Phinia at Wells Fargo Conference: Strategic Moves in a Shifting Market

On Tuesday, 10 June 2025, Phinia Inc. (NYSE:PHIN) presented at the Wells Fargo Industrials & Materials Conference 2025, offering insights into its strategic direction amid evolving market conditions. The company highlighted a recent acquisition in the commercial vehicle sector and discussed its plans to boost aftermarket revenue and expand into new markets. However, challenges such as tariff impacts and a muted commercial vehicle volume were also addressed.

Key Takeaways

• Phinia’s recent acquisition aims to capitalize on the growing adoption of natural gas and alternative fuels.
• The company plans to increase its aftermarket revenue to over 40% of total revenue.
• Tariffs have impacted Phinia’s business, but the company is working to mitigate these effects.
• Phinia is expanding into aerospace and defense, targeting a $100 million revenue goal by the end of the decade.
• The company aims to maintain its light vehicle business revenue between $900 million and $1 billion.

Financial Results

• Phinia’s revenue guidance was adjusted down by 1-2% due to foreign exchange impacts, but the company expects to offset this with tariff recovery and FX benefits.
• A $4 million tariff impact was noted in Q1, affecting both aftermarket and fuel systems segments.
• The company is targeting productivity improvements to counter inflationary pressures and has no plans for broad restructuring.

Operational Updates

• Phinia’s acquisition strategy focuses on synergies with its existing portfolio, particularly in the commercial vehicle sector.
• The company acquired a business at a 4.7x multiple, which is below its trading multiple of 5-5.5x, indicating a strategic purchase.
• Phinia plans to continue share buybacks and explore further acquisitions if commercial vehicle applications reach a 7x or 8x multiple.

Future Outlook

• Despite headwinds in the light vehicle market due to battery electric penetration, Phinia aims to gain market share from smaller competitors exiting the market.
• The company is expanding into aerospace and defense, with plans to launch production of fuel injection components by Q1 next year.
• Phinia is leveraging its strong position in China, with over 80% of its light vehicle revenues coming from local OEMs.

Q&A Highlights

• CEO Brady Erickson emphasized the importance of the recent acquisition, stating its potential in natural gas and hydrogen applications for commercial vehicles.
• Erickson noted that Phinia’s GDI market share has grown to mid-to-high teens, with a target of over 20% by the end of the decade.
• The company is focused on maintaining its light passenger vehicle business revenue and protecting its core business from competitors like Denso.

Phinia Inc.’s strategic plans and market insights were thoroughly discussed during the conference. For further details, readers are encouraged to refer to the full transcript below.

Full transcript - Wells Fargo Industrials & Materials Conference 2025:

Unidentified speaker, Interviewer: Great. Let me why don’t we kick off the next fireside chat? I’m happy to present the next one with Finia. You may recall Finia spun off of BorgWarner about two years ago. They’re a leader in light vehicle fuel injection systems, which is still seeing content growth because of higher direct injection adoption.

It also has a very solid commercial and aftermarket business. And most importantly, it’s a very strong cash flow generator, which I think is probably one of the

Brady Erickson, President and CEO, Finia: most appealing parts of the

Unidentified speaker, Interviewer: story of targeting greater than 90% free cash flow conversion. Today, we’re joined by President and CEO, Brady Erickson. And with that, I’ll just kick off questions. If you have any questions, definitely indicate, and I’ll try to answer you during the presentation. Why don’t we kick off with the news we were just talking about a ago?

You made a small acquisition this morning. What is the rationale? What is the thought on M and A? Why do this deal?

Brady Erickson, President and CEO, Finia: Yes. I mean what we’ve communicated is, one, we were going to start small. This was small. We were looking for assets that have a large commercial vehicle industrial exposure if it’s an OE business or pure aftermarket. And if it is an OE business, we want it to get replaced two to four times in its lifetime so it also supports our aftermarket.

