Executive Summary / Key Takeaways

• Autoliv achieved record sales, operating income, and earnings per share in the third quarter of 2025, driven by robust operational efficiency and strategic cost management.
• The company is reinforcing its leadership in passive safety through continuous innovation, including the award-winning Bernoulli airbag module and a new joint venture in China for advanced safety electronics.
• Strategic investments in China, such as a second R&D center and a partnership with CATARC, are poised to accelerate growth and market outperformance with domestic Chinese OEMs.
• Autoliv maintains a strong financial foundation, characterized by healthy cash flow generation, a conservative leverage ratio of 1.3x, and a commitment to significant shareholder returns through dividends and share repurchases.
• While macroeconomic uncertainties and evolving tariff policies present challenges, Autoliv's proven ability to manage costs and its focused growth initiatives in key emerging markets position it for sustained profitability.

A Global Leader Forging Ahead in Automotive Safety

Autoliv, Inc., founded in Stockholm, Sweden, in 1953, has established itself as the preeminent global supplier of passive safety systems to the automotive industry. Operating across Europe, the Americas, China, Japan, and the rest of Asia, the company's core business revolves around critical components such as airbags, seatbelts, and steering wheels. Autoliv's long history has been marked by both significant expansion, including the 2009 acquisition of certain Delphi assets, and a demonstrated ability to adapt to complex challenges, from antitrust investigations to widespread product recalls and macroeconomic volatility.

The automotive industry currently faces a dynamic landscape, characterized by fluctuating Light Vehicle Production (LVP), geopolitical tensions, and the accelerating shift towards electric vehicles (EVs) and autonomous driving. Despite these broad industry trends, Autoliv has consistently focused on operational excellence and strategic market positioning. The company's resilience is underpinned by its regionalized manufacturing footprint, particularly its strong presence in the U.S. and Mexico, which is crucial for addressing evolving trade policies and tariffs.

Technological Edge: Innovation as a Core Moat

Autoliv's competitive advantage is deeply rooted in its differentiated technology and continuous innovation in passive safety systems. The company's product portfolio includes advanced modules and components for frontal-impact, side-impact, curtain, knee, and front center airbag protection systems, alongside sophisticated seatbelts and steering wheels. This specialization allows for focused research and development efforts that yield tangible benefits for automakers and end-users.

A prime example of this innovation is the Bernoulli airbag module, which received the PACE Pilot Innovation to Watch award in the first quarter of 2025. This technology enables the more efficient inflation of larger airbags using a smaller, single-stage inflator, resulting in lower deployment costs and reduced weight. Such advancements offer automakers significant advantages in vehicle design flexibility, potentially improving fuel efficiency in internal combustion engine vehicles and extending the range of electric vehicles. Furthermore, Autoliv is developing low-carbon cushion material airbags, which not only reduce the environmental footprint but also lower the overall cost of the airbag module. The company is also exploring future safety solutions, such as foldable steering wheels for self-driving vehicles, which integrate new driver airbags designed to deploy from the dashboard or ceiling, addressing the evolving safety requirements of autonomous mobility.

Autoliv's commitment to technological leadership extends to strategic investments in advanced safety electronics. In October 2025, the company announced its intent to form a joint venture with HSAE, a leading Chinese automotive electronics developer. This collaboration will focus on developing and manufacturing advanced safety electronics, including Electronic Control Units (ECUs) for active safety, Hands-On Detection (HOD) systems for steering wheels, and electronic applications for seatbelt systems and driver units. This initiative aims to increase vertical integration, capture more value within the safety electronics segment, and enable faster market entry with lower capital expenditure and reduced technological risk. These technological differentiators collectively strengthen Autoliv's competitive moat, supporting premium pricing, driving cost efficiencies, and solidifying its market leadership in the critical domain of automotive safety.

