Veoneer, Inc.
Q1 2021 Earnings Call Transcript

Published: 29 Apr 2021

[Operator:]

Hello and welcome to the Veoneer Q1 Reports 2021. Throughout the call, all participants will be in listen-only mode, so there's no need to mute individual lines. And afterwards, there'll be a question-and-answer session. I'll now hand the floor to Thomas Jonsson. Please begin your meeting.

[Thomas Jönsson:]

Thank you very much, Mark, and welcome everybody to our first quarter 2021 earnings conference call and webcast presentation. Here in Stockholm, we have our Chairman, President and CEO, Jan Carlson, our new Chief Financial Officer, Ray Pekar; and myself, Thomas Jönsson, Communications and IR. During today's call, Jan will comment on our current business highlights and provide an update on our launches and technology. Then, Ray will walk you through our financial results and provide some commentary on the 2021 outlook and then we'll remain on the line for Q&A session. And as usual, the slides and earnings release are available through a link on the homepage of our corporate website. So, moving to the next page, we have the Safe Harbor statement, which is an integrated part of this presentation and includes any Q&A that follows here today. During the presentation, we will reference some non-US GAAP measures and the reconciliations of these figures are disclosed in our quarterly press release and the 10-K that will be published with the SEC. This call is intended to conclude at 3

[Jan Carlson:]

Thank you, Thomas, and welcome to all of you from my side as well. Now turning the page. On this page, we have the business highlights for the first quarter. We continue to monitor the COVID-19 pandemic very closely, with our first priority the health and safety of our associates, thereby reinforcing the measures that we put in place at the beginning of the pandemic, while we are adapting to the current situation. At the beginning of the quarter, we took a cautious view on light vehicle production based on our customer call-offs, which overall proved to be directionally correct. While the global light vehicle production growth was essentially in line with the IHS forecast at the beginning of the quarter, the regional mix shifted significantly, and I will elaborate that a bit further on the geographic mix shift on the next slide. Our strong 17% organic sales growth for the first quarter outperformed the global light vehicle production by 4 percentage points. Based on our full-year outlook, we expect our organic sales growth to accelerate and anticipate an outperformance versus light vehicle production in the mid-teens in percentage terms for 2021. Semiconductor supply constraints continue to create delivery and cost challenges for our industry. This together with our continued buildup for growth adds temporary cost to our operations, which we were able to offset by the efficiencies from our Market Adjustments Initiative program. Through these costs and cash control initiatives, we ended the quarter with a strong cash balance of $645 million.

[Ray Pekar:]

Looking now to the financial highlights on the next slide, we are pleased with our continued strong organic sales growth of 17% during the first quarter, which represents a growth over market of approximately 4 percentage points. Net sales for the quarter of $419 million were in line with our internal expectations at the beginning of the quarter. The strong sales performance and our ongoing MAI program resulted in an operating loss of $104 million, which includes extra costs of approximately $5 million related to the supply chain disruptions and a currency headwind of approximately $7 million. Our strong cash position of $645 million at the end of the quarter was essentially in line with our expectations at the beginning of the quarter due to our continued strong cash flow focus. Also, in this fast changing environment, we continue to identify opportunities to reduce our investments for growth, without compromising future launches as illustrated by the $15 million capital expenditure reduction year-over-year in our engineering cost control.

[Jan Carlson:]

Thank you, Ray. Turning the page, this concludes our formal comments for today's earnings call. But before we open up for Q&A, I would like to extend a sincere thank you to the entire Veoneer team for their dedication and strong execution, with a continued sharp focus on health and safety, quality and value creation. The team remained focused on launching new technologies and customer programs during very difficult conditions continuing in the first quarter of this year. By that, I would like to turn it over to the operator, Mark, to moderate our Q&A session. Mark, please go ahead.

[Operator:]

. And our first question comes from the line of Hampus Engellau of Handelsbanken.

[Hampus Engellau:]

Two questions from me. My first question is relating to the quarter. We've seen light vehicle production being changed, call-offs being changed. I have picked up from some suppliers that some OEMs have chosen to take delivery from suppliers and sub-suppliers, even though they have taken stock weeks because they see the underlying demand and they fear having shortages on other components for the remainder of the year. My question to you guys is that, are some of your customers still taking delivery from you despite stock in production on the back of semi shortages?