And so that’s really what this asset, you know, is. It’s a, you know, ignition business for commercial vehicle applications and large bore engines for natural gas, hydrogen type applications. We think it’s interesting because it’s part of the overall system on a commercial vehicle. So we’ve got the fuel injection, the ignition and the ECU and the calibration standpoint so we can add another product that we can both calibrate and provide services to our customers. And it’s in a space that we think is going to have continued growth, mid to high single digit growth through this decade and beyond.

As we see continued penetration of natural gas and alternative fuels in commercial vehicle, as they start to reduce their, you know, I guess, fossil fuels and try to reduce their CO2, we see this as a as a natural extension of our business. It’s at a multiple that makes sense when you compare it to our own multiple. You know, we’re trading, say, somewhere in between the five, five and a half times. We’re acquiring this asset with 4.7. It’s relatively regional in nature.

And so we think by getting this asset and this technology, we’ll be able to take it globally, leveraging our existing footprint and even drive some further growth as well.

Unidentified speaker, Interviewer: And how should you think about is this the are you thinking more aggressively now about M and A? Because I think you’re more focused on buybacks. Is that a change? Or is this you’ve been looking for a while and this

Brady Erickson, President and CEO, Finia: is of been looking for a while. And again, it’s relatively narrow. We want something that’s going to have synergy with our existing portfolio, CV industrial focus, comes with a nice aftermarket and is leveraging some of our existing engineering and manufacturing capabilities. So it kind of narrows down pretty quick. And oh, by the way, it’s got to be a good for shareholder value when compared to our own shares.

There’s not a lot of assets out there that are trading at that we can get at sub five, but we think they’re starting to become more available as some of these assets are realizing they need to cash out and they need cash, whether it’s private equity, and people are getting more reasonable in their pricing expectations. And so for us, you know, we still like our own share price at at the current stock price. So I think we’ll continue buying back shares. If we’re getting closer to seven or 8x closer to a commercial vehicle or application, that will probably open up additional opportunities for acquisition.

Unidentified speaker, Interviewer: Got it. I kind of had the impression in the past that your preference was more aftermarket. Is that you wanted to grow long term with M and A? Or is that not true? Is that

Brady Erickson, President and CEO, Finia: No, it’s true. I think we’ve we’re currently about 34% of our revenues last year was aftermarket. Our goal is to get that north of 40%. This comes with a this acquisition comes with a nice aftermarket that comes with it as well. They’ll get some service parts.

And we are looking at pure aftermarket assets as well that would make sense. Those multiples are probably going to be higher than five, but we’re going to be, again, cautious in that arena. Buying an aftermarket company that does not manufacture their own components does not necessarily make a lot of sense to us. We’re able to add new product lines on our own just with our own engineers. So why would I necessarily pay somebody else a premium to go get it when I can just hire more engineers to launch more products and expand our portfolio?

Unidentified speaker, Interviewer: Got it. But there would be pretty good synergies on aftermarket because you’d have overlap on

Brady Erickson, President and CEO, Finia: Oh, yes. We’ve already got a billion dollar plus aftermarket and distribution. So and that’s why it’s easier for us if we want to add a product line. It’s pretty efficient. I’ve got the salespeople.

I’ve got the warehousing. I’ve got the distribution channels. I’ve got the brands that customers want. And so for us, that’s why we see a continued growth in the aftermarket. And we are looking at pure aftermarket companies that also have some manufacturing or remanufacturing that come with it.

And so just to buy somebody that’s buying somebody else’s product and reselling it is less interesting to us.

Unidentified speaker, Interviewer: And I guess maybe to wrap up this whole thing, what about on the light vehicle side? I mean, I’ve always kind of wondered there, in the injection, there’s really like two big competitors, right? Bosch done so, then you, then there’s a few other smaller players. Are any of those would those potentially be targets? Or do you think those are just gonna go away on their own?

Brady Erickson, President and CEO, Finia: Or I think the smaller players are already going away on their own. There’s plenty of on the light vehicle side, there’s plenty of capacity. And so buying one of these smaller players, it’s it’s actually gonna be more complex because they have a different design and manufacturing processes than our others, so it adds more complexity. I need engineers and then to maintain that that different design for those different customers. I’d rather just take it via conquest, and and the next time around, just gain the market share, you know, with our existing products and using our existing lines.

