AUTOLIV INC (ALV)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and accompanying Notes thereto included elsewhere herein and with our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the United States Securities and Exchange Commission (the “SEC”) on February 19, 2026. Unless otherwise noted, all dollar amounts are in millions.

Autoliv, Inc. (“Autoliv” or the “Company”) is a Delaware corporation with its principal executive offices in Stockholm, Sweden. The Company functions as a holding corporation and owns two principal operating subsidiaries, Autoliv AB and Autoliv ASP, Inc.

Through its operating subsidiaries, Autoliv is a supplier of automotive safety systems with a broad range of product offerings, including modules and components for passenger and driver airbags, side airbags, curtain airbags, seatbelts, steering wheels, and pedestrian protection systems.

Autoliv’s filings with the SEC, including this Quarterly Report on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K, proxy statements, and all of our other reports and statements, and amendments thereto, are available free of charge on our corporate website at www.autoliv.com as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC (generally the same day as the filing).

The primary exchange market for Autoliv’s securities is the New York Stock Exchange ("NYSE") where Autoliv’s common stock trades under the symbol “ALV”. Autoliv’s Swedish Depositary Receipts ("SDRs") are traded on Nasdaq Stockholm’s list for large market cap companies under the symbol “ALIV SDB”. Options in SDRs trade on Nasdaq Stockholm under the name “Autoliv SDB”. Options in Autoliv shares are traded on Nasdaq OMX PHLX and on NYSE Amex Options under the symbol “ALV”.

Autoliv’s fiscal year ends on December 31.

Non-U.S. GAAP financial measures

Some of the following discussions refer to non-U.S. GAAP financial measures: see reconciliations for “Organic sales,” “Free operating cash flow,” “Cash conversion,” “Net debt,” “Leverage ratio,” “Adjusted net income,” “Adjusted operating income,” “Adjusted operating margin,” “Adjusted other non-operating items, net,” “Adjusted earnings per share, diluted,” “Adjusted return on capital employed,” and “Adjusted return on total equity” provided below. Management believes that these non-U.S. GAAP financial measures provide supplemental information to investors regarding the performance of the Company’s business and assist investors in analyzing trends in the Company's business. Additional descriptions regarding management’s use of these financial measures are included below. Investors should consider these non-U.S. GAAP financial measures in addition to, rather than as substitutes for, financial reporting measures prepared in accordance with U.S. GAAP. These historical non-U.S. GAAP financial measures have been identified as applicable in each section of this report with a tabular presentation reconciling them to the most directly comparable U.S. GAAP financial measures. It should be noted that these measures, as defined, may not be comparable to similarly titled measures used by other companies.

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EXECUTIVE OVERVIEW

Through focused execution, we maintained the positive momentum from the first quarter. Globally, our sales grew organically more than 1pp faster than global LVP, outgrowing LVP significantly in Asia. Our sales to Chinese OEMs grew by more than 40%, and Chinese OEMs accounted for 55% of our sales in China, compared to 40% a year ago. Our opportunities with Chinese OEMs were further solidified by signing new strategic cooperation agreements with both Great Wall Motor and XPENG. Sales in India continued to grow by more than 35%.

Well executed cost reduction activities supported a continued improvement of underlying profitability, with adjusted operating margin (Non-GAAP measure, see reconciliation table below) increasing to 9.6%.

We are pleased that our cash flow improved in line with our expectations, resulting in record operating cash flow for a second quarter, and supporting our ambitious shareholder return strategy. Our leverage ratio (Non-GAAP measure, see reconciliation table below) improved to 1.2x, despite repurchasing around 1.65 million shares, equal to $200 million, in the quarter.

In line with our ambition to ensure long-term competitiveness and align production capacity with market demand, we continue to optimize our footprint. In the quarter, we announced that we will discontinue manufacturing operations in Türkiye.

We continued to manage geopolitical developments successfully in the quarter, limiting the effects of tariffs, supply chain challenges and raw material price increases.

The business environment remains uncertain but our current best estimate for the remainder of the year is to reiterate our full year 2026 guidance of about unchanged organic sales growth (Non-GAAP measure), adjusted operating margin (Non-GAAP measure) of around 10.5-11% and operating cash flow of around 1.2 billion. This is based on the assumption that LVP will decline by around 2.5%.

