ビステオン（VC）2026年第3四半期決算説明会：保証費用がEBITDAを押し下げ

ビステオン（VC）は、顧客の車両生産台数が減少したものの、2026年第3四半期の売上高成長を報告しました。しかし、特定の2つのプログラムに関連する製品保証費用の計上により、報告された収益性は大幅に押し下げられました。経営陣は通期売上高見通しのミッドポイント（中央値）を引き上げた一方で、調整後EBITDAおよびフリーキャッシュフローのガイダンスを引き下げました。

要点

• 第3四半期の売上高は前年同期比6%増の9億7000万ドルとなった一方、顧客加重平均の車両生産台数は約5%減少しました。価格改定や費用回収の影響を除くと、ビステオンの成長率は市場を約10ポイント上回りました。
• 調整後EBITDAは、無関係な2つの計器盤プログラムに関連する7700万ドルの保証費用を計上した結果、4600万ドル（売上高比4.7%）となりました。これらの費用を除いた調整後EBITDAは1億2300万ドル（売上高比12.7%）でした。
• ビステオンが重要な半導体部品の在庫を積み増し、今後の新製品立ち上げを支援したため、調整後フリーキャッシュフローはマイナス100万ドルとなりました。当四半期末時点のネットキャッシュは1億3600万ドルでした。
• ビステオンは自動車メーカー14社向けに21の新製品を立ち上げ、約10億ドルの新規受注を獲得しました。年初からの累計受注額は39億ドルに達し、経営陣は年間60億ドルの目標を維持しました。
• 通期の売上高ガイダンスは38億ドル〜38億5000万ドルに引き上げられました。調整後EBITDAガイダンスは主に保証費用の計上を反映して3億7000万ドル〜4億1000万ドルに引き下げられ、調整後フリーキャッシュフローのガイダンスも9000万ドル〜1億3000万ドルに引き下げられました。
• 経営陣は、2027年のメモリおよび電子部品のコストが、6月のインベスター・デイで想定していた水準を大幅に上回ると予想しています。利益率（マージン）の低下は見込まれるものの、顧客からのコスト回収やその他の生産性向上策を通じて調整後EBITDAの金額規模を維持することを目指しています。

主要財務データ

事業・営業業績

欧州はビステオンにとって最も堅調な地域であり、売上高成長率は20%近くに達しました。アウディとのパノラミック・マルチディスプレイおよびクラスタプログラム、ルノーとのディスプレイおよびクラスタプログラム、メルセデスとのディスプレイの立ち上げが成長を牽引しました。これらの増収効果は、BMWにおける販売数量減少や既存プログラムの終了による減少分を十分に補いました。

中国を除くアジアの売上高は、マヒンドラでのSmartCoreドメインコントローラーの立ち上げや、ロイヤルエンフィールドおよびTVS向けのデジタルクラスタプログラムが牽引し、約14%増加しました。この成長は、日本におけるマツダ向けプログラムの終了や、インドルピーおよび日本円の通貨安圧力を相殺しました。

中国では、顧客の生産台数が約17%減少しました。ビステオンは中国国内の自動車メーカー向け販売比率の拡大を引き続き進めており、国内メーカー向けが中国売上高に占める割合は前年同期の3割強から約半分に上昇しました。経営陣は、奇瑞汽車（Chery）、吉利汽車（Geely）、上海汽車（SAIC）向けの高性能コンピューティングプログラムの生産拡大に伴い、第4四半期の中国売上高がプラス成長に転じると見込んでいます。

同社初となるSmartCore高性能コンピューティング・コックピット・ドメインコントローラーが、奇瑞汽車の「Freelander 8」で量産開始されました。本システムは10以上の電子制御ユニットを統合し、エッジAI機能を備えています。経営陣によると、本プログラムは受注から量産まで約13カ月で進展しました。

その他の主な製品立ち上げには、BMWの新型「i3」向けコックピット・ドメインコントローラー、アウディ「A3」向けの追加パノラミックディスプレイおよびクラスタコンテンツ、レクサスの新型電動SUV向けドライバーディスプレイが含まれます。また、ビステオンは二輪車向けコネクテッドクラスタやボルボ建設機械向けコックピット・ドメインコントローラーを通じて、隣接市場への参入も拡大しました。

電子部品のインフレに伴う顧客からの純回収額は第3四半期の売上高に約5000万ドル寄与し、前年同期比で約2000万ドル増加しました。これらの回収は当四半期中のメモリコスト上昇分を完全に相殺したものの、プリント基板（PCB）やその他の電子部品の価格上昇により、ビステオンは約1000万ドルのコストリーケージを記録しました。

経営陣のガイダンス

経営陣は第4四半期の売上高を約9億4000万ドルと予想しており、前年同期比でほぼ横ばい、前四半期比で約3%減少すると見込んでいます。顧客の生産台数は約6%減少すると予想されますが、ビステオンは新規製品立ち上げやコックピットコンテンツの拡大に支えられ、市場平均を1桁台半ば上回る成長率を維持すると見込んでいます。

メモリおよびその他の電子部品にかかる追加コストの合計は、2026年売上高の約3.25%に相当すると予想されます。経営陣は、マージン希薄化や未回収コストを含め、通期の調整後EBITDAマージンに対して約85ベーシスポイント（bp）の影響があると試算しています。

2027年について経営陣は、製品ミックス、車両生産台数、サプライヤー価格設定によって最終的な金額は左右されるものの、追加の部品コストが2022年に経験した約5億ドルと同規模になる可能性があると述べました。同社は、パーセンテージベースのマージン低下は回避できないと認識しつつも、顧客からのコスト回収、生産性向上、材料コスト削減策を通じて、当初のガイダンスで想定していた調整後EBITDAの金額水準を維持する方針です。