And so we see that as a more cost effective way to to gain share than to try to buy somebody. And so the Contis, the Vitescos, the Morellis that were in the 2%, 3%, 4%, they’re kind of exiting. It doesn’t make sense for them to try to grow it back up. And we’ve gone from on a GDI perspective, we’ve gone from kind of the the low low double digits, you know, 12%. We’re now in the in the mid to high, you know, teens, and we see that, you know, continuing through, you know, 20% or more, you know, by the end of the decade.

Our overall goal is to keep our light passenger vehicle business in that $900 to $1,000,000,000 revenue. So we’re gaining share, but that’s offsetting some of the battery electric penetration rates and just the softer market. And so we’d love that to stay at about $1,000,000,000 so we can continue to keep those plants full, generating a lot of cash flow as we continue to grow the aftermarket commercial vehicle and industrial and off highway applications.

Unidentified speaker, Interviewer: Do you say you actually are seeing well, Conti is already known. Right? So Morelli is already out too? Or are they

Brady Erickson, President and CEO, Finia: They’re they’re not I guess we don’t see I guess I’ll put it this way. When we when we have RFQs and we go up up against people, we don’t see them. Denzo is also not looking to conquest business. They’re gonna protect their own core business is what we’ve seen, but we do not see them developing next generation technology and trying to I don’t see them when our business comes up for bid, they’re not in there trying to take our business. And so we really think that there’s two major players, you know, longer term in this space.

Unidentified speaker, Interviewer: Which would be you and Bosch? Okay.

Brady Erickson, President and CEO, Finia: And I’ll defense on the Denso side. They still have a really good product, and that three fifty bar system is probably going to last for a long time on a number of applications. They don’t have to go to 500 bar, which is where we’re going right now. But I think they’ll stick around for a long time, and obviously, have some ownership and some influence from their OEMs may tell them to to change if needed.

Unidentified speaker, Interviewer: I mean, most OEMs dual source. So I mean, if there’s only two of you, does that do you think you just get the lion’s share of the smaller players? Is that what it sounds like? Yes. I mean, I

Brady Erickson, President and CEO, Finia: think that’s why we continue to grow share. I think there was a pathway, say, four or five years ago, people thought battery electrics were going go to 100%, and some players kind of said, hey or some OEM said, hey, we’re going to go and single source now. And that way, when it ramps down, I’ll only have to deal with one person on the ramp down. Well, that’s changed maybe three years ago when people realized that combustion is going to stick around. And so some of those players that went single source are now kind of coming back and saying, hey, let’s give an opportunity.

Let’s bring a source in. And I think we’re benefiting from that. And that’s why our market share continues to grow.

Unidentified speaker, Interviewer: Yes. It’s a risky proposition for them to go single source in my

Brady Erickson, President and CEO, Finia: opinion, but why they’re They’re pulling back from that single source strategy now.

Unidentified speaker, Interviewer: I think when you guided sales down 1% to 2%, how is that trending versus your expectation? Any color on how the quarter so far is trending versus your expectation?

Brady Erickson, President and CEO, Finia: Yes. I think I know some people were surprised, I guess, versus the estimates that were out there with Q1 revenue numbers. It was actually in line with what our expectations were. We thought Q1 was going be soft. We had Q3 and Q4.

We already saw some of the softness on the CV and the light vehicle side that continued into Q1. Q1 is typically softer quarter for us just general for the market because of Chinese New Year in Asia. They tend to build up in Q4. In North America, I think some of the customers were adjusting some inventory. They were a little bit slower coming back from the winter shutdown.

And then we just continued at that lower run rate that we saw in Q3 and Q4. Q2 and Q3 tends to be the stronger quarters. I know a lot of people talk about seasonality. That’s generally what it should be, but I don’t think we’ve had a typical seasonality in probably five years. Something’s always caused a disruption to that normal cycle, whether it’s tariffs, whether it’s inflationary pressures and COVID, and there’s something always causing a disruption.

