given the plant stoppage that General Motors has announced, did that change the call-offs that they provided to you guys after that announcement?

Mikael Bratt — President and Chief Executive Officer

I can’t comment any specific OEMs call-offs, but I mean we once again we are delivering according to their schedules and we are following our customers’ requests there and we don’t see any specific behavior in regards to your comments there.

Hampus Engellau — Handelsbanken — Analyst

Okay, thank you. Thank you.

Operator

Our next question comes from Sascha Gommel from Jefferies. Please go ahead.

Sascha Gommel — Jefferies — Analyst

Good afternoon, thanks for taking my questions. The first one would actually be on — a bit color on the second quarter, how that started because I think you mentioned that Q2 is as exposed to semi shortage as Q1. Does that mean you’re on a run rate in the second quarter that would be similar to the first quarter in terms of top line and earnings?

Mikael Bratt — President and Chief Executive Officer

I mean, as you know, I can’t comment any outlook on the next quarter here.

Sascha Gommel — Jefferies — Analyst

And how has April started? Any color on that?

Mikael Bratt — President and Chief Executive Officer

No, I mean if your question is about — related to the semiconductors, I think I mean we are still in the same situation as we were a couple of weeks ago. I think it’s not any worse or any better in that regard. So we have to see how it plays out, but I think, I mean it will take some time before we are through the semiconductor issue if I put like that.

Sascha Gommel — Jefferies — Analyst

Okay, very clear. And my second question would be, again on the safety switch. Just technology-wise, does every car need one or are there competing technology — everybody needs one or are there competing technologies that are available. So it’s not very clear if that technology will have a broad adoption at all.

Mikael Bratt — President and Chief Executive Officer

No, I think in terms of that particular feature, it’s — that’s the main solution I would say, but as the voltage goes up, of course, it becomes even more relevant. So I think we have a role to play there to add safety features into new type of technology that we see from the EV transformation, so to speak. So I think a good opportunity there to build further business.

Sascha Gommel — Jefferies — Analyst

Appreciate it. Thank you.

Mikael Bratt — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Erik Golrang from SEB. Please go ahead.

Erik Golrang — SEB — Analyst

Thank you. I have a few questions. First one, coming back to your organic outperformance guidance. If I’m not wrong, you guided for mid-single digit outperformance in the last quarter as well and either you say that 8% outperformance is mid-single digit or you are implicitly assuming a higher LVP figure than 12% growth. Which one is it?

Mikael Bratt — President and Chief Executive Officer

I mean, mid-single digits is mid-single digits and I think it’s no further comments to that and I mean we have built it on the same assumptions as we always do.

Erik Golrang — SEB — Analyst

Okay, so 8% [Speech Overlap].

Mikael Bratt — President and Chief Executive Officer

Maybe I should just clarify that. We also say around 20% in the calculation for your help.

Erik Golrang — SEB — Analyst

Okay, thank you. Then two questions on the raw material side. I think last time around you made an assumption of — particularly steel prices coming down at some point. Is that still the case? And then the second question is, there was zero margin impact in Q1, you would have around 120 [Phonetic] in the remaining three quarters on 20 basis points and I guess it’s right to assume given the guidance [Phonetic] that’s more than 120 [Phonetic] than in the second half compared to the second quarter.

Fredrik Westin — Chief Financial Officer

So the guidance we gave 40 basis points was on the assumption that the raw material prices would not increase further from that point of time on which they now of course have and we’re basing now the 90 basis points on a significantly higher impact on our steel, the components that we’re buying, but it’s not only steel, it’s also from actually the impacts from also from textile and plastics is almost equally large if you compare guidance to guidance here, but we don’t assume any tailwind from, let’s say, reduced raw material prices going forward. So it is based on that the prices remain at the current levels. And then in terms of the timing, yes, the impact in Q1 was close to zero and then it will now be a gradual increase Q2, Q3 with probably the peak in the third quarter and then come down a bit in the fourth quarter if you look at the year-over-year hit.

Erik Golrang — SEB — Analyst

Good, thank you.