リスクおよび注視すべき点

• 7700万ドルの保証費用は、無関係な2つの計器盤問題に対応するものです。一方はソフトウェアアップデートでの対応が見込まれ、もう一方は製品交換で対応する予定です。ビステオンは根本原因の修正は完了したと説明しています。
• 規制当局への提出書類には、最大2000万ドルの追加保証費用が発生する可能性について記載がありました。経営陣はこのような費用の発生可能性はあるものの確率は高くなはいとし、現在の引当金は適切であると考えています。
• サプライヤーの市場撤退に伴い、車載用DDR4メモリの供給は2027年に向けてさらに逼迫すると予想されます。ビステオンは想定される需要の相当部分を確保済みですが、追加調達費用の上昇を伴います。
• 高密度プリント基板（PCB）やその他の電子部品は、品不足とインフレに直面しています。経営陣は、PCBの価格圧力について、DDR4からDDR5メモリへの構造的移行と比べれば一時的なものと捉えています。
• 自動車メーカーがメモリ技術や製品アーキテクチャの再検討を行っているため、顧客の選定判断（ソーシング決定）の一部が第3四半期から第4四半期にずれ込んでおり、2027年に及ぶ可能性もあります。
• 在庫購入や最終調達（ラストタイム・バイ）により、2027年初頭のキャッシュフローに偏りが生じる可能性がありますが、経営陣は年間メモリ需要の確保による通期キャッシュフローへの影響は見込んでいません。

アナリスト質疑応答の要点

コスト回収と2027年の収益性：経営陣は、PCB、システムオンチップ（SoC）、その他の電子部品に及ぶ第2波のインフレ影響を回収するため、価格交渉を進めていると述べました。時期のズレにより2026年には一定の未回収コスト（リーケージ）が発生する見込みですが、2027年には追加コストの大部分を回収することを目指しています。

中国市場と高性能コンピューティング：奇瑞汽車（Chery）向けプログラムの生産拡大は計画通りに進んでおり、吉利汽車（Geely）および上海汽車（SAIC）での立ち上げがこれに続く見込みです。経営陣は、中国自動車メーカー、輸出プログラム、およびAI対応コックピットシステムを評価しているグローバルOEMとの間で、更なる機会を見出しています。

新規受注のタイミング：顧客がDDR4アーキテクチャの維持かDDR5への移行かを検討しているため、ソーシング決定に遅れが生じました。経営陣はこれを計画された車両生産の変更ではなく単なる時期の遅れと位置付け、60億ドルの受注目標を維持しました。

OEMの内製化：中国以外の自動車メーカーの間で、コックピットシステムを完全に内製化することの技術的・サプライチェーン的複雑さに対する認識が高まっていると経営陣は述べました。ビステオンはこれが新たなパートナーシップの機会につながると期待しています。

2027年の成長ドライバー：経営陣は、欧州、中国、インド、二輪車、商用車など多岐にわたる分野で成長が分散して実現すると予想しています。大型ディスプレイ、コックピット・ドメインコントローラー、高性能コンピューティングシステムが、ビステオンの車両1台当たりコンテンツ搭載額を引き上げると見込んでいます。

決算説明会の全トランスクリプト

決算説明会の完全なトランスクリプト

経営陣による説明

Ryan Ghazaeri

I'm Ryan Ghazaeri, Vice President of Investor Relations and Corporate Strategy. Welcome to our earnings call for the third quarter of 2026.

Before we begin this morning's call, I'd like to remind you that today's presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and are subject to various risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed. Please refer to the page titled Forward-Looking Statements in our earnings material for more detail. Presentation materials for today's call were posted this morning on the Investors section of Visteon's website.

Joining us today are Sachin Lawande, President and Chief Executive Officer; and Jerome Rouquet, Senior Vice President and Chief Financial Officer.

We have scheduled the call for 1 hour, and we'll open the lines for questions after Sachin's and Jerome's prepared remarks. Please limit your participation to one question and one follow-up.

Thank you for joining us. I'll now turn over the call to Sachin.

Sachin Lawande

Thank you, Ryan, and good morning, everyone. Visteon delivered strong sales growth in the third quarter despite a challenging industry production environment. Customer-weighted vehicle production declined approximately 5 percentage points during the quarter, yet our sales grew 6% year-over-year to $970 million, resulting in approximately 10 percentage points of market outperformance, excluding the impact of memory recoveries and pricing.

During the quarter, we recorded $77 million of specific warranty charges related to 2 instrument cluster programs with separate customers. The charges follow customer decisions made in the quarter and relate to 2 unrelated issues. In one program, we expect to remediate affected vehicles through software updates, and the other through product replacement. The root causes have been identified and corrected and the charges reflect our best estimate of the cost to complete these actions.

As a result of these charges, our adjusted EBITDA for the quarter was $46 million compared with $123 million, excluding the charges. This represents an adjusted EBITDA margin of approximately 4.7% or 12.7%, excluding the charges. While these charges had a significant impact on our profitability for the quarter, they relate to previously delivered products and our underlying operating performance remains strong. We have made good progress recovering higher memory costs incurred earlier this year. As component costs continue to evolve, we're actively working with customers and suppliers to mitigate the impact consistent with the disciplined approach we have followed during prior shortages.

Adjusted free cash flow was neutral in the quarter as we increased inventory of critical semiconductor components in response to emerging parts shortages. We ended the quarter with net cash of $136 million. Beyond the financial results, we continue to execute on the strategic priorities we outlined at Investor Day. We launched 21 new products across 14 automakers, including our first SmartCore high-performance compute program with Chery.

We also secured approximately $1 billion in new business awards, bringing year-to-date bookings to $3.9 billion. Finally, we completed our $200 million accelerated share repurchase during the quarter, marking the first step in executing the capital allocation framework we outlined at Investor Day.