But if that from what we see, if that continues to play out, you know, q two and q three should be stronger, and q four is generally a little bit softer because you’re going into the holiday season. But we’re very confident in our in our overall guide. I think what we kind of told people, part of the reason why we were down 1% to 2% was FX related, about $80,000,000 effect on FX was in our guide. Since then, things have moved around quite a bit. Volume has actually come down, some revenue back up from tariff recovery and pass through as well as some FX.

And so net net, they all kind of they’re all linked together because the dollar wouldn’t be getting weaker if it wasn’t for tariffs and the slowing volume. And so for us, it’s, I think, a good example of how resilient and global our business is that even with the shock of North America, we still have other offsets. Europe is still doing well. China is seeing some uptick

Unidentified speaker, Interviewer: in least from

the light vehicle side. Is that what you’re seeing as well? It’s kind of surprising because of all the tariffs and

Brady Erickson, President and CEO, Finia: headline Mean, see consistent order board. And again, we’re again, what they put out or S and P or put out from their guides is always maybe a month or two behind for us because we’re shipping to the engine providers. And so we we produce and ship to the engine. They have the inventory of our parts.

They have inventory of engine. They either ship it to vehicle. The vehicle then have inventory there before then kind of ships out and gets counted. So we’re actually kind of a leading indicator maybe a month or two ahead of when the vehicle is. And so, again, our order board, you know, is consistent.

And again, we’re happy with the guide, and we’re going to keep chunking away.

Unidentified speaker, Interviewer: And the commercial vehicle side, how is that holding in?

Brady Erickson, President and CEO, Finia: It’s still low. I mean, it’s I think the original expectation was that the Q3 and Q4 run rate was pretty soft. That was going to continue into Q1 and Q2, and we were originally hopeful that we’d see some prebuy in the half. I think that expectation of a prebuy is now gone. And so it’s not going from a run rate perspective, we don’t see it going down, but we see it maybe flat to maybe just a little bit up.

From a year over year perspective, it’s still going to be down double digits in Europe and The Americas because of that. But it’s not going down farther. It’s just the comps. Because in 2024, we had a really strong Q1 and Q2 and then a soft Q3 and Q4. That Q3, Q4 softness continued into Q1 and Q2 and may continue into Q3 and Q4.

So it’s already running at a low rate. And whether we see a little bit of an uptick or flat in the half is kind of the question. But that’s more of what we’re kind of expecting is a relatively muted CV volume for the full year.

Unidentified speaker, Interviewer: The full year guide, I think margin is at the midpoint about flat year over year. I guess sales are not changed that much. Mean any major puts and takes we’re thinking about? Or is it just that sales are fairly flat, you’re kind of holding your

Brady Erickson, President and CEO, Finia: Yes. Mean, again, we always target to have inflationary pressures offset by productivity improvements in the plant. Any price reductions, which tend to be very little to customers, is more than offset with the price reductions we’re getting from suppliers. And so we know that we have to be able to maintain margins in a relatively flat environment. And again, we expect all of our locations because each one is in a different dynamic of growing flat or down, they’ve got to manage their cost structures on a real time basis.

And so for us, if we have to do a very broad announced restructuring effort, in my opinion, that means we failed to manage on a real time basis. And so we’re doing a lot of things on a daily basis where one location that is probably all CVE has already taken some actions to restructure some of their headcount to bring their cost structure in line with their volumes. Other locations are still hiring because they’re growing. And so there’s not one size that fits all that we’re doing at Broad Brush because we have a very diverse portfolio and customer base.

Unidentified speaker, Interviewer: Can you maybe talk about your tariff exposure? So you are expecting you obviously have some I mean, are you most of your parts USMCA compliant? And do you might have to relocate those that aren’t?

Brady Erickson, President and CEO, Finia: The way we’ve broken things down, I think we had about $4,000,000 of impact in Q1. That was basically from the one month. About half of it hit the aftermarket segment, half of it hit the fuel systems segment. From the aftermarket side of things, we can pass through price quickly, and we actually had the price increase in April. They’re preparing for a price increase in July, and so they’re going to get their recovery quickly, and it’s very defined.