Operator

Thank you. Our next question comes from Brian Johnson from Barclays. Please go ahead.

Brian Johnson — Barclays — Analyst

Yes. I have two questions, a bit more strategic. So first is around the quarter. Looking at China, it was very significant growth over market. Is that just a random accident or is there something around either your mix in China or a move to more content in China that could be a more permanent tailwind?

Mikael Bratt — President and Chief Executive Officer

No, I think it’s, I mean it’s not random and I think it is that you see content per vehicle are growing. I think also we have a good position with strong customers in China and we are growing our portfolio there. So I think it’s a growing market there that support the safety products.

Brian Johnson — Barclays — Analyst

Okay. And speaking of safety, obviously your mission and you had a great slide on lives saved. When you talk to ESG investors, how do they view Autoliv as an ESG company aside from your carbon footprint and is your contribution to saving lives over the decades, does that come up in the E-discussions, does it come up in the S-discussions or do you think kind of investors with maybe a big focus on green energy and EVs kind of miss the societal improvements you’ve been driving?

Mikael Bratt — President and Chief Executive Officer

I think, I mean I think we believe that we have a strong position in this and of course saving more lives is definitely a sustainability activity, no doubt about it. So I think we are well positioned there. With that said, I think we, of course, still have more to do altogether in all those areas you mentioned, but I think we are well position and you can see that also in our sustainability report or a little bit more details there, but I think we — if we are well positioned and get good feedback.

Brian Johnson — Barclays — Analyst

And do you think that’s reflected in your ownership in ESG funds in Europe and North America. My impression is that Europeans understand that better than the American ESG investors?

Mikael Bratt — President and Chief Executive Officer

Yeah, could be like that, yes.

Brian Johnson — Barclays — Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from Bjorn Enarson from Danske Bank. Please go ahead.

Bjorn Enarson — Danske Bank — Analyst

Yes, thank you. A little bit on your development now in Q1 gross margin wise versus the opex. Can you say something about the opex level going forward or what will drive or lead you to your margin targets for the year. Are we at the reasonable opex level right now or are they a little bit elevated or even low?

Fredrik Westin — Chief Financial Officer

In terms of the gross margin development in the first quarter, I mean of course the volume was one major contributing factor, but then as we highlighted, we also had good both material and labor productivity. On the labor side, we have been struggling in the previous quarters because of the constraints that we’ve had both from the volatility in the core loss, but also having to operate under COVID restrictions in the factories, but we see that coming through, they are much better in the first quarter than what we’ve had during the year before and then the third element is really the structural efficiency programs where a large part of that is targeted at the production overhead structure in our manufacturing setup and that has been coming through nicely.

As I said, there is a little bit left from the structural efficiency program here coming throughout the remainder of the year and then we remain very, very focused on continuing to improve productivity both on the material side and the labor side, but very good development so far and it’s also definitely one of the reasons we can also offset the increased headwinds here from raw materials.

Bjorn Enarson — Danske Bank — Analyst

It was nothing basically extraordinary and the quite solid gross margin development in the quarter. It is volumea and less of disturbances in production as we have seen for quite some time.

Fredrik Westin — Chief Financial Officer

I wouldn’t call it less disturbances, but I think we are getting our arms around it the better and managing it better, but nothing extraordinary in the quarter that would be of any interest.

Bjorn Enarson — Danske Bank — Analyst

Perfect. And if you can say something about potential buybacks and etc. and on your gearing situation now when you’re within your guidance range?

Mikael Bratt — President and Chief Executive Officer

I think I refer to my answer earlier here, I mean when it comes to dividends, it’s a Board decision in connection with the quarterly reviews with the Board when we have the Board meetings there and I think when it comes to buybacks, we announced that when it happens so to speak. So nothing to report at this point in time.

Bjorn Enarson — Danske Bank — Analyst

Yeah, got you. Thank you.

Mikael Bratt — President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Vijay Rakesh from Mizuho. Please go ahead.