Let me now turn to our third quarter sales performance on Page 3. This slide shows our regional sales performance in what was a challenging production environment in most markets where we operate. Overall, customer vehicle production declined during the quarter, most notably in China, yet our recent launches over the last few quarters enabled us to grow sales and outperform the market. In the Americas, our performance was impacted primarily by lower BMS sales to GM compared with elevated demand in the prior year quarter ahead of the expiration of the EV tax credits.

This was partially offset by the ramp-up of new programs with Ford and Nissan. Europe was our strongest performing region with sales growth of nearly 20%. Our Panoramic multi-display and cluster program with Audi, display and cluster programs with Renault and display launches with Mercedes all contributed to this growth. These more than offset roll-offs and lower volumes on legacy programs with BMW.

In Asia, excluding China, our sales grew approximately 14%, led by new launches of our SmartCore domain controller in India with Mahindra as well as digital clusters on 2-wheelers with Royal Enfield and TVS. The strong performance in India more than offset the roll-off of a Mazda program in Japan and currency headwinds from the Indian rupee and Japanese yen.

Finally, in China, customer production declined approximately 17%, in line with the broader industry, excluding exports. While lower domestic demand is impacting production at all OEMs, international OEMs are impacted more, including Visteon customers such as Volkswagen. While our international OEM customers continue to face lower demand, we are successfully repositioning our China business toward domestic OEMs that are gaining share.

Domestic OEMs now account for approximately half of our China sales compared with just over 1/3 a year ago. This is important as our strategy is increasingly aligned with premium segment brands of Chinese domestic OEMs that are gaining share in that market. With the anticipated launches of high-performance compute systems with leading domestic OEMs, Geely and SAIC, we expect our China sales to return to growth in the fourth quarter.

Overall, the quarter demonstrated that while customer vehicle production declined, our launch execution and diversified customer portfolio enabled us to deliver strong sales growth and position the business well for the fourth quarter and into 2027.

Turning to Page 4. We launched 21 new products across 14 automakers in the third quarter, continuing a year of high launch activity that sets the stage for 2027. The highlight of the quarter shown on the right is the launch of our SmartCore high-performance compute cockpit domain controller on the Chery Freelander 8 in China. The system consolidates more than 10 electronic control units into a single system and brings integrated edge AI capabilities into the cockpit, addressing one of the fastest emerging areas of product differentiation in the Chinese automotive market.

This launch with Chery is the definition of China speed as it represents a first-to-market system on a new fifth-generation Qualcomm chip with a booking to start of production time line of approximately 13 months. The program is following its planned launch ramp with volumes expected to increase in the fourth quarter and through 2027 as additional vehicles are introduced.

With BMW, we launched our cockpit domain controller in Europe on the new i3, one of the first vehicles built on BMW's next-generation electric vehicle platform. This is an important high-volume program for Visteon with launches in additional markets planned later this year, followed by expansion to other BMW models in 2027. Also in Europe, we expanded our Panoramic display and cluster program with Audi through the launch of the A3, adding another vehicle to the successful program that has been an important contributor to our market outperformance this year.

Beyond Europe, we launched a driver display for a new Lexus electric SUV serving the Japanese and North American markets. This is one of the several planned launches with Toyota that we highlighted at Investor Day, supporting our strategy to expand our business with this important customer.

We also continue to expand our presence beyond passenger vehicles with launches of connected digital clusters for Royal Enfield and Honda 2-wheelers as well as cockpit domain controllers for Volvo construction equipment excavators in Korea and China. These programs demonstrate how we are leveraging our proven cockpit technologies to capture growth opportunities in adjacent mobility markets.

Overall, these launches reinforce several important trends. First, our portfolio continues to migrate toward higher-value cockpit computing and display technologies. Second, our high-performance compute business has moved from new business awards into production. And finally, we continue to expand in adjacent mobility segments, supporting a more diversified growth profile.

Turning to Page 5. New business bookings were just under $1 billion during the quarter, bringing our year-to-date total to $3.9 billion. Several significant sourcing decisions that we anticipated in the third quarter shifted into the fourth quarter as carmakers evaluate changes in memory technologies and product architectures. These opportunities remain in our pipeline, although some final award decisions may extend into 2027.

Importantly, we have not seen a corresponding change in the underlying demand for our products. Based on our current pipeline of opportunities and anticipated customer sourcing decisions in the fourth quarter, we continue to target $6 billion in new business bookings for the full year.

Looking beyond 2026, we also see opportunities for new product designs and platform upgrades as customers transition to newer memory technologies, which we expect will further strengthen our pipeline. Our wins in Q3 also support a strategic objective of growing our business with targeted customers in Asia, including Toyota, Maruti Suzuki and Tata Motors.

Furthermore, reflecting the shorter time from award to launch, about half of our Q3 new business awards will launch in 2027 with another 25% launching in 2028. Let me highlight a few of the strategic new business wins from the quarter. First, we secured a cross-car platform display business with a Japanese OEM for its premium brand covering multiple markets. The first launch is in China on an electric SUV in 2027, followed by a global launch on a hybrid crossover in 2028. Visteon is the sole supplier for this product and is well positioned to win follow-on opportunities.

Second, we won 2 display programs with a leading Indian OEM, marking our first display wins with this customer. This OEM has traditionally offered small displays in its vehicles and the move to 12.3-inch and 12.8-inch displays represents a significant shift in its cockpit strategy. These displays go into production in 2028 on 2 vehicles with opportunities to expand to additional models.

We also won a 10-inch center information display for a light-duty commercial vehicle with a North American OEM. The initial launch is for the European market with follow-on opportunities in other regions. And finally, we secured a center display and infotainment system with integrated vision processing across multiple vehicle models with an Indian OEM, further strengthening our position in one of the fastest-growing markets in the world.