On the fuel systems segment, their impact, we’re working with customers to get 100 pass through. We have resolutions with the bulk of them, and we’re probably going to finalize the last couple here and be able to book that here before the end of Q2. So that may be a little bit dilutive because it’s basically whatever the cost is, we’re passing it through. So it has a little bit of a headwind from a margin perspective but won’t hurt the overall EBITDA dollar number expectation. And so I think then if you then break down of our roughly $1,000,000,000 of revenue that we produce in Mexico for customers, about half of it stays in Mexico.

So therefore we don’t need to worry about it. The customer isn’t going to deal with that when the engine goes back into The U. S, if it does. And then the remaining, you know, 500,000,000, about 60% of that is USMCA compliant. The remaining 40% is about 200,000,000, and that’s what’s seeing some of the tariffs.

That 200,000,000 is in revenue, and the tariff is on cost of goods sold, not on revenue. So you gotta take off another 20% or so. And then we’ve got plans I think there’s a couple components that we have plans to increase the USMCA compliant by by later on this summer, primarily on some of the commercial vehicle applications that should address a good chunk of that. But we don’t see any other than that, we don’t see any wholesale changes in moving manufacturing around. You know, it it takes a while.

We’re in a in a pretty good position from USMCA compliant. You know, our expectation is that with the next negotiation, that that threshold may go up a little bit. So we’re obviously looking to push, you know, above that level and get prepared for the next round of negotiations.

Unidentified speaker, Interviewer: So you mean the next USMCA content? Correct.

Brady Erickson, President and CEO, Finia: Feeling is that as they renegotiate it, they may change some of the whether they need more U. S. Content or the amount that’s North America content goes up a little bit. So we’re getting prepared for that as well.

Unidentified speaker, Interviewer: And of the was it 200,000,000 that is you said 60% USMCA compliant. How that 60 could go to what you said those changes will help it go to seventy, eighty, 90?

Brady Erickson, President and CEO, Finia: Probably go to eighty, eighty plus. Okay. Think the the biggest challenge is primarily around aluminum castings. China is very competitive on aluminum casting because energy costs in general are pretty cheap in China. But there are some alternatives now.

And with some of the tariffs in place and the benefits, we’re looking to resource that as well.

Unidentified speaker, Interviewer: Okay. So you’re with the changes in place, you’ll get to close to 80, and then the other ones might take time because they

Brady Erickson, President and CEO, Finia: May take time. And again, of them keep canceling changes, I imagine. Yes. And some of it may even be to where it’s still more cost effective to leave it where it is even with the tariffs because it’s a smaller percentage of the total piece of the total value of the product.

Unidentified speaker, Interviewer: How about from a competitive standpoint? I mean, Tenzo is a large competitor. I know they have facilities everywhere. Are you better off than your competitors and maybe could gain share post tariffs because your footprint’s a little better?

Brady Erickson, President and CEO, Finia: I’d say our footprints are going to be similar. I mean, of them have some U. S. Manufacturing, but they’re importing a lot from Europe and or Asia as well. Again, on the fuel injection systems, they’re really difficult to change.

We were already expecting to gain market share, as we talked about earlier, and we expect that to continue. And so I don’t want to gain too much market share on the light vehicle side because I don’t want to add capacity. Okay. You know? So I’m I’m trying to maximize utilization of those light vehicle assets.

And in some cases, we already have reallocated some of those light passenger vehicle assets to off highway and industrial applications. And and so there’s plenty of capacity out there. Our focus is making sure we have the right technology and keeping those assets utilized.

Unidentified speaker, Interviewer: How about on the aftermarket side in terms of tariffs? Is that an opportunity? Are there some parts do come from China? I’m not sure if you’re in a

Brady Erickson, President and CEO, Finia: We’re in a really good position because not only can we purchase from other regions, but we can also produce internally, especially when we start looking at all mix. Obviously, if it’s you know, we’re making the OE side of things, we can make the OES and we can make the aftermarket. But then as far as an all makes that when we try to get 95% coverage, we’ll either just make a decision to make it internally or buy from a party. We only buy, I think it’s around 6 or $8,000,000 of content from China that gets imported into The US. So a relatively small number.