[Jan Carlson:]

First question, we have seen some rare occasions of the customers taking products and we have seen that customers are parking cars not being completely finished. So, that has happened. I cannot quantify anything of it, but we have seen that happening during the quarter. When it comes to Arriver, we are in the process – as I mentioned, we have this software running on the Snapdragon chip. We are expecting to put this in vehicles to be able to demonstrate this during this quarter as we expect to do demonstrations to customers during the quarter and thereafter to evolve further into customer engagement and customer activities throughout second half of the year. I also mentioned here in the formal text here that we have an interaction with approximately, ballpark 20 OEMs and around eight tier 1s. And that is a discussion that is not only Veoneer having, but there is Qualcomm being involved and Qualcomm having the discussion. So among those 20 OEMs, yes, there are OEMs that we don't have as customers directly today that are involved in it. And so, that is as much as I can say about it. But there is a strong customer interest based on that we have only been able to demonstrate this more visually rather than practically in cars for customers. And they are of course eager to see it in reality.

[Operator:]

And our next question comes from the line of Emmanuel Rosner of Deutsche Bank.

[Emmanuel Rosner:]

Could you give us a sense of how much impact do you expect the semi shortages, the supply chain issues you have over the rest of the year? Should things improve in the second and third quarter versus what you've seen in the first or will the second quarter still be a large headwind?

[Ray Pekar:]

I think when we look into the second quarter here, we expect the semi issue to continue somewhat. I think at the end of the day, the releases continue to be quite volatile and changing quite frequently as we saw during the first quarter here. I wouldn't say that we expect it to get worse during the second quarter, but we expect it to continue into the second quarter, and I think it remains to be seen now how quickly this could recover during the second half of the year. Generally speaking, I think the OEMs tend to be a little bit more optimistic on the recovery, but as we know the numbers are changing quite dramatically here. So, continue into the second quarter and it's still uncertain how much it will recover during the second half.

[Emmanuel Rosner:]

Second question, so your order intake took a step down, I guess the last 12 months order intake took a step down as of the end of the first quarter. But you also indicated solid confidence in essentially being able to grow it over the full year. Can you tell us what are you seeing that gives you this confidence? And then the timing I guess of some of these orders.

[Jan Carlson:]

I think we commented on that already after our fourth quarter earnings release that the order intake will be back-end loaded in 2021. The leads and the prospects that we are targeting here and the progress we are targeting and the RFQs have such an award pattern that it will fall into second half of any major substance. You were seeing this somewhat lower last 12 month order intake now for first quarter. And as I said, it's in second half, we expect this to come back. Some of it to here in the first quarter might have been slightly lower than we anticipated in the beginning of the quarter, but that is due to the chip shortages. Some of the boards have been slightly pushed out. And to Ray's point, to your first question here about how long that will remain, we don't know yet. But maybe even somewhat lower than we expected in the beginning of the year, but we don't see that we have had any losses that we haven't accounted for here during the quarter. So, this is more or less in line fully with what we expected in the beginning of the year structurally and to be back-end loaded like this.

[Operator:]

Our next question comes from the line of Adrian Smith at Bank of America.

[Adrian Smith:]

First question, in terms of the outperformance versus global light vehicle production, what factors specifically would you point to as driving an acceleration in growth above market from what was 4% in the first quarter to something that we would estimate in the double-digit range in the back half of the year, if we're going to get to that mid-teens target that you provided for the full year? And is it a function of normalization in mix and revenue contribution across regions or is it more so a function of product launches, just trying to figure out what's in your control versus not?

[Ray Pekar:]

Yeah, I would say it's more of a normalization of the mix during the second half of the year, in particular, I would say. As we indicated here in the first quarter, all of the organic or all of the LVP growth came from China. And with our sales, less than 15% of our sales being in China and the CPV being lower in China as well, that clearly has a negative impact on the mix for Veoneer. Based on the outlook, we expect that to shift and to change during the second half of the year, in particular, and perhaps even somewhat during the second quarter here as well.