The program includes a 10.25-inch display along with a silver box that provides infotainment functions, rearview camera processing and visualization. Overall, our third quarter and year-to-date bookings reinforce the strategy that we presented at Investor Day as we continue to diversify our customer base across Japan, India and non-passenger vehicle markets.

Turning to Page 6. Let me now turn to our outlook for Q4. Demand for our advanced cockpit products remains healthy, supported by recent launches and increasing content per vehicle even as industry vehicle production and component availability remain challenging. Our recent launches, including the Audi cluster and display system, the BMW cockpit domain controller and our Chery high-performance compute program continue to ramp with volumes growing sequentially.

We also have additional launches in the fourth quarter, including high-performance compute systems with leading domestic OEMs in China, a high-volume digital cluster program for a Japanese OEM in the North American market and cluster programs for 2-wheelers in India. Together, these programs are expected to more than offset normal program roll-offs and lower customer production volumes, driving strong market outperformance in the fourth quarter.

Turning to the supply environment, memory and other electronic components have remained tight throughout the year. So far, we have successfully managed these constraints without impacting customer production, working closely with our supply chain partners. However, we are beginning to see greater industry-wide supply headwinds, particularly for memory and printed circuit boards, which could constrain vehicle production in the fourth quarter.

To mitigate these challenges, we have taken several proactive measures. We have entered into strategic supply agreements with memory and printed circuit board suppliers, expanded our supplier base for DRAM and NAND memory and undertaken product redesigns to reduce reliance on constrained components. These actions are already delivering benefits and are helping us maintain supply continuity, positioning us to finish the year with meaningful growth-over-market.

Looking ahead to 2027, we expect memory costs to exceed the assumptions we outlined at Investor Day in June. We have made significant progress securing additional memory supply through strategic agreements with established suppliers and commitments from new suppliers. These actions have substantially improved our visibility into memory availability for next year, although this additional supply is coming at higher costs. We are actively working with our customers to address these increases and expect to provide greater clarity when pricing and commercial discussions progress as we are still finalizing pricing with suppliers.

Jerome will provide our current planning assumptions at the end of our presentation based on the visibility we have today, but ultimately, the financial impact will depend on product mix, customer production volumes and our commercial arrangements with customers.

Turning to Page 7. Let me conclude by summarizing what we accomplished this quarter. First, we delivered strong market outperformance of approximately 10 percentage points, driven by some high-value product launches with OEMs, primarily in Europe and Asia. Second, we maintained commercial and operational discipline in a difficult supply environment. We are working on securing the components we need to support our customer demand while working to offset cost increases through recovery agreements.

Third, our growth pillars continue to build momentum. We launched new next-generation products in China, India, 2-wheelers and commercial vehicles as well as global programs with our Japanese customers. And finally, we completed our $200 million accelerated share repurchase program, continuing to execute the capital allocation framework we outlined at Investor Day.

Overall, this quarter provided another proof point that the strategy we outlined at Investor Day is translating into market outperformance. We're addressing near-term operational challenges while continuing to execute our growth strategy with a strong pipeline of product launches and new customer opportunities heading into 2027.

With that, let me turn the call over to Jerome, who will review our financial results in more detail.

Jerome Rouquet

Thank you, Sachin, and good morning, everyone. Our third quarter results reflect 3 key themes: first, strong sales growth and launch execution; second, resilient underlying profitability despite 2 distinct warranty charges and the timing of some customer recoveries; and third, deliberate working capital investments in inventory to improve supply chain resilience and support upcoming launches.

For the quarter, sales were $970 million, up 6% from the prior year. We delivered growth-over-market of 10% relative to customer-weighted production, driven by strong launch execution, most notably in Europe and India. Adjusted EBITDA was $46 million or 4.7% of sales, including approximately $77 million for 2 specific warranty-related charges Sachin mentioned earlier.

Excluding these charges, adjusted EBITDA would have been $123 million or 12.7% of sales compared with 12.1% in the second quarter. This demonstrates the resilience of our underlying performance despite additional inflation pressures beyond memory, mostly in PCBs and other electronic components for which customer recoveries are still being negotiated.

Adjusted free cash flow was almost breakeven for the quarter. Cash flow performance reflected our deliberate decision to build inventory to secure more strategic supplies, increase safety stocks of selected components and support upcoming product launches. At the same time, we continue to execute our capital allocation priorities. During the quarter, we completed a $200 million accelerated share repurchase program and paid $9 million in dividends, returning a total of $209 million to shareholders.

We have now returned approximately $0.5 billion to shareholders since our 2023 Investor Day in the form of share repurchases and dividends. We ended the quarter with net cash of $136 million, the target outlined at our June Investor Day. Overall, the quarter demonstrated strong market outperformance and launch execution, resilient underlying profitability and disciplined deployment of our balance sheet while being able to manage near-term cost pressures and withstand working capital pressures.

Turning to Page 10. Sales for the quarter were $970 million, up $53 million or 6% from the prior year. It is now the second quarter this year that Visteon posted absolute year-over-year growth. Q3 customer-weighted production declined approximately 5% with the most significant decline in China. Against that backdrop, we delivered growth-over-market of 10%, excluding pricing and recoveries.

This outperformance was driven by the continued ramp-up of recent launches with Audi, Renault, Nissan and Mahindra, partially offset by lower BMS volumes with GM and the roll-off of certain legacy programs. Net customer recoveries for electronic cost inflation, including both legacy cost and 2026 inflation contributed approximately $50 million to sales, a year-over-year increase of approximately $20 million, more than offsetting normal pricing reductions.

Adjusted EBITDA was $46 million or 4.7% of sales, including approximately $77 million for 2 specific warranty-related charges highlighted earlier. Excluding these charges, adjusted EBITDA would have been $123 million compared with $119 million in the third quarter of 2025, demonstrating the resilience of Visteon's underlying performance. The year-over-year EBITDA bridge reflects higher volumes from recent launches, customer commercial recoveries, operational efficiencies and lower accruals for incentive compensation. These benefits were offset by elevated warranty charges, higher supplier costs and negative exchange rate impacts.