But I think even with that number, we can then say, hey. With some tooling and some fixtures in my existing capacity that we already have available, we can bring more of that into our own facilities rather than buying from Asia. And so that make versus buy may change a little bit, and that’s generally something that within about six months, we can move it Six to nine months, we can move move production for the aftermarket.

Unidentified speaker, Interviewer: Aren’t they aluminum castings you refer to?

Brady Erickson, President and CEO, Finia: No. These these are gonna be more of the fuel delivery modules and some of the caster components.

Unidentified speaker, Interviewer: They’re coming from China? Some of

Brady Erickson, President and CEO, Finia: the party. Some of the all makes may come from China, but it’s only about 8,000,000. So we can move that locally. And a lot of our competitors in the aftermarket, they are buying from Asia, pretty much all of their content. And so that’s going to make us play a little bit more cost competitive, and we can localize more parts in North America as well.

Unidentified speaker, Interviewer: Okay. Maybe going back to the core business. You’re talking about gaining share in gastric injection. Where is penetration today? Because they’re still within the ice bucket.

My understanding is it’s still growing and seeing higher penetration. When do you think that peaks out? Yeah.

Brady Erickson, President and CEO, Finia: I mean, it’s close to there’s probably a little bit more room. I think they’re in the 65, 70% penetration rates of GDI right now. There’s still a lot of markets that probably aren’t gonna go GDI. We’re still launching a new PFI application in South America with an e 100. We still see some PFI applications for range extending EVs in India as well for different different technologies.

So I do think GDI will continue to get some penetration, but there’s still a lot of markets, Africa, Southeast Asia, Central America, that don’t need those more advanced type systems. And so I think that’s what we remind folks is let’s not get caught up and think that the only market for our product is Los Angeles, Paris, and Shanghai. There’s a lot of other business where product is going into other parts of the world that is not going EV. You know? And that’s our or I wouldn’t say EV, battery electric vehicle, because I think people get confused when you just say electrified.

And and so we see South America is not going battery electric. They’re going, you know, ethanol tends to be their path. India is going a lot more natural gas and potentially hydrogen down the road as well. So we see different markets, you

Unidentified speaker, Interviewer: know So in those markets, you have port fuel and not gas direct injection?

Brady Erickson, President and CEO, Finia: We have both. I think in right now in in Brazil and India, it’s primarily port fuel injection. We see direct injection coming to those markets, so that’s where some of the market share gain is coming. But those are also markets that are not going battery electric. Yep.

Okay. And that’s why, in our view, battery electric vehicles penetration rates are slowing down quite a bit in even China. You know, they’re probably in the mid twenties to high twenties, and they’re kind of plateauing. And as if people have seen BYD, the consumers aren’t buying it, and they’re having to drop prices to try to get consumers to buy the product now. And so I think battery electrics make a lot of sense.

I think we will see globally battery electrics gaining some share, but I think it’s it’s not going parabolic and going to a 100. I think we’re starting to get more asymptotic to where it may plateau at 25 or 30% or 35%, which means we’re still going to have fifty sixty million combusted engines being produced every single year. And that’s going to be a nice cash generator for us.

Unidentified speaker, Interviewer: I mean, that makes sense. Talking about The U. S. Regs are probably going to change, and you’re talking about PHEV and BEF. And so very likely Trump is very anti EV.

It seems very likely the EV regs get lowered maybe substantially. But prior people I’ve talked to, PHEV was potentially taking off or full hybrid. I think a lot of that’s been paused because we don’t know what to build. But I mean, what is your content there? Does that do you do a lot of direct injection in a PHEV?

Or I mean, what is the is that a good opportunity for you? Is that neutral? Is that

Brady Erickson, President and CEO, Finia: It’s neutral. I mean, whether it’s a combustion, a hybrid, or a plug in hybrid, same content for us. You know, it’s all very good because if you think about the engine for a plug in hybrid has to have the same performance as a traditional combustion engine because the plug in hybrid is only going to give you help you a little bit on some transient response and maybe that twenty, thirty, 40 miles of electric range. Once that uses gets used up, you need that engine still to have 300 horsepower to power you down the highway and to have that transient response and and performing well. And so from our standpoint, the fuel injection, the penetration rates on hybrids and plug in hybrids are even a little bit higher for GDI because those are the newer engines and the newer applications.

