The decisions a supplier's strategy office exists to make

Most of a supplier's large capital commitments follow from decisions it does not control. When a vehicle maker nominates us for a programme, I treat the volume in the letter as that customer's planning estimate and ask three questions before we spend. At what share of quoted volume does the programme repay the capital dedicated to it? How much of that capital would the customer share if volume fell short? And which other awards rest on the same assumption about demand? Since 2022 every award has reached our board at three volumes: the customer's quote, our own estimate and a low case at half the quote. Most of our new battery-thermal business now carries a shortfall clause under which the customer recovers our unamortised dedicated capital if annual volume falls below 70 per cent of quote. Staging matters as much as terms. We commit buildings in steps, and each step needs a production schedule rather than a forecast.

A North American thermal supplier sells into three powertrain futures at once: combustion engines in long decline, hybrids whose share keeps surprising forecasters, and battery-electric vehicles whose adoption has moved in fits and starts. My work is to decide which products deserve investment under all three, which only under one, and which belong with a different owner. Heating and air-conditioning modules are needed whatever drives the wheels, so we invest in them steadily. Battery cooling is a bet we size carefully. Engine-specific products were the hardest call, and in 2024 we sold them. I keep a simple discipline across the portfolio: each product line has a written view of who would own it best, reviewed every year, so that a sale or a closure is an ordinary decision rather than a crisis. I also insist that hybrid volumes are modelled separately, because they keep combustion content alive longer than most plans assume.

I have bought businesses as a corporate acquirer and as a private-equity operator, and the two taught me different things. Private equity taught me to price an acquisition at mid-cycle volume and to plan the exit before signing. Corporate ownership taught me that integration decides most of the return. When we bought Quenmore Heat Transfer for US$640 million in 2022, I wrote the integration plan to keep its Racine engineering centre and customer teams intact for eighteen months, accepting slower savings because off-highway customers buy engineering continuity. Quenmore kept every one of its ten largest customers. I also run post-transaction reviews: at 24 and 48 months, each deal above US$50 million returns to our Finance Committee with the approval paper beside the actual results. The Quenmore review was uncomfortable, because it found a cost pass-through gap I had missed, and it was the most useful paper of that year.

Tallisford assembles most of its heating and air-conditioning modules in Coahuila and ships them to vehicle plants in the United States, so trade policy is a permanent feature of our strategy rather than a passing risk. I test every footprint proposal against three regimes: today's tariffs maintained, tariffs relieved for qualifying content, and rules tightened after the agreement's joint review. A move that pays under only one regime is a wager on policy. In 2025 that test led us to keep our Mexican module plants and spend US$27 million on supplier certifications, bill-of-materials traceability and North American aluminium sources instead. Documented qualifying content rose from 58 to 91 per cent of shipped module value. I rely on our customs and trade-compliance specialists for the legal detail of origin rules; my contribution is to make the evidence a strategic asset rather than a customs department's filing.

Concentration in our industry has two dimensions: how much revenue comes from each customer, and how many customers share the same assumption. In 2021 our largest customer took 34 per cent of revenue and our three largest 66 per cent, almost all of it in light vehicles. I reduced that dependence by buying into heavy-duty and off-highway cooling, where customers are more numerous and programmes run longer. The price is cyclicality: North American heavy-truck builds can fall by a quarter or more between peak and trough, and Quenmore's 2025 revenue was 17 per cent below its 2023 level. I therefore plan the heavy-duty business on mid-cycle volumes, keep its fixed costs flexible through temporary shifts and shared tooling, and report concentration to the board both by customer and by technology. Seven electric programmes from three customers looked diversified in 2022; they all depended on one view of how fast Americans would buy battery vehicles.