Operational Excellence and Robust Financial Performance

Autoliv's strategic focus on operational efficiency has translated into strong financial performance, particularly in the third quarter of 2025. The company reported net sales of $2,706 million, a 5.9% increase year-over-year, with organic sales growth of 3.9%. This performance was driven by better-than-expected Light Vehicle Production (LVP) in the Americas and Europe, alongside successful cost reduction initiatives and tariff compensation. Gross profit rose by 13.7% to $522 million, leading to a 1.3 percentage point expansion in gross margin to 19.3%. This improvement was primarily due to higher sales volumes, enhanced operational efficiency with reduced labor and waste costs, and a $15 million supplier compensation, of which $13 million positively impacted gross profit.

Despite these gains, Selling, General, and Administrative (SG&A) expenses increased by $8 million, mainly due to higher personnel costs, pushing SG&A as a percentage of sales from 5% to 5.1%. Research, Development, and Engineering (RD&E) net costs also rose by $22 million, primarily due to lower engineering income, with RD&E net as a percentage of sales increasing from 3.7% to 4.3%. Nevertheless, operating income grew by 18.1% to $267 million, and the adjusted operating margin improved by 0.7 percentage points to 10.0%. Autoliv also delivered a diluted earnings per share of $2.28, a 31% increase year-over-year, marking its ninth consecutive quarter of growth in adjusted earnings per share.

The company's liquidity and capital management remain robust. Operating cash flow increased by 46% to $258 million in Q3 2025, driven by higher net income and more favorable non-cash items. Capital expenditure, net, decreased by $40 million, representing 3.9% of sales, down from 5.7% a year earlier, reflecting reduced activity in footprint optimization and capacity expansion. This led to a substantial increase in free operating cash flow to $153 million, significantly up from $32 million in the prior year. The cash conversion rate of 87% in Q3 2025 surpassed the company's target of at least 80%.

Autoliv's net debt stood at $1,772 million as of September 30, 2025, a $15 million reduction year-over-year, and its leverage ratio remained stable at 1.3x, well below its 1.5x target. The company continues to prioritize shareholder returns, repurchasing and retiring 0.84 million shares for $100 million in Q3 2025 and declaring a quarterly dividend of $0.85 per share.

Strategic Growth Pillars: China, India, and Beyond

Autoliv's growth strategy is heavily concentrated on expanding its presence and market share in high-growth regions, particularly China and India. In China, the company is making significant investments to deepen its partnerships with domestic OEMs. Sales growth with Chinese OEMs returned to outperformance in Q3 2025, with sales to domestic OEMs growing by 23%, outpacing their LVP growth by 8 percentage points. This is a crucial development, as LVP growth in China has been primarily driven by domestic OEMs, albeit with typically lower safety content per vehicle. Autoliv anticipates a continued strong outperformance in China in the fourth quarter of 2025, supported by a record number of new product launches.

To solidify its long-term position, Autoliv broke ground on a second R&D center in Wuhan, China, in July 2025, scheduled to commence operations in Q3 2026. This center will enhance collaboration with Chinese OEMs and support their global expansion. Furthermore, a strategic agreement was signed with China Automotive Technology and Research Center Co (CATARC) in October 2025 to jointly advance automotive safety standards and innovation in China and globally.

India also represents a significant growth engine, contributing one-third of Autoliv's global organic growth in Q3 2025. India now accounts for approximately 5% of the company's total turnover, a notable increase from 2% not long ago, supported by a strong 60% market share. Content per vehicle in India is projected to increase from around $120 in 2024 to approximately $140 in 2025, with expectations to reach $160-$170 in the coming years. This combination of LVP growth and increasing CPV provides a strong tailwind for Autoliv in the region. Globally, Autoliv maintained a market share of around 44% in 2024, an increase of nearly 5 percentage points since 2018, underscoring its leading position across all regions and product categories.

Competitive Landscape: Solidifying Leadership

Autoliv operates in a competitive landscape with both direct and indirect rivals. Key direct competitors include Magna International Inc. (MGA), Aptiv PLC (APTV), and BorgWarner Inc. (BWA), all of whom have overlapping interests in automotive components and safety systems. Autoliv's competitive standing is primarily defined by its specialized focus on passive safety, which allows for deeper expertise and more streamlined operational execution compared to diversified players like Magna. While Magna offers a broader portfolio, Autoliv's dedicated R&D in safety systems, such as the Bernoulli airbag module, provides a distinct technological edge in its core market.