Inflation-related recoveries remain an important driver of our 2026 results. In the third quarter, customer recoveries fully offset memory cost increases, consistent with the progress reported in Q2. However, we incurred approximately $10 million of cost leakage from a second wave of inflation in PCBs and other electronics-related components that began in the second quarter. We are actively negotiating with customers to recover these costs along with ongoing memory inflation. Overall, the quarter reflects strong growth-over-market performance and launch execution, resilient underlying profitability, excluding the specific warranty-related charges and continued progress on recoveries and cost initiatives.

Turning to Page 11. Adjusted free cash flow was negative $1 million in the quarter and negative $4 million for the first 9 months of the year compared with $215 million in the same period last year. The year-over-year decline primarily reflects 3 factors: lower underlying earnings, a deliberate investment in working capital to strengthen supply resilience and support launches and the timing of cash taxes and other annual payments.

First, year-to-date adjusted EBITDA was lower by $116 million compared to the prior year period. This primarily reflects $77 million of 2 specific warranty charges taken in Q3, which did not impact cash this quarter, cost inflation and the timing of customer recoveries as well as nonrecurring commercial items that benefited prior year. Second, trade working capital was a use of cash of $99 million year-to-date. Inventory increased as we built safety stocks of critical components, absorbed higher component costs and supported upcoming launches.

This is a deliberate investment to improve supply chain resilience as the supply of certain components, including memory and other electronic components is tightening while costs continue to rise. Receivables also increased due to higher sales and the timing of certain customer collections, which we expect to improve in the fourth quarter.

Third, cash taxes were $14 million higher year-over-year, including the onetime settlement in India related to prior years that we discussed in the second quarter. As in prior years, first half cash flow also included the annual incentive compensation payments. Finally, year-to-date capital expenditures were $103 million, reflecting continued investment in new program launches, vertical integration and capacity expansion in India and other growth markets.

We ended the quarter with net cash of $136 million after returning $209 million to shareholders this quarter. This included the completion of our $200 million accelerated share repurchase by quarter end, which reduced outstanding shares by approximately 2 million or 7.5%.

Turning to Page 12. We are updating our full year guidance to reflect our year-to-date performance, integrating our strong sales performance, the 2 distinct warranty-related charges discussed earlier and our current outlook for component inflation and inventory. We now expect sales to be between $3.8 billion and $3.85 billion, with the midpoint being $25 million above where we were trending to in the second quarter.

This outlook reflects our year-to-date performance, successful third quarter launches and confidence in our strong fourth quarter launch cadence. Key launches include displays with several of our fastest-growing OEM customers and the continued ramp-up of our high-performance compute programs in China. These benefits are partially offset by softer customer production.

Overall, for the full year, we expect sales to grow low single digits year-over-year, resulting in growth-over-market in the mid-single digits. For adjusted EBITDA, we now expect $370 million to $410 million compared with our prior range of $455 million to $495 million. The revised outlook primarily reflects the $77 million warranty-related charges highlighted earlier. As discussed in the second quarter, inflation initially concentrated in memory has broadened to other purchased electronic components, and we now anticipate that these combined incremental costs will represent approximately 3.25% of total sales for the full year.

We're in active negotiations with our customers to recover these costs. However, we do not expect to fully offset these cost pressures in 2026, largely due to recovery timing. The estimated margin impact to our full year EBITDA represents approximately 85 basis points of margin, including dilution and leakage. Elevated memory and other component costs are projected to continue in 2027, and while vehicle volumes, content decision, supply dynamics and other factors will drive the ultimate cost based on current visibility, we anticipate additional costs in 2027 to be similar to the levels we saw in 2022.

As a result, given the higher cost levels we now anticipate, both the associated recoveries and the resulting margin dilution are expected to be greater than what we had assumed in June. As mentioned by Sachin, we continue to be actively engaged with our suppliers and customers, and we will be providing an update in February 2027.

Turning back to Q4 2026. Even with these headwinds, we expect margins to improve in the fourth quarter, supported by additional customer recoveries and the continued ramp-up of cost initiatives across product, vertical integration and engineering productivity. For adjusted free cash flow, we now expect $90 million to $130 million compared with our prior range of $170 million to $210 million.

The revision primarily reflects higher inventory as we secured supply of critical components with our customers, along with the timing of customer collections for cost inflation recovery agreements expected to be finalized in the fourth quarter. We continue to expect strong fourth quarter cash generation driven by higher EBITDA and a cash inflow from working capital, mostly as a result of collections for receivables and customer recoveries.

Turning to Page 13. Visteon remains a compelling long-term investment opportunity. We are well positioned for long-term top line growth, margin expansion and free cash flow generation, while our strong balance sheet provides us with significant flexibility to pursue our capital allocation priorities.

In summary, the third quarter reflects a strong growth-over-market in a challenging production environment. We remain confident in the long-term opportunity ahead as we execute on the plan that we outlined in June.

Thank you for your time today. I would like now to open the call for your questions.

Operator

[Operator Instructions] Your first question comes from Mark Delaney with Goldman Sachs.

質疑応答

Mark Delaney

Yes. I guess maybe first to level set a bit on the 2026 top line outlook. The company raised the midpoint by $25 million. I think there's higher pass-throughs now assumed, but you also have mentioned some softening, I believe, in the underlying business. Maybe put a little bit more detail around how big some of those different buckets are. And then to the underlying business and some of the softening, is that something that's more temporary in nature or you think potentially sustain into next year?