And so from our standpoint, if it has a combustion engine in it, whether it’s a plug in hybrid, range extending EV, full hybrid, or a combustion engine, there’s still going to be a lot of combustion engines being produced for decades, if not for the rest of the century.

Unidentified speaker, Interviewer: Can you talk a little bit about your China exposure? I mean, how are you with the locals in China in terms of

Brady Erickson, President and CEO, Finia: Yeah. I think the things we’re actually probably a pretty good exposure, at least in our opinion. On the light vehicle side, we’re probably north of 80% of our revenues are with the local Chinese OEM. The BYDs, the Chang’an, the Liatos you know, and as such, they’re all of our customers. On the commercial vehicle side, it’s a 100% local Chinese OEMs.

Okay.

Unidentified speaker, Interviewer: So you are benefiting in China from the

Brady Erickson, President and CEO, Finia: Oh, yeah. And people ask us, are we concerned with the Chinese exporting, you know, their vehicles? We said, no, we’re not concerned because our penetration rates on the Chinese OEMs is as good as it is anywhere in the world. And so if they start exporting, you know, those vehicles, that’s, you know, good for us as well. I think the one thing to remind folks is that in general, the engine is still being produced in China.

They may eventually get some vehicle production in Europe, South America and such, but they’re probably still gonna be producing the engine in China. If and when they wanna put an engine plant somewhere overseas, we’ve got plants in every region of the world that if they want us to produce in Brazil for their Brazilian engine, we can do that in Europe for Europe, and that’s typically what we do from all of our manufacturing. And so for us in China and in Europe and in North America, we generally design, develop, produce, source, and sell within that region. And so we have very little product that we try to ship in between regions.

Unidentified speaker, Interviewer: Got it. You talked about in the past trying to be 70% aftermarket and commercial by 02/1930. How do you think you’ll get there? Is that still the goal?

Brady Erickson, President and CEO, Finia: Actually, we kind of tweaked it a little bit. We may have to increase that a little bit because if at the our year end 2024 numbers, I think it was in February we came out with kind of the new splits. And so we split the light vehicle market into light passenger vehicle and light commercial vehicle because we kept talking about it, but I don’t think people fully understood it, into where our light commercial vehicle business is over 18% of our revenue or 20 of our revenue, I think it is. And so our light passenger vehicle is only like 28. And that light commercial vehicle will be your work trucks, your work vans, and more for small businesses.

And so we thought it was valuable to carve that out and show the investors. And so and that’s when you add the light commercial vehicle, the medium duty, the heavy duty and off highway, now that adds up to 38%, 39% of our revenues. And so that actually changed things a bit, and so our light passenger vehicle is now only 28%. So we’re already over 70%, say, commercial vehicle and aftermarket. So we’re going to have to adjust those numbers.

I would say our light passenger vehicle is probably going to go our goal is to get that less than 20% of our revenues by 02/1930. So as we continue to grow everywhere else, that’s staying at about $1,000,000,000 and us getting to $5,000,000,000 by 2030 puts our light passenger vehicle at 20%.

Unidentified speaker, Interviewer: The breakout I mean, you’re trying to highlight that the commercial vehicle, the light commercial vehicle is less at risk to EV? Or

Brady Erickson, President and CEO, Finia: Absolutely. Because these are going to be your construction, your work trucks that are on-site that don’t necessarily have a lot of excess power available to them, and these are you know, we don’t see the penetration rates in those applications. Yeah. You will have, you know, a UPS things. There are some of those are going electric, but with with some success and some not so successful.

But we see a lot of demand continuing that segment for combustion, and we think that’s also a segment that will benefit from alternative fuels, whether it’s natural gas or hydrogen or some other type of e fuel. It’s just a very convenient way to power the vehicles.