[Adrian Smith:]

A second question, longer term around Arriver. As you think about trying to sell more software into OEMs on a direct level, is there anything in the Arriver agreement that precludes you from selling software on to SoCs other than Qualcomm's Snapdragon? And apologies if this is kind of a rudimentary question, but is your software development agnostic to SoCs or is it designed in any specific way for Snapdragon?

[Jan Carlson:]

We are developing this in a collaboration with Qualcomm, and we will focus to work with the Qualcomm here. So, it's a little bit of a moot question for the time being. We are starting off this collaboration and working very hard to make our software run on the Snapdragon platform and focusing all our efforts to get that up and running. We are doing that because we think this is a very, very competitive offer. It's a very compelling financially, cost-wise, performance-wise, scale-wise offer in this industry, and that gives superior value to customers and that's why we're focusing on Qualcomm.

[Operator:]

Our next question comes from the line of Erik Golrang of SEB.

[Erik Golrang:]

I have two questions. And the first one, coming back to what you said on the Arriver, those discussions with eight OEMs and 20 tier 1s, what's the feedback so far? What do they say? If we go with you, it's going to be for this and that reason. What are you presenting that they feel is unique and attractive? And then, the second question on leverage. Yes, the 2023 ambitions you put out last quarter would reflect around 30% incremental margins through that period, which was where they were in Q1. Q2, I assume we'll see a big step back because of the R&D development there last year, meaning that to be at that level for the full year, we should see incrementals well above that in the second half. Is that the right way of thinking?

[Ray Pekar:]

Maybe I'll take the latter question first on the leverage, and Jan can take the Arriver question. Regarding the leverage, I think coming back to what we said on the year-end earnings call there back in February, we talked about operating leverage at the gross margin line of, call it, around 20%. We still hold to that. Now when you look at what happens here in the first quarter, we had two headwinds, right? You've got the $5 million related to the supply chain disruptions. In addition to that, during the first quarter, when you're comparing year-over-year, we have a step-up in production overhead also of about $10 million. So, those two things is what really holds back the leverage here in the first quarter. But we expect that to improve sequentially throughout the year. So, I think if we end the year closer to the 20% number, then that would indicate maybe the second half of the year could be a little bit above the 20%.

[Jan Carlson:]

If I continue with the unique selling points on the Arriver side, I think what is compelling to customers here is it is an open type of architecture that allows additional functionality coming from the OEMs into the system. It is a scalable architecture covering entry level up to high level. It is a high performing, which is low power consumption, and high performance rates in the system that is compelling. And also, cost-wise, this is a very competitive offer that is interesting for customers. I think also customers have seen and worked with Qualcomm on other areas in the car, in connectivity and infotainment areas, et cetera, and being used to work with Qualcomm in other functionalities and can now see that also being expanded into ADAS, which is another thing that is giving customers an interest in this combination. So, several areas of interest. I think it's now very wanted by many of the OEMs to see this in car in reality, as a next step.

[Erik Golrang:]

Just one follow-up, if I may, on the order intake. Given the slow developments early in the year and then you say it's going to be back-end loaded, on your expectations, are there very few very big orders that's going to be super important for you to win or can you lose a couple and you still end up getting a high number for the full year? How risky is that the tender backlog?

[Jan Carlson:]

It's not like you need all and everyone, but these orders that we are targeting here are substantial orders and they are important for us. And they are then coming to the schedule in second half of the year. So, that is an important piece of us, as always when we have taken orders also in our history. But if you look to the radar areas, I think we have a quite big lead base in the radar area and the RCS area as well. I think also here when it comes to the vision area, it's really twofold. If you look to the vision system, it's somewhat in the generation where many customers are interested in our next generation, in our fifth generation camera together with Qualcomm. And that is probably looking for start of production maybe 2024, 2025 time frame. And then, when you look to the fourth generation, there is also there an interest in more of a – predominantly coming also from Europe and the regulatory environment, general safety regulations that is going to be mandatory with camera technologies for autonomous emergency braking, et cetera, here by the 2022, 2023 timeframe. So, there is an interest and there is more of the normal type of business that we are looking for on existing generation. So, that is on the vision side. So, we are targeting all of this. And, of course, the fifth generation, the bigger – the ones that are looking for the Qualcomm situation are, by nature, bigger awards and important awards for us for several aspects.

