Executive Summary / Key Takeaways

• Commercial Vehicle Group (CVGI) is undergoing a significant strategic transformation, divesting non-core assets and reorganizing into three focused segments: Global Seating, Global Electrical Systems, and Trim Systems and Components, to enhance operational efficiency and align with evolving end markets.
• Despite a challenging market environment, CVGI demonstrated improved profitability, with adjusted gross margin expanding to 12.1% in Q3 2025, a cumulative 370 basis point improvement from Q4 2024, driven by aggressive cost reduction and operational efficiency initiatives.
• The Global Electrical Systems segment is a key growth driver, with Q3 2025 revenues up 6% year-over-year, propelled by new program wins in autonomous vehicles and European automotive OEMs, and is projected for high single-digit to low double-digit growth in 2026.
• CVGI successfully refinanced its debt in June 2025, securing $210 million in new credit facilities, and is prioritizing free cash flow generation, targeting at least $30 million for full-year 2025 to reduce its net leverage ratio, which stood at 4.9x in Q3 2025.
• The company faces persistent headwinds in the Class 8 truck, construction, and agriculture markets, with 2025 revenue guidance adjusted to $640 million to $650 million and adjusted EBITDA to $17 million to $19 million, underscoring the importance of its cost control and new business ramp-ups.

A Strategic Pivot in a Dynamic Industry

Commercial Vehicle Group, Inc. (CVGI), established in 2000, has long been a global provider of systems, assemblies, and components for the commercial vehicle and electric vehicle markets. With manufacturing operations spanning the United States, Mexico, China, Europe, and Australia, CVGI has built a diversified presence, primarily serving North America, Europe, and the Asia-Pacific region. The company's foundational strength lies in its ability to manufacture customized products for a majority of North American Commercial Truck manufacturers and numerous construction and agricultural vehicle OEMs.

The period leading into and through 2024 and 2025 has been transformational for CVGI. Recognizing the need to adapt to evolving market dynamics and enhance shareholder value, the company embarked on a strategic pivot. This involved divesting non-core assets, such as the FinishTEK business in Q1 2024, the Cab Structures business in Q3 2024 for approximately $40 million, and the Industrial Automation segment in Q4 2024 for about $1.5 million. These divestitures were aimed at reducing exposure to cyclical markets, lowering customer concentration, simplifying operations, and improving the company's return profile. Concurrently, CVGI initiated significant cost-reduction efforts, eliminating approximately 1,300 positions (17% of its headcount) in 2024 and opening new, lower-cost facilities in Morocco and Aldama, Mexico.

Effective January 1, 2025, CVGI reorganized its operations into three distinct segments: Global Seating, Global Electrical Systems, and Trim Systems and Components. This realignment, which absorbed the former Aftermarket & Accessories business unit, was designed to foster closer alignment with customers and end markets, optimize capital allocation, and streamline the operating model. The company's overarching strategy is to drive accretive growth, accelerate margin expansion, and increase capital efficiency, positioning it for long-term success amidst industry shifts.

Technological Edge and Innovation in a Shifting Landscape

CVGI's core technological differentiation is rooted in its specialized expertise in designing and manufacturing complex systems, assemblies, and components tailored to the rigorous demands of commercial and electric vehicles. This includes advanced electrical wire harnesses, control boxes, dashboard assemblies, and sophisticated seating solutions. The company's ability to provide customized products to meet specific customer requirements is a key competitive advantage.

In the Global Electrical Systems segment, CVGI is actively extending its differentiated solutions, including high-voltage wire harnesses and power distribution boxes. These offerings are critical for the increasing electrification of vehicles, both internal combustion engine (ICE) and electric vehicles (EVs), and are designed to drive increased content per vehicle. For instance, the company is providing low-voltage wire harnesses for an autonomous vehicle manufacturer in North America. Autonomous vehicles, by their nature, require redundant electrical systems, leading to significantly higher electrical content per vehicle compared to non-autonomous counterparts. This technological capability allows CVGI to capture a larger share of value in these advanced platforms.