Sachin Lawande

Mark, yes, this is Sachin. I'll take that question first. So what we are seeing here is some volatility in production call-outs from some of our customers related to component shortages, not related to Visteon, by the way. And so we are -- we have taken that into account as we are looking at our outlook for Q4. If those component shortages could be addressed and if the customers are able to recover that production this quarter, then we may have some tailwind in terms of what we have currently given as our outlook.

Jerome Rouquet

And maybe, Sachin, to add some color on Q4 numbers. So we've put in our guidance close to $940 million in sales. That's fairly flat year-over-year and sequentially down by 3%. And our production -- customer production is expected to be down by approximately 6% and our growth-over-market will still be overall in the mid-single digits. So it's still a very good performance despite these comments from Sachin. We see very strong launch cadence, including the HPC in China. And we have also these new launches with Geely and SAIC over there. So overall, a pretty strong performance, which allows us to finish the full year on a strong note.

Mark Delaney

Understood. My other question was better understanding the company's ability to recover costs. And given what you're seeing in 4Q and at the stage for '27, can you share more detail on how the conversations with OEMs are going at least qualitatively? And are you seeing any change in how willing they are to pay for the supply at now higher costs? And has that changed relative to what Visteon was able to recover over the last several years?

Jerome Rouquet

Yes. And I'll take that, Mark. We've seen, as you know, earlier this year, a lot of cost increases on the memory side. And we've done a very good job in recovering [ at least ] at the end of Q3. So we are pretty much set on that side. What we've seen, unfortunately, has accelerated since Q2 is inflation on other, what I would call, electronic components, PCB and even SoCs. And these costs have developed quite fast in Q2 and have accelerated as well in Q3.

So we've obviously started negotiation with customers for what we call a second wave of cost increases. And we are very committed to recover the large majority of these. But given the timing, we do think there's going to be some level of leakage in 2026. And we have, therefore, assumed that our guidance would be lowered as a result of this leakage. But generally, very committed. We also started to talk to our customers on cost increases and recoveries for 2027. And that's where we are in terms of status with customers.

Operator

Your next question is from Andrew Percoco from Morgan Stanley.

Andrew Percoco

Yes. So maybe just to pick up where you just kind of left off there on the cost side of the equation. I'm just curious if you can maybe double-click on the bridge to 2027 relative to maybe what you guided to with your Investor Day outlook. Obviously, some incremental pressure here on the cost side of the equation. You gave some interesting data points in your prepared remarks around cost structure relative to, I think, 2022. But can you maybe just remind us what that could mean and just maybe provide some more numbers around the bridge to 2027?

Sachin Lawande

Yes. Let me start maybe first with just describing how we see the cost develop. There are really 2 parts to the cost. One is the memory and the other is the other electronics components that Jerome mentioned. Let me first address the memory topic because I think besides just the cost, I think it's important to understand where the industry is at with the sourcing of memory, where Visteon is at and what we then think of the cost.

So just taking a step back, DDR4 supply is more constrained next year than it is this year. And we are already starting to see some constraints build in the fourth quarter. And the main reason for that is that some suppliers have exited the market for DDR4 for auto.

Now as we look at 2027, the first challenge is to secure sufficient supply to meet the anticipated customer demand. And we have, in that regard, made significant progress as we started to address this challenge early in the year, working with our established suppliers while also qualifying additional new suppliers. So what we can say is that for the 2027 anticipated demand, we believe that we have secured the substantial portion of that demand already through this combination with strategic supply agreements plus commitments that we have from these suppliers.

Now in terms of cost, we expected the cost to go up, as we indicated on our Investor Day, and that cost for DDR4 memory in particular, has continued to see significant upward pressure this year, and we expect that to continue into next year. And especially as we talk about the additional new suppliers that we are bringing on board to complement the supply that we have from Micron.

I should mention though, it's still in the process. We are working on it as we speak to finalize pricing with Micron and other suppliers. So it would be premature for us to give you exact to quantify it more precisely. And what we've said is in combination with the other electronics components, PCBs in particular, but also some other components, we believe that the cost increase is going to be in the range of what we saw in 2022.

If you go back to that year, it was roughly $500 million of incremental cost that we saw back at the time. And we believe that it's going to be somewhere in that range. It will depend on the content mix at our customers as well as plus production volumes. So these should only be taken as very indicative -- I would say just a range that you should take as indicative of what we think is the likely outcome. Anything more to add, Jerome?

Jerome Rouquet

I would add as well that we are essentially from a size standpoint back to what we saw in 2022. And we've demonstrated at the time, and I think also recently that we're able to recover these kind of costs. Obviously, the fact that these costs are so large, it's becoming -- it will become imperative to recover. So our objective for 2027 will be to maintain our EBITDA dollar per our original guidance. There's going to be obviously some dilution on the margin percentage, but we want to keep the dollar intact. That's the objective for next year.

Andrew Percoco

Okay. That's super helpful commentary. And then maybe just to follow up on China. I think, obviously, the market continues -- the domestic market continues to be quite weak. I know you guys in the past have talked about how you're a little bit more insulated just given your tilt towards the premium end of the market. But can you just maybe provide more context in terms of what you're seeing in China on the demand side as well with exports? And if there's been any maybe change in timing on some of the HPC launches, just given some of the weakness that we've seen in the market?

Sachin Lawande

Yes. Yes. Thank you. So as you mentioned, the domestic market in China is, I would say, even more than ever driven by tech content and AI in the cockpit is emerging as one of the biggest areas of product differentiation. And with the launch that we just had with Chery on the Freelander, we're really encouraged by the level of interest that we are seeing from other OEMs in addition to the 2 additional OEMs that we are going to launch in Q4. Experience that we have gained in launching this first program is obviously helping us in making our technology platform that much more mature.