Customer compensations and other mitigation initiatives are expected to have limited impact in the third quarter, but significantly greater contribution in the fourth quarter. Therefore, we expect third quarter adjusted operating margin to be around the first half 2026 level, with a significant improvement in the fourth quarter.

Based on our full year guidance, we continue to expect strong cash flow for the year, which supports our ambition to provide attractive shareholder returns, including share repurchases of $300-500 million in 2026.

Financial highlights in the three months period ended June 30, 2026

Change figures below compare to the same period of the previous year, except when stated otherwise.

$2,803 million net sales, increase of 3.3%

1.0% organic sales growth (non-GAAP measure, see reconciliation table below)

6.8% operating margin, 9.6% adj. operating margin (non-GAAP measure, see reconciliation table below)

$1.35 diluted EPS, 38% decrease

Key business developments in the three months period ended June 30, 2026

Change figures below compare to the same period of the previous year, except when stated otherwise.

Net sales increased organically (non-GAAP measure, see reconciliation table below) by 1.0%, which was 1.3pp higher than the global LVP decrease of 0.3% (S&P Global July 2026) mainly driven by strong performance in Asia. Regional and customer LVP mix is estimated to have impacted sales negatively by about 0.6pp. Our organic sales growth (non-GAAP measure) outperformed LVP significantly in China and in Asia excl. China, underperformed slightly in EMEA and more markedly in Americas. Our strong performance in Asia excl. China was mainly due to India, where we outperformed by 20pp, driven by continued strong market growth in safety content per vehicle, while our China performance was due to more than 40pp outperformance with Chinese OEMs.

Underlying profitability remained strong. Operating income decreased substantially due to previously communicated restructuring activities in Türkiye. Adjusted operating income (non-GAAP measure, see reconciliation table below) increased by 7.3%, despite adverse effects from foreign currency exchange rates and raw material prices, mainly due to well executed direct material cost savings. Operating margin was 6.8% and adjusted operating margin (non-GAAP measure, see reconciliation table below) was 9.6%. ROCE was 17.9% and adjusted ROCE (non-GAAP measure, see reconciliation table below) was 24.9%.

Cash flow was the best for a second quarter so far with operating cash flow improving from $277 million to $434 million, mainly driven by strong underlying profitability and a normalization of working capital. Free operating cash flow (non-GAAP measure, see reconciliation table below) more than doubled to $340 million. The leverage ratio (non-GAAP measure, see reconciliation table below) improved to 1.2x. In the quarter, a dividend of $0.87 per share was paid and 1.65 million shares were repurchased and retired.

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Business and market condition update

Supply Chain

Call-off accuracy improved somewhat compared to the second quarter of 2025, but declined slightly versus the first quarter of 2026, mainly driven by light vehicle market developments in China. Call-off volatility remains higher than pre-pandemic levels. Low customer demand visibility and changes in customer call-offs with short notice continued to have some negative impact on our production efficiency and profitability. We expect call-off volatility for the full year 2026 on average to be slightly improved compared to 2025 but still remain higher than pre-pandemic levels. However, the continued significant uncertainty in the geopolitical environment and future changes in tariffs and trade restrictions may lead to more negative call-off volatility.

Raw material inflation, geopolitical risks and tariffs

Raw material price changes had a negative impact on our profitability in the second quarter, with a gross impact of around $21 million. For the full year 2026, our current assessment is for around $110 million gross impact from higher raw material prices. We expect to be able to mitigate a majority of this headwind, mainly through internal cost reductions, material mix improvements and commercial negotiations with customers and suppliers. Given the continued uncertainty in the geopolitical environment, the effects of tariffs and trade restrictions may lead to a more adverse inflation environment. We continue to execute on productivity and cost reduction initiatives to offset these cost pressures.

The new tariffs imposed in 2025 negatively impacted our profitability in the second quarter of 2026. We achieved customer compensation for more than 80% of the tariff costs, resulting in a net negative impact after compensation of around $7 million, which was in line with the net amount in Q2 2025. Including the dilution effect, the impact on operating margin was around 35bps negative. The recovery of tariffs related to the U.S. Supreme Court's ruling regarding the International Emergency Economic Powers Act had a net positive effect of around $3 million. While it is our ambition and expectation to continue passing tariff costs on to our customers, there is significant uncertainty as future recovery levels may vary. For the full year 2026, we estimate the tariff-related dilution on operating margin will be similar to the around 20bps for full year 2025.