[Operator:]

Our next question comes from the line of James Picariello at KeyBanc Capital Markets.

[James Picariello:]

It looks like the chip shortage or supply chain disruption in fact was $5 million in the quarter. Just how should we be thinking about how that plays out in the second quarter and the remainder of the year? It sounds as though from the press release commentary, the company is baking in a strong near full recovery related to the semiconductor situation in the back half. Can you just elaborate on what that assumes relative to IHS' April forecast for the back half? Thanks.

[Ray Pekar:]

I think more or less for the second half of this year, we are assuming the IHS forecast. And then for the current quarter where we indicate that we'll outperform the light vehicle production, both year-over-year and sequentially, that's more geared toward our call-offs. So, certainly, I think to the extent that IHS is looking for the LVP to recover during the second half of the year, we certainly have that factored into our outlook as well. I think what we should keep in mind is that when you look at the LVP in the third quarter, it's essentially flattish from the second quarter. Then you have a step-up coming in the fourth quarter, which is very similar to, I guess, what we saw last year where we had record LVP during the fourth quarter here. So from a cost perspective, we have factored in that we would anticipate some additional costs also related to supply chain here in particular during the second quarter, I would say.

[James Picariello:]

Within the company's trailing 12 month order intake of $400 million, can you just share what the breakout is between Active Safety and Restraint Controls?

[Ray Pekar:]

I think if you look at the trailing 12, it's somewhere between 75% to 80% would be the Active Safety and then the remainder would be the Restraint Controls, which is a little bit higher than the mix of the order book. I think when you look at the order book, we talk more like two-thirds of the order book is in the Active Safety versus Restraint Controls.

[James Picariello:]

If I could just ask a housekeeping item, what was the $7 million equity income gain in the quarter? Just curious.

[Ray Pekar:]

That was related to the investment that we have in autotech. So that was just a bookkeeping issue whereby we had to record a gain on the market value of that investment, non-cash.

[Operator:]

Our next question comes from the line of Brian Johnson at Barclays.

[Brian Johnson:]

I noticed on the launch of the Jeep Grand Cherokee includes night vision. I guess both a tactical question and a more strategic one. Is that just on the upper trim levels? I know they have a very upper-end trim level for that. And then second, kind of, what does that say about the acceptance of night vision beyond the luxury market? And third, mid-term with increased concern about nighttime pedestrian safety, especially in Europe, do you see a route for NCAP maybe not mandating night vision, but making the standards for nighttime pedestrian detection tough enough that night vision comes much more into the picture?

[Jan Carlson:]

I guess, first of all, the thermal sensing night vision, as we call it here, is superior sensor when it comes to putting additional information to typical normal vision cameras or radars. It has a very long distance to sense the object. It is using a different technology, as you all know. So, I think that has a good future for higher level of autonomy. And we see there is an increased interest. This has been around for 10, 15 years and we have sold this product for a number of years, but it has always been on a niche level, but there is a somewhat increased interest now from the industry coming from the point you were mentioning here in towards the higher level of autonomy. If you look to the Jeep Cherokee here, that is on the upper trim level, so to your point. So, it's not a standard in the vehicle. But we are seeing, as I mentioned, several OEMs showing interest in this and also more directed car companies having an interest more for global CAP solutions, et cetera, also for equipping the vehicles with this. So, remains to be seen where it's going. We keep developing it and we keep putting this also dedicated product area in our organization to take care of that interest when it's coming.

[Brian Johnson:]

Just as a follow-up, infrared is also used for driver monitoring. Is that something you're looking at as well?

[Jan Carlson:]

So far, it has predominantly been radars, but also vision inside the vehicle. It could, of course, be done with thermal sensing as well. As of right now, I think the cost efficiency of the other technologies has been superior.

[Operator:]

And our next question comes from the line of Agnieszka Vilela of Nordea.

[Agnieszka Vilela:]

First, I would like to ask you about the $5 million costs related to the supply chain. Can you explain what is it for in detail? Is it because of the higher prices of microchips or is it because of the more expensive freight? And also, do you see a chance to get this kind of cost inflation back through price increases to your customers? Thanks.