Vijay Rakesh — Mizuho — Analyst

Yeah, hi, thanks guys. Just briefly, I know you talked about fiscal ’21 LVP about 12% year-on-year. Do you see some push out in fiscal ’22. Any thoughts on how fiscal ’22 goes up or do you see some of the demand just going away?

Mikael Bratt — President and Chief Executive Officer

If I understand your question, the outlook for 2022 when it comes to LVP? Was that your question?

Vijay Rakesh — Mizuho — Analyst

Yes.

Mikael Bratt — President and Chief Executive Officer

Yeah, no, I mean we have no comments on 2022 at this point. I mean we have commented around 2021, but I mean, as we have said here, I think we see a positive demand situation. We have very low inventories in the supply chain with dealers etc as we mentioned here and right now I think it’s more of a supply situation, which we are in and how that will carry into 2022 we will have to come back to it.

Vijay Rakesh — Mizuho — Analyst

Got it. And on the inventory side, I know you mentioned you look at auto inventories, US was a 11-year low in terms of dealership inventories. Any thoughts on where China is trending in terms of dealer inventories and same for Europe. I know you mentioned low, but just want to get some — if you had a consolidated number there? Thanks.

Mikael Bratt — President and Chief Executive Officer

I have no numbers, but I mean what we see here is that China inventory seems to be stable, nothing dramatic there and in Europe, a little bit on the lower side. I wouldn’t say anything dramatic there and it’s primarily geared towards the more luxury cars or more premium cars I should say in Europe where you have a little bit of a lower inventory situation, but that’s about where we are.

Vijay Rakesh — Mizuho — Analyst

Got it, thanks. Thank you.

Operator

Thank you. Our next question comes from Emmanuel Rosner from Deutsche Bank. Please go ahead.

Emmanuel Rosner — Deutsche Bank — Analyst

Yeah, thank you very much. Sorry to come back to this, but I’m still trying to understand the positive offset to — on the top line to the lower LVP outlook, in particular the improved sales mix. Can you just go back and explain once again, I guess what is playing out better than you expected a few months ago from sales mix point of view?

Mikael Bratt — President and Chief Executive Officer

I think I mean it’s the — I mean, one thing is, of course, the mix, I mean how it comes out here and we have high content vehicles with the premium cars, that’s favorable, but otherwise, I think it’s, I mean it’s, as we said here, I mean it’s the back of a strong order book that we are delivering here and it’s in, I mean we have indicated that we should outperform this year as well. So it’s really only the mix that is maybe more positive than what we indicated.

Emmanuel Rosner — Deutsche Bank — Analyst

Would it be a function of — in the context of chip shortages, automakers essentially steering their fewer available chips to some of the highest contented vehicles and if that’s the case, is that something that could be sustainable longer-term or is that something that just lasts during the time where the shortages are there?

Mikael Bratt — President and Chief Executive Officer

As I indicated before here, I mean it plays out very different between the different OEMs in terms of how they are impacted and what we can see here is that we have reshuffling in the programs with short-terms where of course they need to make their priorities where they get best use for the semiconductors that they get. So it’s not hard to imagine that they optimize that from that point of view and support phase. Could be, but I mean we don’t have the full insight on that.

Emmanuel Rosner — Deutsche Bank — Analyst

Okay and then a question on the order intake. I think you commented in the press release that and in the slides that it was stable year-over-year. Was this a comment in the dollar term or win rate and I guess what is the expectation for this year compared to last year?

Mikael Bratt — President and Chief Executive Officer

I mean, as you know, we only give the share, so to speak, once a year when we close the year. What we’re indicating here is the order intake was in line with last year’s in dollar terms.

Emmanuel Rosner — Deutsche Bank — Analyst

Okay and just to remind us, last year was it impacted by COVID yet or was it a good result in Q1? Last year Q1.

Mikael Bratt — President and Chief Executive Officer

I mean there was no COVID impact in Q1 on that regard, no.

Emmanuel Rosner — Deutsche Bank — Analyst

All right, thank you.