It also allows us to demonstrate this technology to the other customers. So we see really 3 distinct opportunities for expansion. One is these additional Chinese OEMs that we are now able to demonstrate and have constructive discussions about how we can accelerate their own plans to bring AI in the cockpit. And the second is with the 3 customers that we are working with, Chery, we talked about SAIC and Geely, who -- we are in the process of launching with as we speak, helping them take AI to their export markets, in particular initially for Europe.

And the third are global OEMs that are evaluating AI for the next-gen cockpits. All those 3 are in active discussions at this stage, various stages of maturity. And I believe that this is going to be a really important long-term growth driver for Visteon, not just in China, but also outside of China.

In terms of the volumes that we are seeing, I would say that the Chery program is following its launch volume plan as they have indicated to us initially. And there are more vehicles coming online next year, and we'll have to see how they perform in the market. But I think this is a trend that we believe is kind of irreversible in terms of that market for sure. And we see a lot of good signs that it will likely also come into other markets outside of China.

Operator

Your next question is from Shreyas Patil with Wolfe Research.

Shreyas Patil

Maybe following up on the prior comment, Jerome. Just wanted to understand some of the tools that you would have to maintain the EBITDA target for 2027, given the amount of inflation that you're talking about, which I believe would be almost 3x higher than what had been discussed previously. Are there self -- are there fixed cost reductions that you can implement? Are there reductions to R&D spending? I'm just trying to think through some of the internal actions that you could take alongside recoveries.

Jerome Rouquet

Yes. So my comment was mostly oriented around recoveries and the fact that we would maintain our EBITDA by recovering essentially the amount of cost that we are incurring with minimal leakage. That's essentially where my comment was. Now as we go into next year, there's going to be a lot of puts and takes and we'll be obviously looking at productivity, material cost -- other material cost benefits, commercial recoveries. So there's a handful of tools that we'll be using, obviously, to make sure that our EBITDA dollar amount stays untouched.

Sachin Lawande

One more comment I would like to add to what Jerome has just said. We do need to understand that the memory change that has happened is a structural change. It is not an increase that we expect just to impact the industry for 1 year, right? It is going to shift away from DDR4 to DDR5, and that's going to come at a higher cost. So as we go forward, the way to think about it is that the industry across both suppliers and the carmakers have to just accept this as the cost of doing business going forward.

So we fully expect that we'll be able to recover all of that incremental cost. And yes, the costs may moderate as we go further beyond 2027. But for 2027, there is no option other than to use this DDR4. We will have greater flexibility as we go forward to have greater mix of DDR5, but the costs are not going to go back to the 2025 levels. We are seeing a very significant shift and the industry will just have to come to us with it. And therefore, it will be really embedded in our cost of the product.

Shreyas Patil

Okay. And maybe on the other parts of the inflation, PCBs, other electronic components, do you see that as also kind of structurally higher? Or is some of that just a function of higher copper prices or some other input materials?

Sachin Lawande

Yes, it is different. I think in that particular case, it is a timing issue. There is a shortage of some specific components that go into making of the high layer PCBs. In fact, you can think of the PCBs as essentially having much higher density, which are affected by the shortages, and that's where we see the higher prices. And then the more normal automotive PCBs are not quite affected the same way. We expect that to correct as more supply comes online. So that may be more of a 2027 issue than the memory topic.

Shreyas Patil

Okay. Great. And just a quick last one. Any thoughts on free cash flow? Just this year, obviously, partly impacted by inventory building. Do -- should we assume that, that's kind of largely completed in '26? Or any -- or does that carry also into '27?

Jerome Rouquet

Yes. We'll still see some level of last time buy next year that will probably put some strain early in the month -- in the year -- in the early month of next year. But for the full year, at this point, we -- and obviously, we'll give more updates in February 2027. But at this stage, we are comfortable with what we have for 2027.

Sachin Lawande

Just to give more color to what Jerome said. So there has -- we buy different memory chips, 25-plus in DRAMs alone and then NAND. And some of those chips are essentially going out of production. And so we are securing our 2027 supply by buying the full year's demand, and that requires some cash outlays early in the year. Obviously, we will recover that through the year. And for the full year, it was not going to have an impact on the cash flow, but it will be lumpy on account of this dynamic.

Operator

Your next question is from Rajat Gupta from JPMorgan.

Rajat Gupta

I wanted to follow up on the new business wins target for the year. It looks like you were suggesting that there has been a pushout of certain programs, but you're still reiterating the $6 billion guide for this year. I'm curious, are there like certain wins that we might have anticipated next year that's being pulled forward? Just want to make sure I'm understanding those comments clearly and I have a follow-up. Yes.

Sachin Lawande

Good. Good. So essentially, what happened in Q3 was on account of this memory topic, as you can imagine, as carmakers are looking at the next generation of their cockpit systems. Previously, they were on a product architecture that still relied on the old DDR4 memory. Now they have to take into consideration what they want to do in this interim period, whether they stay on DDR4 or go to DDR5, which comes with other implications such as what is the micro that is associated with the memory.

So that in short becomes a bigger product architecture decision. So that has caused some delays in timing. It's important to understand that these are, again, timing delays, not necessarily the same thing as the vehicle -- planned vehicle production delays, which should not be linked. And we continue to pursue those opportunities and are part of our new business pipeline in Q4.

On top of that, one thing that I would also like to highlight is because of this dynamic with memory, this shortage situation and this need to shift to more favorable architectures in terms of supply, that's creating additional opportunities that were not part of the pipeline when we started the year. So we're going to see a lot of dynamic changes that will happen in the industry from that perspective. And with our platform approach, our speed of delivery and our ability to launch products quickly, I think we are in a great position to capitalize on what we see as this opportunity that will arise for new business wins as we go forward.