[Ray Pekar:]

Related to the $5 million, that's mostly related to the premium freight. So, that would be predominantly on inbound, but it could also be some outbound premium freight there. And as you can imagine, we have ongoing discussions with both suppliers and our customers when it comes to this. But to make any commitments on how that will end up being resolved, it's too early to make any prediction on that, but we continue to work this with both the supply base and the customers.

[Agnieszka Vilela:]

Can you give us some color on the $10 million higher production overhead costs, what you're doing there? And also, should we expect this higher cost level to continue in the coming quarters? And maybe in connection with that, are you planning for any more kind of cost savings program or is it more put on hold right now when you need to ramp up production to the new launches? Thanks.

[Ray Pekar:]

When we talk about the production overhead, this is kind of a step up to a new production overhead level cost to support the growth that we have coming on here during 2021. So, we wouldn't expect this to continue to increase sequentially in any material way throughout the year. Of course, there could be some further step up towards the end of the year, preparing into 2022, but for the time being, we stick with what we have. The two main contributors to that cost increase is really related to your indirect labor, personnel costs as well as the depreciation for the equipment. Those are the two main drivers, I would say, of that cost increase.

[Operator:]

And our next question comes from the line of Dan Levy of Credit Suisse.

[Dan Levy:]

First, just wanted to follow-up on the gross margin in the quarter. So, appreciate the commentary on the premium freight and some of the overhead. But maybe you could talk about – you did have obviously some business launching and you have additional business launching over the course of the year. What type of incremental margin or contribution margin you've got on the launches in 1Q? And maybe what you anticipate over the course of the year and what that says about the broader gross margin outlook?

[Ray Pekar:]

Well, I think you could do the backwards math. The contribution or the leverage, I guess, net leverage was, call it, around 10% or so, maybe even slightly below that. But when you take into consideration the overhead, $10 million overhead that I mentioned, as well as the $5 million on the supply chain, you're talking about a leverage of well above 20%. So, again, the contribution is there on the new business, that's clear. It's just a matter of navigating through some of these extra costs that we're incurring for the time being. And as I mentioned earlier, we expect the leverage on gross margin to be in the ballpark of 20% for the year. So, that's kind of how we're looking at things evolving. And we'll come back at a future time as to when we could expect that to be higher than that, but we stick to the 20% for now.

[Dan Levy:]

The margin on a program over its lifetime, maybe you could give us a sense of directionally when you launch? It sounds like your contribution margins are okay, but how does that margin maybe change or vary over the lifetime of the program?

[Ray Pekar:]

I don't think we should get into the details of how things will evolve. I think program by program. I think at the end of the day, as we mentioned here, as growth comes on, you do have to – there are various steps. You make a step-up in your fixed cost or your overhead costs to support that growth. And the growth doesn't come for free, unfortunately. So, there is some cost that you have to continue to layer in. But beyond that, I think that's, -- we're not going to get into program by program, how contribution evolves.

[Dan Levy:]

My second question is, just a couple of weeks ago, we saw a headline in Volvo. I think they are expanding their collaboration with NVIDIA and they're taking on more compute. So, I recognize there is multiple ways you can work with a given customer, but maybe you could provide some color on how does this at all impact your future collaboration with Volvo? Maybe you could just talk more broadly also about whether automakers are taking a more active role informing their active safety functionality versus relying on suppliers? So what does that headline have implied for you and just more broadly how the relationship is going with customers as customers are trying to take on some of their own functionality?

[Jan Carlson:]

Volvo, you're correct. Volvo has gone out and said they're going to do with their next architecture based on an NVIDIA chip and an NVIDIA architecture overall. And long term, it remains to be seen how that is affecting us. Short/mid-term, we are just starting to roll out our existing architecture on the Volvo Cars. So, we will have a longer lasting relationship with Volvo and we have had a long-lasting relationship with Volvo historically, and we will have that for years to come. So, I think that it remains to be seen and how it's playing out when we have our Qualcomm architecture up for demonstration and when that is out and put into cars, how that is received also by Volvo. And we will, of course, show them what we can offer there as well – and we have had discussions, but we will have more discussions when it's up and running in vehicles. I think, generally speaking, carmakers are taking more active role into how the architecture is being formed. And you can read that several car makers are hiring their own software engineers to do a lot more work in-house. But that is not valid for all car makers. Some carmakers are still relying more on to OEMs and/or ecosystems on tier 1 – ecosystems of tier 1. And I think that will be the case going forward. As I said, we had 20 different discussions, Qualcomm and Arriver, ongoing on our alternative, on our architecture, and we will then be able to maybe from Veoneer to be an integrator of that and do more of the work. Or in some case, the OEMs will do more of the work. That is going to be different from OEM to OEM.