Unidentified speaker, Interviewer: Maybe talk about the powertrain ECU. So I think today you buy most from Borg, but you’re now making your own or becoming your own. What does that opportunity look like for you in terms of being able to do your own?

Brady Erickson, President and CEO, Finia: Yes. It very important for us to get access to those ECUs and that technology kind of going forward because our customers want us to provide a complete system offering. And that’s why we get about $100,000,000 from our customers in nonrecurring engineering support. And so they pay for calibration, integration of the ECU, qualifying it. So we’ve been awarded a couple of our own, I would say, Finian designed ECUs that we’re going into production with.

Are we using our former parent to produce those right now? Yes, but it’s our design, so it’s more as a contract manufacturing house. We have flexibility to use other parties. If they’re competitive, we’ll keep it with them, but we have the option to use another party going forward and or if we have the if it makes sense for us to vertically integrate as well.

Unidentified speaker, Interviewer: You’ve also started talking about aerospace and defense. What are you supplying there, and what is the opportunity that you see?

Brady Erickson, President and CEO, Finia: I think it’s a good longer term opportunity for us. We’re doing fuel injection and fuel management kind of components for them. We actually I think we’ve already announced we’ll be at the Paris Air Show next week. I’ll be there meeting with customers. We were going through our quality certification process for the aerospace side that should be done Q3, Q4.

Our launch in production with customers is Q4 of this year. product line launches in Q1 of next year, and we’ve got a lot of RFQs in the pipeline and meeting with a lot of the engine manufacturers are visiting and are very interested in our capabilities. So we think it has the potential to become more a significant portion or at least a meaningful portion of our revenues 2030 and beyond. And so we’re starting with a kind of a build to print, so we’re replacing another supplier. We’re getting 50% of the volume.

We think after a year or two of good performance, we’ll take on 100%, and then we’ll continue to add more product to that portfolio kind of going forward. And we think it’s fits with our capabilities. We actually converted one of our light vehicle lines to produce this part for aerospace, you know, take out some of the automation, but it’s still precision machining, final assembly, validation, testing, quality systems, supply chain management. Those are all things we’re really good at. And so we’re able to kind of go into this new market leveraging our existing human capital and our existing manufacturing capital.

Do you need additional certifications?

Unidentified speaker, Interviewer: We

Brady Erickson, President and CEO, Finia: need a quality certification. That’s what we’re going through. And so we’ve already added all the the requirements into our facilities for that. There’s obviously depending on whether it’s military or commercial, there’s restrictions on what I’m you know, if it’s a European business or a French business, the Americans can’t kinda kinda see it type of thing. But we’ve got locations in The UK and The US and all around the world, so we can support, you know, a lot of those applications, and and we’re working now on more commercial applications as well.

And again, we’re starting to work with customers on their new engine platforms now. Initially, it’s going to be replacing problematic suppliers, but we’re already starting to get involved in their 2035 engine programs. And we think it’s going to be a nice fit for us because it’s leveraging our precision machining, our fluid management capabilities, existing human capital. Same engineers can work on that and work you know, the light vehicle or commercial vehicle, same manufacturing capital, and it’s going to be an OE product that’s going to have a lot of service parts for thirty, forty years and beyond. And so these are parts that are going to get, you know, replaced automatically almost every 1,000 hours or every 2,000 hours as part of their regular maintenance.

And so it’s going to create a nice echo effect on the revenue. So even though the OE may be small, it’s going to create a lot of aftermarket for decades to come.

Unidentified speaker, Interviewer: And how big is that? I mean, you have some sales today, but it’s

Brady Erickson, President and CEO, Finia: It’s small right now. I think we have an aspirational goal to get that OE business to approaching 100,000,000 by the end of this decade to make it meaningful. And then I think it and that’s just with what we see in the current pipeline. I think there’s more opportunities out there, but we’re going step by step.

Unidentified speaker, Interviewer: Alright. Cool. I think we’re pretty much out of time. So probably wrap it up there unless there’s Yeah. Thank you very much.

Great. Thank you. Very helpful. Thanks, Ariel.

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