Against Aptiv, which excels in active safety, electronics, and software, Autoliv's traditional strength lies in the reliability and durability of its mechanical and hardware-based passive safety solutions. However, Autoliv's recent joint venture with HSAE for advanced safety electronics represents a strategic move to vertically integrate and compete more directly in the tech-driven safety segment, aiming for faster market entry and reduced risk. Compared to BorgWarner, whose focus is heavily on powertrain and electrification, Autoliv's comprehensive, end-to-end passive safety system expertise offers a more integrated solution set for crash protection.

Autoliv's global market leadership, with a 44% share in 2024, is a testament to its strong customer relationships and product quality. While the company faces vulnerabilities such as dependency on major automakers and potential supply chain disruptions, its regionalized industrial footprint, particularly in the U.S. and Mexico, provides a strategic advantage in managing these risks. The company's proven ability to pass on tariff-related costs to customers, as demonstrated by neutralizing most tariffs in Q1 2025 and recovering 75% in Q3 2025, highlights its strong negotiating position and operational resilience. The growth of BYD (BYDDY) in China, which manufactures its own safety products, presents a unique competitive dynamic, but Autoliv's increasing order intake share with other rapidly growing Chinese OEMs (exceeding 40% in new orders) mitigates this specific challenge.

Outlook and Risks: A Path Forward Amidst Uncertainty

Autoliv's full-year 2025 guidance reflects a confident outlook despite ongoing industry uncertainties. The company projects organic sales growth of approximately 3% and an adjusted operating margin of around 10-10.5%, with management expecting to land at the midpoint of this range. Operating cash flow is anticipated to be around $1.2 billion, and capital expenditures, net of sales, are expected to be approximately 4.5%, a revision downward from previous guidance. This guidance is predicated on a global LVP growth of around 1.5% and a positive net currency translation effect on sales of about 1%.

The fourth quarter of 2025 is expected to be the strongest of the year, consistent with historical seasonality, with anticipated higher sales and continued outperformance, particularly in China. However, specific headwinds for Q4 2025 include the absence of out-of-period inflation compensation, unlike previous years, higher depreciation costs due to new manufacturing capacity, and a temporary decline in engineering income related to the timing of specific customer development projects, though this is expected to recover in 2026.

Autoliv's outlook is not without risks. Legal proceedings, such as the BMW (BMWYY) antitrust claim with a potential loss range of $0 to $95 million, and product-related liabilities, including the Stellantis (STLA) side curtain airbag recall with a potential loss of $0 to $385 million (though substantial insurance coverage is expected), pose financial uncertainties. Geopolitical instability, global supply chain disruptions, and evolving trade policies, particularly tariffs between the U.S. and China, remain significant external challenges. Management explicitly states that the 2025 guidance does not incorporate any new or increased tariffs, underscoring the potential for these to impact operations and profitability. However, Autoliv's proactive approach to cost management, its ability to pass on tariff costs, and its strategic investments in regionalized production and innovation are key mitigation strategies.

Conclusion

Autoliv stands as a resilient leader in the automotive passive safety market, demonstrating a compelling investment thesis built on operational excellence, technological innovation, and strategic market expansion. The company's record-breaking financial performance in Q3 2025, characterized by strong sales growth, margin expansion, and robust cash flow, underscores its ability to thrive amidst a challenging global automotive landscape. Autoliv's commitment to advancing safety technology, exemplified by its Bernoulli airbag module and strategic ventures into advanced safety electronics in China, reinforces its competitive moat and positions it for long-term growth.

The company's focused investments in high-growth markets like China and India are expected to drive continued outperformance and solidify its global market leadership. While macroeconomic headwinds, geopolitical risks, and potential tariff impacts present ongoing challenges, Autoliv's proven agility in cost management, its strong balance sheet, and its dedication to returning value to shareholders provide a solid foundation. Investors can look to Autoliv's consistent execution of its strategic initiatives and its technological leadership as key drivers for sustained profitability and shareholder value creation in the evolving automotive industry.