[Operator:]

Next question comes from the line of José Asumendi of J.P. Morgan.

[José Asumendi:]

Just a few items. The first one, can you talk a little about the regional mix or geographical mix? Are you seeing signs of improvement in April, May trends? We're already nearly into May. So, are you seeing signs of improvement as Europe and North America are picking up speed? And also, can you speak a little bit about RCS? Do you see any specific region that can drive the growth in the coming quarters? Second question, I guess for Ray, as we think about the seasonality of the business over the coming quarters, do you think the losses have peaked in the first quarter? Is this how we should be thinking about it from a budget perspective? And then, Jan, can you talk a little more about Arriver and, I guess, a little bit on the timing? Like, in these RFQ process and the discussions with the OEMs, are we months away, quarters away or a year away from some orders? And as I think about sort of the complete ADAS system, Qualcomm has some very good relations also with all suppliers – all the French suppliers. And as I think about the overall ADAS hardware and sensor suite, do you think you could consider maybe a situation where you could change the sort of Arriver to bring in new suppliers to create a much more rounded ADAS product? Or is this something that you would not consider strategically for the company?

[Jan Carlson:]

That was many questions. Ray, should you start?

[Ray Pekar:]

Maybe I'll take the RCS question and the other question about the loss. I think when we look at the RCS development throughout the year, again, we've given you some ideas on how the Active Safety will develop growth-wise. So, you can kind of back into the RCS. But we do expect the RCS to grow above market throughout the year. So, in percentage terms, we haven't disclosed that information, but we certainly expect it to continue to grow above market. And that's coming from all geographies. It's not just coming from any one particular geography, I would say. Regarding the operating loss, I think I'd go back to the comment that I made in the prepared remarks related to – we expect a sequential improvement throughout the year, both in cash flow performance as well as the operating loss performance. So, I guess, does that mean that the peak would be in – the loss would be in Q1? I guess you could imply that, but we haven't come out and specifically said that at this point.

[Jan Carlson:]

If we look into the mix, if you look to the IHS numbers, it appears that for second quarter, compared to what we thought in January of what – projected in January, China is somewhat down. And of course, that are compared to chip shortages and compared to also that they were earlier through the pandemic situation and they had a different situation there. We expect the mix situation, depending on the availability of chips, to continue to be down, even though it's recovering year-over-year due to very easy comparables from last year, but we expect to chip shortages to have an effect for us in also in the second quarter and then to abate into second half of the year. So we believe this will correct itself, and that's why we also paid those on the launches that we are seeing and on the new products we're bringing into the market. We are reiterating our guidance for the year. When it comes to Arrivers and when it comes to tweaking the Arriver collaboration and seeking other opportunities, I think I've mentioned that earlier. Our focus is now to work with Qualcomm. Our focus is to make the demonstrations up and running to the vehicles. And then to take that good start that we have with all the discussions on different OEMs, 20 OEMs and the 8 tier 1s and to bring that into orders. You asked if we are aiming to – when we would get the results coming out of it. We are still positive and optimistic that we will see awards during 2021. So, we are holding on to that. And then we will see how much and how that will play out. But optimistic to take awards in this year.

[Operator:]

Our next question comes from the line of David Kelley at Jefferies.

[David Kelley:]

You referenced the fourth generation system when in China. I was just hoping you could provide a bit more detail on that opportunity, your role in that platform and then maybe how we should think about potential timing of that rollout?

[Jan Carlson:]

If we are looking on the new orders, we believe that is – there is a first order of something that can grow and that we should expect to see further follow-on orders to this one. As we said in the prepared remarks, it's a global joint venture OEM in China that has awarded us this business. I don't want it to – at this stage, it's very early. So, I don't want to give you a lot of more colors on to it, but we believe this is an important step for this joint venture customer for us to get this order. And it has, as I said, follow-on orders to come.

