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Morningstar | Autoliv Poised for Growth in Automotive Passive Safety Technology

Autoliv is well-positioned for growth in vehicular safety content. An ability to innovate and then commercialize technology has helped support profitability and returns. Rising New Car Assessment Program, or NCAP, safety standards will require auto manufacturers to use active safety features to even be considered for a five-star crash-test rating. As consumers in emerging markets become wealthier, demand for safety content should increase. In addition, as roads become crowded and traffic fatalities increase, developing countries may require similar vehicle safety legislation to that required in Europe and the U.S.Autoliv has demonstrated technological leadership. It introduced side-impact air bags, owns around 7% of all automotive safety patents, and spends about 5% of sales on research and development. Additionally, the company has produced returns in excess of its cost of capital nine of the last 10 years. However, growing potential for global overcapacity, industry cyclicality, and capital intensity remain concerns.Slightly more than 60% of Autoliv's work force is located in low-cost countries, compared with about 30% at the end of 2002. We view this as a strategic positive for Autoliv as the firm pursues business in developing markets, leading to a leaner cost structure and enabling the firm to spend larger amounts on research and development without compromising margins. It also positions the company to take advantage of its customers' objective to use more global, common vehicle architectures. We think Autoliv capitalizes on growth from two sources--increasing global demand for new passenger vehicles and increasing safety content. Consumers in emerging markets are becoming wealthier, and are beginning to demand more safety features in their vehicles. While Autoliv spun off Veoneer, which makes active safety products and other electronic devices, on July 2, 2018, we expect the company's passive safety products to become more integrated with active safety as advanced driver assist and autonomous technologies develop.