Furthermore, CVGI's R&D initiatives are focused on expanding into adjacent markets with strong secular growth drivers, such as autonomous EVs and infrastructure. The company is also developing new global platforms, such as the Unity seat launch in its Global Seating segment. This platform design offers substantial flexibility for deployment across different regions, enabling more new business wins and leveraging a standardized yet adaptable product. While specific quantifiable performance metrics for these technologies are not explicitly detailed, the strategic intent is clear: to enhance efficiency, reduce costs, and secure a leading market position in critical, high-growth areas. This technological roadmap contributes to CVGI's competitive moat by enabling it to offer specialized, high-value solutions that are difficult for generalist competitors to replicate, thereby supporting higher average selling prices and improved margins.

Financial Performance and Liquidity Under Pressure

CVGI's financial performance in 2025 reflects the dual impact of challenging market conditions and the benefits of its strategic restructuring. For the nine months ended September 30, 2025, consolidated revenues were $494.2 million, a decrease from $560.1 million in the prior year period. This 11.8% decline was primarily driven by softening customer demand across all segments, particularly in North America. Despite this revenue pressure, the company demonstrated a notable improvement in profitability. Adjusted gross margin reached 12.1% in Q3 2025, up 50 basis points year-over-year and 10 basis points sequentially, marking a cumulative 370 basis point improvement from Q4 2024.

The Global Seating segment reported revenues of $68.7 million in Q3 2025, a 10.4% decrease year-over-year, primarily due to lower North American sales volume. However, its adjusted operating income improved to $2.9 million in Q3 2025, benefiting from proactive operational efficiency and lower SG&A expenses. The Global Electrical Systems segment, a strategic growth area, showed resilience with Q3 2025 revenues increasing 5.9% year-over-year to $49.5 million. This growth was driven by the ramp-up of new programs with an autonomous vehicle manufacturer in North America and a major automotive OEM in Europe, offsetting weaker construction and agriculture demand. The segment's adjusted operating income for Q3 2025 was $1.4 million, an increase of $1.6 million compared to the prior year, reflecting higher revenues and operational efficiencies. Conversely, the Trim Systems and Components segment, which primarily serves the North American Class 8 market, experienced a significant 29.2% revenue decline in Q3 2025 to $34.3 million, directly impacted by a 39% year-over-year drop in Class 8 builds according to ACT Research. This led to an adjusted operating loss of $0.3 million for the quarter.

Liquidity and capital resources have been a central focus. CVGI successfully completed a debt refinancing on June 27, 2025, securing $210 million in senior secured credit facilities, comprising a $95 million Term Loan and a $115 million ABL Revolving Credit Facility, both maturing in June 2030. This refinancing was crucial for paying down existing debt and enhancing financial flexibility. Cash provided by operating activities for the nine months ended September 30, 2025, was $32.4 million, a significant improvement from a net cash use of $6.8 million in the prior year. Despite a negative free cash flow of $3.4 million in Q3 2025 due to inventory build related to a China facility move, the company generated $25 million in free cash flow for the first nine months of 2025. The net leverage ratio stood at 4.9x at the end of Q3 2025, and the company was in compliance with its debt covenants.

Competitive Landscape and Strategic Positioning

CVGI operates in a competitive environment with larger, more diversified players such as Lear Corporation (LEA), Adient plc (ADNT), and Magna International Inc. (MGA), as well as specialized electronics providers like Stoneridge, Inc. and Visteon Corporation . Compared to these rivals, CVGI positions itself as a specialized provider with a global manufacturing footprint and a diversified product portfolio.

Lear Corporation, a global supplier of automotive seating and electrical systems, often demonstrates stronger revenue growth and profitability due to its broader global scale and aggressive focus on electrical innovations. CVGI, while competitive in electrical wire harness assemblies and seating, differentiates through its specialized expertise in custom assemblies for niche applications, such as military and specialty vehicles. This focus allows CVGI to offer tailored solutions, which can enhance customer loyalty and potentially provide pricing power in these specific segments.