Rajat Gupta

Understood. That's clear. And I just wanted to also follow up on just latest thoughts on the whole in-sourcing debate. Clearly, a couple of the major North American manufacturers are going to come up with their new software-defined architectures in the next couple of years. Curious where you are in discussions with them on potentially partnering in certain areas. And you'd hinted at maybe on displays or other areas. But -- and then also in China, just hearing from the major manufacturers there, there is still a push to in-source. So I'm curious if anything has changed around how you view the HPC penetration opportunity in the region as well.

Sachin Lawande

Yes, there has been, I would say, an increasing realization at OEMs. And we should separate China from the Rest of the World and more, now this comment is regarding OEMs outside of China. There has been a greater awareness of the complexities of what we're talking about here with not only the underlying technologies complexity increasing, the supply chain-related complexity is also starting to impact the OEMs realization of the challenges in bringing everything in-house.

And therefore, we believe that in this memory situation and other supply situation that have arisen that this will drive even a bigger need for OEMs to balance what they do in their internal development versus what they do working with suppliers, right? And so we are starting to see this already. This dynamic is starting to now play out where they are -- they were initially trying to in-source everything. They're now starting to work with us to understand how we can help them mitigate these challenges.

And I think this is only going to become a bigger issue as we go forward. And when you think about Visteon, right, we have great cost structure, I would say, best-in-class cost structure. We have, in terms of our ability to source semiconductors, perhaps the best abilities amongst our peers. We are in a great position to help them navigate this near-term challenges, and that will help us establish a better relationship, that balance between what they do internally versus what they rely on us for. And I think this will create more opportunities for us.

Rajat Gupta

And then on the China piece.

Sachin Lawande

Yes. And with respect to China, so here's the piece that I would like everyone to understand, right? So the biggest opportunity for China OEMs right now is not within China. The market is incredibly competitive, and that will be the case as we go forward. Their biggest opportunity is exports. And Visteon is very well positioned to support them in large portion because of how successful we are in China, helping them with their HPC systems, right?

So in China, the CVC is essentially old technology now, the cockpit domain controllers. And where we are at now is AI into the cockpit. There are not too many players outside of China that have the capability that we have when it comes to HPC and AI to support their export ambitions. And we are starting to really focus on that as a business opportunity for Europe and for South America. So I feel like we are in a pretty good spot with respect to our replacement in China. If there -- we understand the overall market pressures there, but we have a very specific strategy that is able to capitalize on what we can help them with.

Operator

Your next question is from Dan Levy with Barclays.

Dan Levy

Maybe we could just quickly start with just a question on the warranty expense. And I know you mentioned that there was a couple of issues here, and one is sort of through an OTA, the other, there's a product replacement. I think the Q mentioned it could be up to an additional $20 million of charges. But maybe if you could just double-click and what is the confidence that these charges are limited? And after this, this is a full [indiscernible] into 2027?

Jerome Rouquet

Yes. I'll comment on the $20 million. So we've booked $77 million in the quarter, and we believe that this addresses both issues. We had a range of cost for one of the claims, and we recorded our best estimates. We do not anticipate additional costs. But as additional costs could be possible, not probable, we were required to disclose the top end of the range. So that's why in the Q, you have this mention of the $20 million. But to be clear, we believe that we are currently accrued at the right level for these warranty items.

Dan Levy

Okay. And into 2027, so your view is that this is a full non-repeat, these were sort of very isolated incidents and there's nothing sort of more broadly that's going on, just to confirm that.

Jerome Rouquet

There's 2 warranty claims occurred in the quarter. We've got corrective measures in place, and we do not anticipate additional charges for that.

Dan Levy

Okay. The second question is just on trying to extrapolate what we saw in the third quarter, which was actually quite strong, especially in Europe and rest of Asia. And I know you gave some targets at the Investor Day a few months ago, and I'm not going to pin you down on updating your 2027 outlook. But the Investor Day commentary did show that sort of inflection in growth. So I'm just wondering how much can we extrapolate what we just saw in the strong third quarter, Europe, rest of Asia. You continue to see China doing better. How much does that support your view that we're going to see some growth inflection in 2027, even if the number, you'll fine-tune it when we get to fourth quarter earnings?

Sachin Lawande

Yes. So I would say, Dan, that if you look at 2027, our growth is actually quite diversified. Yes, passenger cars, which has been primarily the drivers this year, will continue to grow on account of the launches, mostly in the regions that we have been discussing, which is Europe. China is going to return to growth on account of the launches there. And India continues to be a very strong market for us. So in addition to that, we have some very high value and high volume 2-wheeler launches that are going to be coming online next year as well as commercial vehicles.

So coming back to the topic that you asked about Europe and what's driving it. I think we have discussed this before, but just to reiterate, Europe is where we are seeing a lot of demand for our display systems and cockpit domain controllers.

We talked about one launch in Europe this quarter. There is another cockpit domain controller that's launching next year. That's also very high value. The combination of large displays, cockpit domain controllers and the pressure that the OEMs there face on account of the competition from China, we expect to see content continue to grow. So yes, there is the market share loss of our OEMs with the Chinese OEMs. That, however, on the other side, helps us in driving greater content.

But as I just mentioned on the previous comment that we fully expect to be able to do business with the Chinese OEMs in Europe. So net-net, we expect to be able to exploit what's available to us as opportunities in Europe. And Europe is going to be where the content growth will be the greatest on account of the competitive dynamics outside of China.

And after that, we see similar dynamics in India with respect to content growth. So I think fundamentally, right, where we see the demand for our products remain really strong. And that's continued this year. This is why Q3 has been so strong and Q4 also will be very strong. So I think what we talked about on our Investor Day, we are starting to see exactly that play out, and we're very happy to see that despite the industry having challenges that we are able to execute to our plan.

Ryan Ghazaeri

All right. Thank you. This concludes our earnings call for the third quarter of 2026. Thank you for participating in today's call and your ongoing interest in Visteon.

Operator

This concludes Visteon's third quarter 2026 results earnings call. You may now disconnect.