Ongoing geopolitical developments, including the hostilities in and around the Persian Gulf, have added uncertainty into the global economic environment. These conditions may affect supply chains, commodity prices, customer demand, and broader market stability. As a result, our current financial guidance reflects the best information available today but may change should these geopolitical dynamics materially impact our operations or the markets in which we operate.

We continue to closely monitor both geopolitical developments and the tariff policy environment in order to remain agile and to adjust our commercial and operational responses to any such developments.

Autoliv to discontinue manufacturing operations in Türkiye

On May 8, 2026, Autoliv announced an update to its strategy to align production capacity with future EMEA market requirements. As part of this strategy, Autoliv will gradually discontinue its manufacturing operations in Türkiye, which include the production of steering wheels, airbags, and seatbelts, to continue optimizing its manufacturing footprint and ensure long-term competitiveness and operational sustainability. This discontinuation is expected to affect approximately 2,200 employees. Prod

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Important Trends

The discussions and analysis in this section are focused on the Company’s results of operations for the year ended December 31, 2025 compared to the year ended December 31, 2024. Discussions of the Company's results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 can be found in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Form 10-K for the year ended December 31, 2024, which was filed with the United States Securities and Exchange Commission on February 20, 2025.

Autoliv, Inc. (the “Company”) provides automotive safety systems to the automotive industry with a broad range of product offerings, primarily passive safety systems. In the year ended December 31, 2025, a number of factors influenced the Company’s results of operations, including:

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Geopolitical uncertainties and tariffs

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Cost inflation moderated but remains somewhat elevated, especially for labor

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Growth impacted by LVP, shifting OEM landscape and safety content per vehicle

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Order intake impacted by shifts in technology, customer landscape and geopolitics.

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Strategic and structural initiatives

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Continued focus on operational excellence and quality

1) Reported figures impacted by costs for capacity alignments and antitrust related matters. See section Items affecting comparability and Note 13 to the Consolidated Financial Statements included herein.

2) Net of treasury shares.

Geopolitical uncertainties and Tariffs

2025 saw global LVP increase by around 3.9% (according to S&P Global January 2026). Our sales to customers are based on production schedule order quantities and delivery dates that are communicated to us by our customers, which we refer to as “call-off” plans. Despite industry challenges such as chip shortages related to the Nexperia situation and the tariffs imposed in the beginning of 2025, which caused uncertainties regarding costs in the industry, we saw an improvement in call-off volatility in 2025. This improvement supported our improvement in operating efficiency and productivity, including a reduction in direct workforce. However, customer call-off volatility increased in the fourth quarter and remained higher than pre-pandemic levels, and low customer demand visibility and changes to customer call-offs with short notice still had a negative impact on our production efficiency and profitability.

The effects of the new tariffs imposed in 2025 did not have a significant impact on our profitability in 2025, as we achieved customer compensations for more than 80% of tariff costs. Including the dilutive effect of recovered tariffs, operating margin was negatively impacted by around 20 bps. While it is our ambition and expectation to continue passing tariff costs on to our customers, there is significant uncertainty as future recovery levels may vary. Geopolitical developments and the evolving trade environment are likely to continue creating a challenging and unpredictable operating landscape. Any new, increased or modified tariffs or other trade restrictions could materially affect our operations, customer relationships or cost recovery ability as well as contribute to the uncertainty of industry expectations. We continue to closely monitor the tariff policy environment and remain prepared to be agile to adjust our commercial and operational responses to any such developments.

Inflation

Cost pressures from labor, in our own operations and related to our suppliers' labor costs, had a negative impact on our profitability in 2025. Most of the inflationary cost pressure was offset by customer price and other compensations. Changes in raw material costs had a limited impact on our profitability in 2025. The Company expects limited raw material price impact also in 2026. We also expect continued cost pressure from inflation relating mainly to labor, including increased labor costs for our suppliers, especially in Europe and the Americas. The Company continues to execute on productivity and cost reduction activities to offset these cost pressures, and we continue to seek inflation compensation from our customers. The continued uncertainty regarding the effects of tariffs and trade restrictions may lead to a more adverse inflation environment.