[Ray Pekar:]

Maybe I mentioned that this brings that up to our night vision customer award that we have.

[David Kelley:]

Maybe just a quick follow-up there. Assuming I believe it includes vision perception software and radars, so as far as the systems opportunity, that's what you're referencing when you mentioned the follow-on order opportunity as well. You think it's more of a systems-based approach going forward?

[Jan Carlson:]

It would be more follow-on orders on the architecture that we are starting up with here, and then you never know what that can lead to than when we are coming in as a supplier to this joint venture customer. This is a new joint venture customer for us. And if we are then playing this well and they are happy with what we are giving them now, that may lead to something else. But that's speculation and we will have to come back to that if it happens.

[Operator:]

And our next question comes from the line of Itay Michaeli from Citi.

[Itay Michaeli:]

Just two quick ones from me. On the 2023 outlook, first, could you just remind us what kind of order intake you will need this year to get it to 2023 revenue target or do you already believe you're fully booked there? And then second, Ray, you mentioned the incremental gross margins of about 20%. Is that what you need to get to profitability in 2023? Does that have to kind of accelerate from here? Thank you.

[Jan Carlson:]

I can take the first piece. It's around 95% of the orders that are booked to get to the $2.5 billion you're indicating for 2023.

[Ray Pekar:]

And then, on the latter part, just to clarify, I think when we talk about leverage on the gross profit, the contribution margin is actually higher than the 20%. The 20% is what the net effect is on the gross profit line, once you factor in your additional cost of goods sold and production overhead that which is in addition to your direct material, which is where the contribution calculation comes from, of course. So, I think for us the contribution is higher than the 20%, but I think, historically, we have talked about a range of 25% to 35% contribution margin, generally speaking. But I think when we talk about the net leverage, we're really talking around the 20% level for now.

[Itay Michaeli:]

And is that 20% net leverage sufficient to get to the 2023 profitability?

[Ray Pekar:]

Yeah. We haven't given any further details on how the leverage will evolve into 2021 or into 2022 and 2023 at this point.

[Operator:]

And our next question comes from the line of Vijay Rakesh of Mizuho.

[Vijay Rakesh:]

Just wondering on the Qualcomm Arriver. How should we look at ASPs on some of the newer components that you're pushing there? How does that compare to your current ASP trends?

[Ray Pekar:]

Could you repeat the question, Vijay, please?

[Vijay Rakesh:]

Yeah. Just the content for Veoneer on the Arriver platforms with Qualcomm?

[Jan Carlson:]

Well, the content for Veoneer, Veoneer will, of course, then when the customer programs will be set up, will be an integrator of the Veoneer Qualcomm solution and then it would be put on a type of ADAS ECU and then we will supply an ADAS ECU with surround components to it, and then probably also with cameras and radar sensors into it as it's a natural part of it. So that will be one thing. But otherwise, inside Veoneer, the whole software pack is from Arriver. It's a part of Veoneer.

[Vijay Rakesh:]

As you look at your order backlog, I know you mentioned it should pick up nicely into back half. Just wondering if we get back to 2018 and 2019 levels? Thanks.

[Jan Carlson:]

We aren't giving more indications. We are saying that order intake – we expect order intake for 2021 to be higher than 2020, and we will probably see how that is developing then as we report LTMs over the quarters to come. But I am stressing again here now, being a bit into the second quarter, that it is in second half, we are expecting the bigger order wins here.

[Operator:]

And as we are close to time, I'll hand back to our speakers for the closing comments.

[Jan Carlson:]

Thank you very much, Mark. And I also would then like to thank everybody for your participation and your interesting and thoughtful questions today. Now looking ahead, our next quarterly earnings call is tentatively planned for July, and we will come back to you at a later stage with a date. But also, I would like to remind you about the Capital Market Day that we have been talking about. We'll come back to that also with a firm date sometime during the third quarter. So, thank you very much for today. And I wish you until then a good and healthy spring. And stay healthy and a good pre-summer until we talk next time. So, thank you very much all of you.