Operator

Thank you. Our next question comes from Chris McNally from Evercore. Please go ahead.

Chris McNally — Evercore — Analyst

Thanks team. Two quick ones. Just one on — the first one on raw maths. Given the 90 basis points. You talked a little bit about, it takes some time six to 12 months for the Tier 2s to pass it through things like steel and belt and fasteners. Would it make sense to think about even if raw material stayed where they are flat right now, we probably have some raw material pressure into next year just given the annualization and maybe it takes them one or two price increases to send it through. We should think about this pressure probably continuing into next year?

Fredrik Westin — Chief Financial Officer

We don’t give guidance yet on 2022, but of course if you look at the impact we had in the first quarter and should the raw material prices remain at the levels where they are currently, then I think it would also be fair to assume that there would be a carryover effect into next year.

Chris McNally — Evercore — Analyst

Okay, great. And then the second, just on a longer-term question on your content per vehicle growth primarily from the market share gains and I know you don’t comment on ’22, is it possible that we could think about based on your revenue projections, where you think that puts you in terms of market share for 2021 sort of back of the envelope, it could be sort of 44%, maybe 45%. It sounds like from your order book over the last three to four years, you’ll probably peak out at something 47%, 48%. So just wanted to kind of have a high level view that ’22 and ’23 will still see market share gains, so good content per vehicle growth.

Mikael Bratt — President and Chief Executive Officer

I mean, we don’t give market share targets by year, but what we have indicated is that we believe that we will grow into a market share position of around mid-40%s, around 45%-ish in the years to come here and the pace there we have not given so to speak, but I mean we have built a strong order book and we continue to build the order book here, so we will defend that market share going forward.

Chris McNally — Evercore — Analyst

Okay, great.

Operator

Thank you. [Operator Instructions] Our next question comes from Agnieszka Vilela from Nordea. Please go ahead.

Agnieszka Vilela — Nordea — Analyst

Thank you. My first question is concerning your headcount situation. When I look at the number of your indirect workers, I can see that the numbers started to increase now in the quarter. Can you share with us how do you think about the money [Phonetic] situation and also, is it the kind of step back from your structural action given the fact that car production on quarterly basis is lower now than what it was in Q4 for example?

Fredrik Westin — Chief Financial Officer

I mean first of all, if you compared year-over-year, I think our headcount is down — if you take the support headcount, it’s down around 800 employees and then it’s more or less flat versus end of the year. So we’ve had some selective additions that we have had mainly in the area of IT and digitalization to support the strategic initiatives we have ongoing there, but we remain very, very cost focused and also headcount focused and are very diligent about any additions and as I said also before, we’re not through yet with the second step of the efficiency program, which will most likely be completed here during the second quarter.

Agnieszka Vilela — Nordea — Analyst

Perfect, thank you. And then also, I would like to ask about the pricing environment right now for your industry. I think that historically you used to say that you meet the kind of price pressure of 2% to 4% every year. Is the situation now the same and now also excluding the raw material impact, so in general, do you see similar pricing pressure on your products or is it becoming a bit more positive for you guys?

Mikael Bratt — President and Chief Executive Officer

No, I think it’s definitely within that range today and we don’t expect to see any changes to that going forward in near-term at least. So 2% to 4% is a good good reference point still.

Agnieszka Vilela — Nordea — Analyst

Thank you.

Mikael Bratt — President and Chief Executive Officer

Thank you.

Operator

Thank you. There appears to be no further questions registered. So I will now hand over back to the speakers.

Mikael Bratt — President and Chief Executive Officer

Thank you, Aguasi [Phonetic]. Before we end today’s call, I would like to say that our progress in the past few quarters supports our confidence in our journey towards our mid-term targets and our opportunities for shareholder value creation. Despite the fact that global light vehicle production is almost back to the 2019 level, we are still in the pandemic and our first priority remains the health and safety of our employess. Our second quarter earnings call is scheduled for Friday, July 16, 2021. Thank you everyone for participating on today’s call. We sincerely appreciate your continued interest in Autoliv. Until next time, stay safe.