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GROWTH IMPACTED BY LIGHT VEHICLE PRODUCTION, SHIFTING OEM LANDSCAPE AND SAFETY CONTENT PER VEHICLE

The most important driver for Autoliv’s sales is the LVP. In 2025, global LVP grew by 3.9%.

The increase in LVP in China of 10% was significantly more than what was expected in the beginning of the year, driven mainly by a multitude of successful launches of new models by domestic Chinese OEMs and in particular by increased exports, mainly to Asian markets. The LVP decline of 1.0% in Europe was impacted by affordability issues and technology uncertainties. The LVP decline of 0.5% in North America was impacted by the EV market development, U.S. tariffs and growing consumer uncertainty, Japan increased by 1.8%, mainly impacted by domestic demand and US exports, supplemented by Japanese OEM production repatriation. LVP in India increased by 7.4%, driven by reduced sales tax on cars and multiple new model launches.

The different LVP growth rates for different regions in 2025 was dilutive to global safety content per vehicle (CPV), as LVP in several high CPV regions declined while LVP increased in some lower CPV regions. The highest CPV region is North America, and its share of global LVP declined by 0.5pp to 15.5%. The second highest CPV region is Europe, and its share of global LVP declined by 1.0pp, to 18.7%. India, a major region with the lowest CPV, which saw its share of LVP increase from 6.5% to 6.7%. CPV in China is below the global average, and China’s share of global LVP increased from 33.7% to 35.7%. Japan’s share decreased to 8.7% from 8.9%. Additional dilution to global CPV came from the difference in growth within China, where lower CPV models and segments grew strongly while higher CPV models and segments growth was limited or negative. LVP growth for Domestic Chinese OEMs with typically lower CPV was 16% compared to global OEMs with typically higher CPV saw LVP decline by 1.3%. Combined with the regional growth differences, we estimate this shift in LVP mix contributed negatively to our sales growth by between 2 to 3 pp. The Company estimates that its global market share was unchanged at around 44% in 2025 compared to 2024.

The strong growth of Chinese OEMs' LVP in both domestic and export markets is a trend the Company expects to continue. It is therefore instrumental to have a solid position with this customer category. Over the past few years, the Company has taken significant steps to strengthen its position with Chinese OEMs through investments in manufacturing and R,D&E capacities, as well as by signing several strategic co-operation agreements with Chinese OEMs. These efforts have supported an improved performance, as shown by a strong order intake, with 30% of the Company's total order intake value in 2025 coming from Chinese OEMs. Additionally, the Company's sales to Chinese OEMs grew by 23% in 2025.

Another important market trend is the rapid growth of the automotive market in India. In recent years, India's significance for the automotive industry has increased substantially. In 2025, LVP in India represented 6.7% of global LVP. As safety content per vehicle has also grown rapidly over the past few years, India's importance for the Company has risen from around 2% of total sales in 2020 to 5% in 2025. Through timely investments in capacity for both manufacturing and R, D&E, the Company is the clear market leader in India.

Despite macro-economic uncertainties in parts of the world, we expect light vehicle markets to grow both in the medium and long term, driven by pent-up end user demand and a growing GDP/capita.

Due to more stringent crash test rating requirements by institutes such as Euro NCAP, increased government regulations and increasing consumer demand for more safety in emerging markets, the Company sees vehicle manufacturers installing more airbags and more advanced seatbelt systems in vehicles. This generally takes place when new models are introduced. The safety standards of vehicles are increasing in China, India, and other growth markets, partially due to new government regulations and crash test rating programs. This is supporting higher installation rates of airbags and more advanced seatbelts, impacting CPV positively. Commercial customer recoveries compensating for increased labor costs and tariffs also added to CPV in 2025, partly offset by negative effects from continued productivity related pricing pressure from vehicle manufacturers. CPV increased in India, South America, South Korea, Europe and North America, was unchanged in Japan and China and decreased in Other Asia. The changes in regional and model mix diluted global CPV by 2 to 3pp leading to a global CPV that was unchanged compared to 2024. This contributed to an organic growth (Non-GAAP measure) of around 3.4% compared to global LVP growth of around 3.9%. The average global safety CPV (airbags, pedestrian safety, seatbelts, and steering whe

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