Adient plc, a leader in seating systems, may hold an edge in advanced seating designs for comfort and durability. CVGI counters this by offering a wider range of components beyond seating, including electrical systems, providing a more comprehensive value proposition. Magna International, a large-tier supplier with extensive R&D and manufacturing scale, often leads in full-system integration and innovation in electric and autonomous systems. CVGI's agility in serving specialized sectors and its focus on aftermarket strength are key differentiators against such large-scale competitors. Stoneridge (SRI) and Visteon (VC), specializing in electronic components and cockpits respectively, highlight CVGI's potential technological gaps in advanced digital integration, though CVGI's broader product breadth offers a more comprehensive solution.

CVGI's competitive advantages, or "moats," include its global manufacturing network, which supports customer loyalty and recurring revenue, and its expertise in custom assembly. The company's new low-cost manufacturing capacity in Mexico and Morocco also provides an opportunity for market share gains, particularly with construction and agriculture customers. The Trim Systems and Components segment, despite current headwinds, has historically demonstrated attractive margins, suggesting substantial operating leverage when market volumes recover. CVGI is also strategically leveraging its capacity for onshoring and nearshoring to help customers mitigate tariffs, further solidifying its customer relationships.

Outlook, Guidance, and Risk Assessment

CVGI's outlook for 2025 reflects a cautious yet determined approach amidst persistent market headwinds. The company has revised its full-year 2025 revenue guidance to a range of $640 million to $650 million, down from previous estimates, and adjusted EBITDA guidance to $17 million to $19 million. This adjustment accounts for the continued softening in end markets, including a projected 28% decline in Class 8 heavy truck build volumes for 2025 and further 14% decline in 2026, as well as 5% to 10% declines in construction and agriculture markets. ACT Research also forecasts a significant 37% sequential drop in Class 8 volumes in the second half of 2025 compared to the first half.

Despite these challenges, CVGI maintains a positive outlook for free cash flow, projecting at least $30 million for the full year 2025, which will be prioritized for debt reduction. This is underpinned by an expected $30 million reduction in working capital, primarily from inventory and accounts receivable, and a 50% reduction in planned capital expenditures for the year. The company aims to reduce its net leverage ratio through 2026, targeting a 2x level. A key assumption for future growth is the anticipated high single-digit to low double-digit percentage increase in Global Electrical Systems sales in 2026, driven by new program ramp-ups with autonomous vehicle and European automotive manufacturers. These new programs are expected to offset the forecasted downturn in the Class 8 business.

However, significant risks remain. Geopolitical dynamics, fluctuating foreign exchange rates, and the ongoing uncertainty surrounding tariffs pose continuous challenges to the company's cost structure and ability to recover costs from customers. The potential for the EPA to delay or push back 2027 emissions standards for commercial vehicles could alter pre-buy dynamics in the Class 8 market, impacting demand forecasts. Furthermore, the U.S. freight recession and elevated interest rates continue to weigh on capital purchases by fleets and construction/agriculture dealers, leading to increased OEM downtime and supply chain volatility. CVGI's ability to comply with debt covenants, while currently managed, remains subject to economic conditions beyond its control. The company's strategy to mitigate these risks includes proactive operational efficiency improvements, headcount management, footprint optimization, and continuous engagement with customers and suppliers to adapt to changing market conditions and tariff impacts.

Conclusion

Commercial Vehicle Group is currently undergoing a profound strategic transformation, repositioning itself for long-term growth and profitability in a challenging industrial landscape. The company's decisive actions in divesting non-core assets, streamlining its organizational structure, and aggressively pursuing operational efficiencies have laid a crucial foundation. While facing significant headwinds from declining end markets in Class 8 trucks, construction, and agriculture, CVGI's focus on cost reduction and new business wins, particularly in its Global Electrical Systems segment with its technological differentiators in electrification and autonomous vehicles, offers a compelling path forward.

The successful debt refinancing and a strong commitment to free cash flow generation underscore management's dedication to strengthening the balance sheet. Although the near-term outlook remains cautious, the anticipated ramp-up of new programs and the inherent operating leverage from a leaner cost structure position CVGI to capitalize on an eventual market recovery. Investors should monitor the execution of these strategic initiatives, the pace of new business integration, and the company's ability to navigate persistent macroeconomic and geopolitical uncertainties, as these factors will be critical in determining CVGI's trajectory toward its targeted profitability and leverage levels.